ATandT's Q2 Profits Fall as Wireless, Smartphone Sales Rise

AT&T experienced a 10 percent drop in profits for its second quarter of 2011 despite a rise in smartphone sales-both Apple iPhone and Android-based devices.

AT&T saw a dip in its second-quarter profits despite registering more wireless subscriptions than anticipated and experiencing an overall boost in smartphone users, including Apple iPhone and Google Android users.

For the quarter ended June 30, AT&T's revenue totaled $31.5 billion, up more than $680 million, or 2.2 percent, versus the year-earlier quarter. However, the company's second-quarter 2011 net income totaled $3.6 billion, which-compared with net income of $4 billion for the second quarter of 2010-marks a decrease of 10 percent.

"We delivered another strong quarter, capping a solid first half of the year," Randall Stephenson, AT&T chairman and chief executive officer, said in a statement. "Mobile broadband growth continues to be robust, and we are seeing encouraging signs in wireline revenue. This adds to our confidence as we look ahead."

Led by continued strong performance in mobile broadband in the second quarter, AT&T delivered solid growth in its wireless business, including strong revenue growth, record second-quarter smartphone gains and strong net adds, including postpaid and branded computing devices.

In a videotaped statement, John Stephens, senior executive vice president and chief financial officer at AT&T, said, "We're real pleased about our growth in wireless and our growth in that. And we're pleased from a number of different areas. First and foremost, we added over 1 million customers this quarter. We had very solid performance for customer additions. And we had positive customer gains in all of our categories, whether they be postpaid, reseller, wholesale or connected devices." Stephens added that the mobile data business is "expanding extremely fast."

AT&T posted a net gain in total wireless subscribers of 1.1 million, to reach 98.6 million in service, the company reported. This included gains in every customer category. Net adds for the quarter include postpaid net adds of 331,000. Excluding the impacts of the Alltel and Centennial integration migrations, postpaid net adds were 504,000. Prepaid net adds were 137,000, connected device net adds were 379,000 and reseller net adds were 248,000. Second-quarter net adds reflect adoption of smartphones, increases in prepaid subscribers and sales of tablets and connected devices such as automobile-monitoring systems, security systems and a host of other products.

"Mobile broadband with IP infrastructure and cloud services are transforming our industry and are creating unprecedented opportunity," AT&T's CEO Stephenson said in a statement. "AT&T is strongly positioned to lead in this new era. Our planned acquisition of T-Mobile USA will accelerate development of next-generation capabilities, and it will lay the groundwork for continued high-tech innovation for years to come."

During a July 21 call with analysts announcing the company's Q2 earnings, AT&T officials said they expect the acquisition of T-Mobile to close in the first quarter of 2011, despite the deal having run into an extended Federal Communications Commission review and opposition from a high-ranking Senate Democrat.

AT&T delivered robust smartphone sales. In the second quarter, 5.6 million smartphones were sold, a second-quarter record and the third-highest quarter ever, AT&T said. Smartphone sales also increased more than 43 percent year-over-year. Sales of non-iPhone smartphones more than doubled year-over-year. Nearly 70 percent of postpaid device sales were smartphones. During the quarter, 3.6 million iPhones were activated, the company said.

In addition, Stephens said AT&T sold about 2.3 million non-iPhone smartphones-primarily Android-based phones-during the quarter.

Moreover, AT&T had a record quarter with branded computing subscribers, a new growth area for the company that includes tablets, aircards, MiFi devices, tethering plans and other data-only devices, the company said. AT&T added 545,000 of these devices to reach 4.0 million, nearly twice as many in service as a year ago. Most of those new subscribers were tablets, with 377,000 added in the quarter, of which 30 percent were postpaid, company officials said.

And at the end of the quarter, 49.9 percent of AT&T's 68.4 million postpaid subscribers had smartphones, up from 35.8 percent a year earlier, the company said.

Meanwhile, total wireless revenue, which includes equipment sales, rose 9.5 percent year-over-year to $15.6 billion. Wireless service revenue increased 7.4 percent, to $14.2 billion, in the second quarter.

In addition, wireless data revenue-driven by Internet access, access to applications, messaging and related services-increased more than $1 billion, or 23.4 percent, from the year-earlier quarter to $5.4 billion, AT&T reported. And AT&T's postpaid wireless subscribers on monthly data plans increased by 19.5 percent over the past year. Versus the year-earlier quarter, total text messages carried on the AT&T network increased by 24 percent to 190.8 billion, and multimedia messages increased by 54 percent to 4.0 billion.

Driven by strength in IP data services, revenue from residential wireline customers totaled $5.4 billion in the second quarter, AT&T said. Compared with the second quarter of 2010, consumer wireline revenue increased 0.1 percent, the company said.

Signaling varied demand from customers, AT&T U-verse TV added 202,000 subscribers to reach 3.4 million in service, the company said. In the second quarter, the AT&T U-verse High Speed Internet attach rate continued to run above 90 percent and 55 percent of new subscribers took AT&T U-verse Voice. AT&T's U-verse deployment now reaches 29 million living units.

And AT&T U-verse High Speed Internet delivered a second-quarter gain of 439,000 subscribers to reach a total of 4.1 million, helping offset losses from DSL, AT&T reported. At the end of the second quarter, AT&T had 16.5 million total wired consumer broadband connections, up 3.3 percent over the past year and down slightly from first-quarter 2011 levels, largely due to seasonality, the company said.

Finally, AT&T saw a drop in revenue from business customers. Total business revenues were $9.3 billion, declining 0.3 percent sequentially and down 4.1 percent versus the year-earlier quarter, AT&T reported. The year-over-year decline reflects economic weakness in voice and legacy data products somewhat offset by growth in IP data, AT&T officials said.