AT&T Hits Record Smartphone Sales in Q4, But Loses $3.9 Billion

AT&T sold 10.2 million smartphones during the quarter—most of them iPhones—but was hampered by subsidies, pensions and Sandy.

AT&T in the fourth quarter of 2012 saw record smartphone sales and 780,000 contract subscribers, but was hurt by continuing issues around its employee pension program and costs associated with Superstorm Sandy.

Officials with the No. 2 wireless carrier said Jan. 24 that AT&T generated $32.2 billion in revenues, but still lost more than $3.9 billion for the quarter, though it was much narrower than the $6.7 billion the company lost in the fourth quarter of 2011.

Despite the loss, Chairman and CEO Randall Stephenson told analysts and journalists that he was encouraged by what he saw in the quarter and that the company plans to move aggressively in 2013 with such initiatives as its Project Velocity IP (VIP) and U-verse TV, Internet and phone service. The company also will continue pushing for more spectrum, the lifeblood of wireless carriers as they compete to expand broadband services throughout the country.

The company expects to bring its 4G Long Term Evolution (LTE) service to 300 million customers by the end of 2014, he said.

AT&T also will continue to drive sales of smartphones and other mobile computing devices, Stephenson said. The company sold a record 10.2 million smartphones during the last three months of the year, with the bulk of those—8.6 million—being iPhones from Apple, which is both good and bad. The numbers are high, but because of the subsidies AT&T pays to Apple, the carrier’s bottom line is hurt.

Stephenson said the company saw a surge in sales of smartphones running Google’s Android mobile operating system, but those devices still were a small percentage of AT&T’s overall smartphone revenues. In answering a question, the CEO said he was interested in seeing how a plan by smaller rival T-Mobile to offer smartphones to consumers on installment plan works out. Such a plan could mean AT&T paying smaller or no subsidies on the smartphones it sells.

“It’s something we've looked at," he said. "It’s something we're going to be watching."

While the 780,000 increase in postpaid subscribers was more than many analysts estimated, it also was significantly less than the 2.1 new contract subscribers rival Verizon Wireless brought in during the quarter. In addition, Verizon added 142,000 prepaid subscribers, while AT&T lost 166,000.

AT&T also took a $10 billion charge in connection with its pension plan, and that repair costs associated with Superstorm Sandy shared $175 million from operating income.

Even though AT&T lost money during the quarter and signed on fewer new subscribers than Verizon, it still had a strong showing, according to Eric Costa, an analyst with Technology Business Research (TBR). In a Jan. 24 research note, Costa said the carrier had a number of initiatives that will help drive revenue growth in 2013.

He said that revenue will continue growing “as its Mobile Share plans gain traction and add additional devices to the network. AT&T’s wireless strategy will include increasing smartphone penetration and connected device adoption, which will drive data consumption to better monetize its offerings. AT&T will also continue to invest in its networks through additional spectrum purchases and the Project VIP initiative, along with its extensive Wi-Fi network and small cell strategy.”