AT&T adds 3.6M iPhones in Q2, still confident on T-Mobile deal

AT&T Mobility (NYSE:T) appeared unconcerned by the launch of the Apple (NASDAQ:AAPL) iPhone by Verizon Wireless (NYSE:VZ) in February. During the second quarter, AT&T activated 3.6 million iPhones--the same as in the first quarter. 

Click here for key slides from AT&T's second quarter results.

Click here for key slides from AT&T's second quarter results.

Indeed, wireless drove AT&T's overall results; wireless made up 50 percent of the company's total $31.5 billion in revenue for the quarter, up from 46 percent of its $30.5 billion in total revenue in the year-ago quarter. The company also revealed that a little more than one year after it introduced usage-based smartphone data plans, it now has 15 million subscribers on such plans.

The carrier also addressed questions about its proposed $39 billion acquisition of T-Mobile USA. Wayne Watts, AT&T's general counsel, told analysts on the company's earnings conference call that AT&T continues to expect the deal to be approved by the FCC and Department of Justice in the first quarter of 2012. Watts said he didn't think the departure of Christine Varney, formerly the Justice Department's antitrust chief, will have a material impact on the deal.

Interestingly, AT&T now expects capital expenditures for 2011 to be $20 billion, above a previous forecast of around $19 billion. AT&T CFO John Stephens said the additional funding will go to accelerating AT&T's LTE deployment and expanding backhaul. AT&T did not indicate when it will launch LTE or what its pricing will be, but said the launch remains on track for later this summer. The company will launch LTE service first in Atlanta, Chicago, Dallas, Houston and San Antonio, and it expects to deploy LTE across 70 million POPs in 15 markets by year-end.

Here's a breakdown of AT&T's key metrics for the quarter:

iPhone: AT&T's iPhone activations remained solid at 3.6 million in the second quarter, with 24 percent of those subscribers new to AT&T. Additionally, AT&T said iPhone subscriber churn was down slightly from the first quarter. 

Data-only device sales: The company reported that data-only device sales, which include tablets, aircards, MiFi devices, tethering plans and other data-only devices, were up 545,000, almost doubling since the second quarter of 2010 to reach 4 million total subscribers. Stephens said on the conference call with that AT&T expects to increase its subscribers in this area once it launches LTE. AT&T said earlier this month that its first two LTE devices will be a USB modem and mobile hotspot device from Sierra Wireless.

Most of the new data-only subscribers were tablet users, with 377,000 added in the quarter, of which 30 percent were postpaid. Stephens acknowledged that AT&T has more work to do get tablet users to sign up for postpaid data plans, but noted that many users take advantage of the company's nationwide Wi-Fi network. "We are making progress and are working very, very actively on a number of different approaches with regard to that," he said. "LTE will certainly help."

Smartphones: AT&T notched 5.6 million total smartphone sales in the quarter, and said smartphones comprised 70 percent of its postpaid subscriber additions during the quarter. AT&T said Google's (NASDAQ:GOOG) Android, Microsoft's (NASDAQ:MSFT) Windows Phone 7 and Research In Motion's (NASDAQ:RIMM) BlackBerry accounted for 40 percent of its smartphone sales. Stephens said 50 percent of the company's postpaid subscriber base are now smartphone users.

Subscribers: AT&T posted a net gain in total wireless subscribers of 1.1 million, bringing its total subscriber base to 98.6 million. The company recorded postpaid net adds of 331,000 in the quarter, up from 62,000 postpaid subscriber additions in the first quarter. However, AT&T said that, excluding the impacts of the Alltel and Centennial integration migrations, postpaid net adds were 504,000 in the second quarter. The carrier counted prepaid net adds of 137,000 and reseller net adds of 248,000. AT&T said connected device net adds were 379,000. 

ARPU: The company said postpaid subscriber average revenue per user was $63.87, up 2 percent from $62.63 in the year-ago period and the tenth consecutive quarter with a year-over-year increase. Postpaid data ARPU reached $24.57, up 16.6 percent from the year-ago quarter.

Churn: The operator said total churn was 1.43 percent in the second quarter, up from 1.29 percent in the second quarter of 2010 and 1.36 percent in the first quarter. AT&T said postpaid churn was 1.15 percent, compared to 1.01 percent in the year-ago quarter and 1.18 percent in the first quarter of 2011. However, AT&T noted that, excluding the impacts of the Alltel and Centennial migrations, postpaid churn was 1.06 percent for the second quarter, compared with 0.99 percent in the year-ago quarter and better than 1.12 percent in the first quarter.

Financials: AT&T's wireless service revenue was $14.2 billion, up 7.4 percent from $13.2 billion in second quarter of 2010. Data revenue clocked in at $5.4 billion, up 23 percent from $4.4 billion in the year-ago period. AT&T said its wireless EBITDA service margin was 41.1 percent, compared with 43.1 percent in the second quarter of 2010. Without customer migration and integration costs from the Alltel and Centennial mergers, AT&T said its service margin would have been 42 percent. The company said wireless margins reflect increased operating costs associated with strong smartphone sales, high customer upgrade levels and the Alltel and Centennial merger costs, offset in part by improved operating efficiencies and further revenue growth from smartphone subscribers.

For more:
- see this release
- see this WSJ article (sub. req.)
- see this Bloomberg article

Special Report: Wireless in the second quarter of 2011

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