AT&T (NYSE:T) saw its smartphone sales decline in its third quarter thanks to the lack of a new iPhone, however it also experienced better wireless margins than the firm has experienced in more than six quarters. During a conference call with investors, AT&T executives attributed the lower smartphone sales in the third quarter (4.8 million compared with 5.6 million smartphone sales in the second quarter) to the fact that the iPhone 4S launch occurred in the fourth quarter. In the past, Apple (NASDAQ:AAPL) has typically refreshed its iPhone in the third quarter.
Click here for key slides from AT&T's earnings presentation.
Nevertheless, the company still activated 2.7 million iPhones in the quarter and added 2.1 million net new customers bringing its total subscriber base to 100.7 million. In addition, Ralph de la Vega, CEO of AT&T Mobility and Consumer Markets, noted on a call with investors that the company is expecting a blockbuster fourth quarter in smartphone sales thanks to the new iPhone 4S and also to the new LTE smartphones that the company is preparing to launch. In the past, AT&T has said it will launch an LTE smartphone in the fourth quarter, however de la Vega's remarks seemed to indicate there will be more than one LTE smartphone launched before year-end. "We will launch the first LTE handsets in the fourth quarter," de la Vega said. "They will be fast, have super screens and good batteries."
AT&T also said its wireless margins improved during the quarter, in fact it experienced the highest wireless service margin in six quarters with a service margin of 43.7 percent, compared with 37.6 percent in the third quarter of 2010. The company also reported wireless revenues of $15.6 billion with wireless service revenues of $14.3 billion.
Also on the conference call, John Stevens, AT&T CFO, updated investors on the T-Mobile USA acquisition, noting that the deal is still under review by the FCC and that the company is hopeful the Department of Justice lawsuit can be resolved.
Here is a rundown of other key AT&T metrics in the quarter:
Subscribers: AT&T added 2.1 million net new subscribers in the quarter. Prepaid net adds were 293,000, postpaid net adds were 384,000 and reseller net adds were 473,000.
ARPU: Average revenue per user was $63.69, up from $62.84 in the previous year's quarter. However, it was also a decline from $63.87 in second quarter. The company attributed this decline to the decline in smartphone sales for the quarter but said it expects its ARPU will increase in fourth quarter when smartphone activations are expected to surge. The company noted that postpaid ARPU increased 1.4 percent to $63.69.
Data revenue: AT&T's data revenue was $5.6 billion, up from $4.8 billion in the third quarter of 2010. Data ARPU was $25.14, up from $22.02 in the third quarter of the previous year.
Churn: Total churn declined to 1.28 percent compared with 1.32 percent in the third quarter of 2010. Postpaid churn was 1.15 percent.
Connected devices: AT&T added 1.038 million new connected devices in the third quarter.
LTE progress: De la Vega noted that the company launched LTE in five cities in the third quarter and is on track to launch 15 cities and cover 70 million POPs by year-end. He noted that Boston and Washington, D.C. will be the next LTE cities to launch. He also said that the company has surpassed its backhaul target and its advanced backhaul now carries more than two-thirds of AT&T's data traffic, which means that more customers are seeing the improved data speeds.
Special Report: Wireless in the third quarter of 2011
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Apple sells 4M iPhone 4Ss in first weekend
AT&T's de la Vega promises to deliver slim, power-efficient LTE phones
AT&T will launch at least one LTE smartphone by year-end
AT&T promises LTE downlink speeds of 5-12 Mbps