AT&T adds 551K postpaid subs in Q2, points to Mobile Share momentum

AT&T Mobility (NYSE:T) added 551,000 net postpaid customers in the second quarter, a substantial improvement from the year-ago period and the first quarter. The carrier also highlighted momentum behind its Mobile Share shared data plans, which are available to new and existing customers.

The company  indicated in June that it would add around 500,000 postpaid subscribers, so it beat its forecast by a small margin. However, as AT&T also signaled in June, its margins took a hit thanks in part to higher smartphone and tablet sales, and the subsidy costs AT&T pays to give customers cheaper devices when they sign up for two-year contracts.

AT&T added 320,000 net postpaid customers in the second quarter of 2012 and 296,000 in the first quarter of 2013, so the 551,000 figure is a notable upsurge. The additions marked the best second-quarter postpaid adds AT&T has had in four years. However, the bulk of them, 398,000 or 72.2 percent, came from postpaid tablet sales, mainly from session-based tablets moving over to postpaid accounts.

The carrier also said its LTE network now covers around 225 million POPs. The company expects to cover 270 million POPs by year-end and substantially complete its LTE deployment by next summer. AT&T said more than 90 percent of its mobile data traffic runs over its enhanced backhaul. (Rival Verizon Wireless (NYSE:VZ) covers around 301 million POPs with LTE.)

Earlier this month AT&T said it will acquire no-contract wireless carrier Leap Wireless (NASDAQ:LEAP) for $1.2 billion, or $15 per share. AT&T expects the deal to close in six to nine months. However, it is still subject to review by the FCC and the Department of Justice.

During the company's earnings conference call, AT&T Mobility CEO Ralph de la Vega said that "the rationale behind the Leap transaction is basically to accelerate our entry into the prepaid segment much more so than we would have been able to by ourselves." He said after the transaction closes, AT&T expects to keep Leap's Cricket brand and distribution.

Here's a breakdown of AT&T's key quarterly metrics:

Subscribers: AT&T added a total of 632,000 subscribers in the quarter, which included 11,000 net prepaid additions and 70,000 connected device/reseller additions. That's up from the 291,000 total subscriber additions in the carrier's first quarter of 2013, but down significantly from the 1.3 million total net wireless customer additions AT&T had in the year-ago quarter. Carriers have been struggling to add new customers of late, especially postpaid subscribers, and much of the focus of the industry has been on carriers' ability to steal subscribers from each other.

Verizon added 941,000 retail postpaid net connections in the second quarter, and 97,000 prepaid retail connections, for a total of 1.038 million total retail additions.

Financials: AT&T said total wireless revenues for the quarter, which includes equipment sales, were up 5.7 percent year-over-year to $17.3 billion. Wireless service revenues increased 4.1 percent from the year-ago period to $15.4 billion. Wireless data revenues increased 19.8 percent from the year-ago quarter to $5.4 billion.

AT&T's wireless EBITDA service margin stood at 42.4 percent, down from 43.2 percent in the first quarter and down from 45.8 percent in the year-ago period. AT&T's second-quarter wireless operating income margin was 27.1 percent, compared to 31 percent in the year-ago quarter.

Mobile Share: AT&T said it now has more than 4.3 million Mobile Share accounts serving 13 million subscribers, up from 3.3 million accounts and 10 million subscribers at the end of the first quarter. The carrier said more than a quarter of accounts on Mobile Share are choosing 10 GB or higher plans, and that more than 15 percent of its Mobile Share subscribers are switching over from unlimited data plans.

Smartphones: AT&T said it sold 6.8 million smartphones in the period, its best figure ever.  That number is more than the 6 million it sold in the first quarter of 2013 and far higher than the 5.1 million it sold in the year-ago period. The carrier said it sold more Apple (NASDAQ:AAPL) iPhones in the quarter than it sold in the year-ago quarter (3.7 million), but AT&T declined to provide precise iPhone sales figures for the quarter. T-Mobile US (NYSE:TMUS) introduced the iPhone in the quarter, and that likely had some impact on AT&T, but the carrier pointed out that its postpaid churn decreased sequentially in the second quarter.

AT&T said its smartphone base increased by 1.2 million in the quarter and accounted for 88 percent of its postpaid phone sales. The carrier also said 35 percent of smartphones were LTE smartphones and that more than 70 percent of its smartphone subscribers are on usage-based plans. Fully 73 percent of AT&T's postpaid customer base is now on a smartphone, up from 64 percent in the year-ago period.

ARPU: AT&T said total postpaid average revenue per user grew 1.8 percent. Phone-only postpaid ARPU was up 3 percent. AT&T also said postpaid data ARPU grew 17.6 percent in the quarter.

Churn: Postpaid churn was 1.02 percent, up slightly from the year-ago quarter and down slightly from the first quarter of 2013. AT&T said total churn increased year-over-year, due mostly to increases in reseller churn, but was down slightly sequentially.

For more:
- see this release

Special Report: Wireless in the second quarter of 2013

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