AT&T adds 780,000 postpaid subs in Q4, sells record 10.2M smartphones

AT&T Mobility (NYSE:T) posted strong postpaid subscriber net adds of 780,000 in the fourth quarter, but its overall subscriber additions were down year-over-year. Overall, the company added 1.1 million total net wireless subscribers in the period, down from 2.5 million in the year-ago quarter when it added 1.03 million connected devices.

AT&T sold a record 10.2 million smartphones in the fourth quarter, besting its previous record of 9.4 million in the fourth quarter of 2011. However, analysts have noted that AT&T's smartphone sales growth rates have been slowing.

Analysts at Morgan Stanley had expected AT&T to report 759,000 postpaid wireless net subscriber adds for the period. The carrier's 780,000 postpaid net adds are up from the 151,000 it reported in the third quarter of 2012 and the 717,000 it notched in the fourth quarter of 2011.

During the company's earnings conference call, AT&T CEO Randall Stephenson said that the carrier made significant progress on its top priorities in 2012, including adding more spectrum to its portfolio. He noted that AT&T's $600 million deal for NextWave, a key holder of 2.3 GHz WCS spectrum, closed on Thursday. During 2012, AT&T made 50 spectrum deals. "You put all these deals together and they increase our average national spectrum by a third," he said.

Stephenson also obliquely touched on a Wall Street Journal report that AT&T is hunting for merger and acquisition opportunities in the European wireless market. He said AT&T is looking at the idea from multiple angles and might strike some kind of LTE roaming arrangement, but he was generally vague on the topic. 

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

Subscribers: AT&T posted a net increase in total wireless subscribers of 1.1 million in the fourth quarter to reach 107 million in service. AT&T scored postpaid net adds of 780,000, its best gain in 12 quarters. AT&T also added 246,000 connected devices, and reseller net adds were 234,000. Importantly, AT&T noted that its prepaid business had a net loss of 166,000 subscribers, primarily due to declines in GoPhone and session-based tablets.

Financials: AT&T's total wireless revenues were up 5.7 percent year-over-year at  $17.6 billion. The carrier's wireless service revenues were up 4.2 percent to $14.9 billion. Wireless data revenues jumped 14.7 percent from the year-ago quarter to $6.8 billion. Interestingly, AT&T said data revenue growth was slowed somewhat by the success of its new Mobile Share plans, which it introduced in August.

AT&T warned in a regulatory filing with the Securities and Exchange Commission earlier this month it would record a $10 billion charge in the period related to its pension plans. The company also said that due to the higher subsidy costs associated with smartphones, "we expect a near-term pressure on operating income, margins, and earnings per share in the fourth quarter of 2012."

Indeed, AT&T's wireless EBITDA service margin was 29.1 percent, or about the same as the 29.2 percent it recorded in the fourth quarter of 2011. AT&T's wireless EBITDA service margin was 40.8 percent in the third quarter of 2012. AT&T CFO John Stephens said on the carrier's conference call that AT&T is "more than willing to invest in smartphones because of the benefits they bring," including lower churn and strong data revenue growth.

ARPU: AT&T's average revenue per user for postpaid customers increased 1.9 percent compared to the year-earlier quarter to $64.98. This marked the 16th consecutive quarter AT&T has posted a year-over-year increase in postpaid ARPU.

Smartphones: AT&T said smartphones represented 86 percent of its postpaid device sales and 89 percent of its postpaid phone sales in the quarter. Around 87 percent of rival Verizon Wireless' (NYSE:VZ) postpaid phone sales in the fourth quarter were smartphones (Verizon sold 9.8 million smartphones in the period). 

At the end of the quarter, 69.6 percent, or 47.1 million, of AT&T's postpaid phone subscribers had smartphones, up from 58.5 percent, or 39.4 million, a year earlier.

In the quarter, AT&T activated a record 8.6 million Apple (NASDAQ:AAPL) iPhones, with 16 percent new to AT&T. The company also had its best-ever sales quarter for Android smartphones. That means that 87 percent of AT&T's smartphone sales in the quarter were for the iPhone, compared with 63 percent for Verizon (Verizon sold 6.2 million iPhones in the fourth quarter out of 9.8 million total smartphones).

Usage-based data plans: AT&T said that the number of subscribers on its usage-based data plans continues to increase. More than two-thirds, or 31.7 million, of all of its smartphone subscribers are on usage-based data plans, up from 56 percent, or 22.1 million, a year ago and 31 percent two years ago. AT&T said that more than three-quarters of customers on tiered data plans have chosen the higher-priced plans, though it did not define what "higher-priced" means.

AT&T said that more 6.6 million customers, or 9 percent of its postpaid subscribers, have signed up for its Mobile Share plans. AT&T said the number of Mobile Share accounts reached 2.2 million in the fourth quarter for an average of about three devices per account. Interestingly, AT&T said more than a quarter of Mobile Share accounts have plans with 10 GB or higher. The 10 GB bucket plan starts at $120 per month and includes unlimited voice and text and the ability to share data with up to 10 devices.

Churn: AT&T's postpaid churn was 1.19 percent, compared with 1.21 percent in the year-ago quarter. Total churn was 1.42 percent compared to 1.39 percent in the fourth quarter of 2011.

LTE and spectrum: AT&T currently covers 174 million POPs with LTE, and plans to hit at least 250 million POPs by the end of 2013. AT&T revealed late last year it would increase its LTE coverage to 300 million POPs by the end of 2014. In contrast, Verizon now covers 273.5 million POPs with LTE, or roughly 89 percent of the U.S. population. Verizon expects to finish its initial LTE deployment by mid-year.

Stephenson said AT&T will likely make more spectrum purchases in 2013. He also touched on the FCC's review of its rules for how much spectrum carriers can hold. "Our view and our expectation is that as we get closer to a government (spectrum) auction, the need to do an evaluation on spectrum caps becomes less and less relevant," he said.

Stephenson said the agency should make sure the U.S. spectrum market is fluid and open, and that aggressive deployment targets are set for spectrum holders.

For more:
- see this release

Special Report: Wireless in the fourth quarter of 2012

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