AT&T beats Q2 forecasts, loses only 89K postpaid net phone subscribers

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AT&T's postpaid losses have slowed since it introduced an unlimited data plan in the first quarter.

Shares of AT&T inched upward after Tuesday’s closing bell as the company posted a relatively solid second quarter despite losing postpaid wireless customers.

The nation’s second-largest carrier said earnings came in at 79 cents a share, up from 72 cents per share during the same period a year ago, although overall revenue fell 1.7% to $39.8 billion. Wells Fargo Securities and other analysts had predicted earnings per share of 74 cents and total revenue of $40.02 billion.

The carrier posted a net loss of 89,000 postpaid phone subscribers, down from 160,000 during the prior year and soundly outperforming Wells Fargo’s estimate of 275,000 net postpaid phone losses. Shares were up more than 2% to $37.10 in after-hours trading Tuesday.

The quarter marked a significant improvement on a first quarter that saw AT&T bleed 348,000 postpaid phone customers.

“It was another highly competitive quarter in wireless,” AT&T CFO John Stephens said during the earnings call. “Our competitors tried just about every promotion in the book; in fact, one of them even offered to give away their service for free for a year,” he said, alluding to a recent Sprint campaign.

Here’s a closer look at some of AT&T’s key quarterly metrics:

Subscribers: AT&T reported 2.8 million overall wireless net additions in the United States, led by connected devices and 267,000 prepaid net additions. Its overall net adds in Mexico grew by 476,000, and AT&T posted a record postpaid phone churn of 0.79%. Wells Fargo had predicted 350,000 prepaid net additions.

Financials: AT&T blamed the dip in overall revenue on declines in its legacy wireline services and consumer mobility businesses, but operating expenses fell to $32.5 billion, down from $34 billion during the previous year. Operating income was $7.3 billion compared to $6.6 billion a year ago, and operating income margin was 18.4% compared to 16.2%. Wireless operating income margin came in at 30.4%, with the company touting record-high EBITDA margins including a wireless service margin of 50.4%, a company best.

FirstNet: Under terms of the contract, AT&T will get access to FirstNet’s 20 MHz of 700 MHz low-band spectrum and $6.5 billion for designing and operating the nationwide network for federal, state and local authorities, with the right to sell excess capacity on the system. Stephenson reiterated AT&T’s intention to begin to deploy services on those airwaves by the end of the year. “I would certainly expect that we would have the ability to start rolling out (FirstNet) spectrum this year,” he said. “The offers will be attractively priced because there will be a large number of devices—not only phones but also cameras and other connected devices—that add the ability for us to get good economics on price points” for first responders.

Summary: AT&T managed to slow its postpaid losses significantly during the second quarter, indicating that the carrier truly can compete in the era of unlimited data. And FirstNet appears to be gaining traction among potential state customers. AT&T still faces huge challenges in integrating all of its disparate businesses, of course, and that task will only increase if the company finalizes a merger with Time Warner. But AT&T’s latest results are likely to calm the nerves of investors in what has become a brutal wireless market over the last 18 months.