AT&T's margins take a hit after activating a record 5.2M iPhones in Q3

AT&T Mobility (NYSE:T) continues to draw subscribers to its network thanks to--acording multiple reports--its soon-to-end exclusive relationship with Apple (NASDAQ:AAPL) for its iPhone. The company activated 5.2 million iPhones in the third quarter and added 2.6 million new customers to its network, bringing its total subscriber base to 92.8 million. Interestingly, connected devices accounted for 1.12 million of those net adds. 

But all this growth has a downside. AT&T, which must pay Apple high subsidies for the iPhone, experienced a decline in wireless service margins to 37.6 percent, down from 43.1 percent in second quarter. AT&T executives told investors on an earnings call this morning that the decrease in wireless margins was temporary and they expect margins to return to the low 40 percent range thanks to higher average revenue per user, lower churn and strong data growth.

In the third quarter, AT&T also reported an 11.4 percent growth in wireless revenues, with a 10.5 percent increase in wireless service revenues. Wireless operating revenue was $11.8 billion, up from $10.2 billion in third quarter 2009. Here's a breakdown of the company's other key third-quarter metrics:

Data Revenues: AT&T had wireless data revenues of $4.8 billion, up from $3.6 billion in third quarter of 2009.   

Devices: AT&T added 3.8 million net 3G postpaid integrated devices in third quarter for a total of 33.5 million postpaid integrated devices in its base.

ARPU: Postpaid average revenue per subscribers was $62.84, up from $62.63 in the second quarter and up from $61.61 in third quarter of 2009.

Churn: The company reported its best-ever third quarter churn rate of just 1.32 percent. This was down from 1.42 percent in theyear-ago quarter.

Net Adds: The company added 2.6 million wireless net adds. Of those, 745,000 were postpaid, 321,000 were prepaid and 406,000 were from the company's reseller channels. Connected devices made up the majority of net adds with 1.12 million. Interestingly, AT&T said that 80 percent of its postpaid base is on family or business-related rate plans.

During the investor call, AT&T Mobility and Consumer Products President and CEO Ralph de la Vega noted that this was the first full quarter with the company's new tiered data pricing, and initial results are positive. "More customers are upgrading to integrated devices and adding data plans at the lower price and then migrating up as their data needs grow," he said.

De la Vega declined to comment about reports that Verizon Wireless (NYSE:VZ) also is planning to launch tiered pricing plans for broadband data, but said that he is happy to see other competitors offering customers a choice of lower-price plans if they user lower amounts of data.

He also hinted at the company's fourth quarter device launch plans, saying that in the fourth quarter AT&T will add three new Motorola Android devices, which will give AT&T seven smartphones running on Google's Android platform in total.

 For more:
- see this press release
- see this WSJ article (sub. req.) 
- see this Forbes article
- see this FierceWireless Q3 earnings page 

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