AT&T Still Luring iPhone Customers, Despite Verizon

Telecom Added 331,000 Contract Users on Strength of Discounted Apple Devices

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In AT&T's first full quarter that it has had to share Apple's iPhone with rival Verizon, the telecom is faring just fine.

AT&T sales rose 2.2% to $31.5 billion, the Dallas-based company reported today. Discounts on older version iPhones likely brought in new customers not willing to pony up for full-price new devices on Verizon Wireless, the No. 1 U.S. carrier that began to carry the Apple device this year.

Sales for the quarter exceeded the $31.3 billion average estimate of analysts compiled by Bloomberg. Net income declined 10%, and earnings per share were 60 cents, matching the average of analysts' estimates.

While Verizon offered the latest iPhone 4 in February, AT&T cut the price of the older iPhone 3GS to $49 to draw in new customers. Of AT&T's iPhone activations, 24% were new subscribers, the company said.

Apple this week also reported record worldwide sales of the iPhone in the second quarter, with units more than doubling from a year ago to 20.3 million. AT&T activated 3.6 million in the quarter, compared with 3.2 million a year earlier.

The gain of 331,000 contract users at AT&T, which is seeking to buy T-Mobile USA, beat the average estimate of 96,000 of six analysts compiled by Bloomberg.

"That was a very solid number," said Michael Nelson, an analyst at Mizuho Securities USA in New York who had forecast no gain in contract subscribers. "It shows AT&T has successfully defended its turf after losing iPhone exclusivity."

Verizon began offering the iPhone in February and offers consumers an alternative to AT&T's often complained-about network, which data-consuming iPhones have taxed since launch. The company reports second-quarter results tomorrow.

Verizon also boasts a more evolved, faster speed 4G network. The carrier is in the midst of a three-year push to cover the U.S. with a newer wireless technology called Long Term Evolution that offers high-speed downloads. AT&T plans to begin its LTE service this year.

AT&T CEO Randall Stephenson is seeking regulatory approval to buy T-Mobile USA from Deutsche Telekom for $39 billion to reduce dropped calls and improve his company's mobile internet service. AT&T said today it is confident it will complete the deal in the first quarter of 2012.

"Considering Verizon has the iPhone in the marketplace, the fact that some customers are still choosing to go to AT&T is an encouraging sign for the future," said Todd Rosenbluth, an equity analyst at Standard & Poor's in New York who recommends buying AT&T shares.

Sales at AT&T's wireless business rose 9.5% to $15.6 billion, with data-service sales increasing 23% to $5.4 billion. The company sold 5.6 million smartphones, with sales of phones using Google's Android software doubling.

The T-Mobile USA acquisition, announced in March, would combine AT&T with the fourth-largest U.S. wireless provider. Sprint Nextel Corp., the third-biggest carrier, is pushing for regulators to block the deal, which needs approval from the U.S. Justice Department and Federal Communications Commission.

-- Bloomberg News --

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