AT&T Profit Doubles, but Wireless Growth Lags

NEW YORK (April 24) - AT&T Inc.'s profit doubled in the first quarter, beating analyst estimates as profit from its wireless unit grew, helped by the purchase late last year of BellSouth Corp.

While AT&T raised its profit margin target for the year, some analysts were disappointed with its wireless customer growth numbers and said the rate of decline of its fixed-line customers was worse than expected in the first quarter.

"The customer numbers on both wireless and wireline were disappointing but the wireless profit margins were solid and total (earnings per share) did beat our estimate," said SurTerre Research analyst Todd Rethemeier, who has a small holding of AT&T shares.

AT&T's first-quarter profit rose to $2.8 billion, or 45 cents a share, from $1.4 billion, or 37 cents a share, in the year-ago quarter, before it bought BellSouth. Total operating revenue rose to $28.97 billion from $15.76 billion.

Adjusted earnings per share, before merger costs and other items, were 65 cents compared with analyst estimates for 61 cents a share according to Reuters Estimates.

AT&T raised its estimate for full-year adjusted operating income margin to a range of 23 percent to 24 percent, up from a 21 percent to 23 percent target announced in January.

The company's shares fell 28 cents to $39.48 in early trading.

WIRELESS DISAPPOINTMENT

The wireless unit -- which is scrapping the Cingular Wireless name for the AT&T brand -- added 1.2 million subscribers in the quarter, compared with the average estimate for 1.5 million from six analysts contacted by Reuters.

One analyst said AT&T likely lost market share to rivals.

"They are almost certainly losing market share to Verizon Wireless," said Stifel Nicolaus analyst Chris King, referring to AT&T's biggest wireless rival, a venture of Verizon Communications and Vodafone Group Plc.

King noted that AT&T's 37.5 percent wireless profit margin, excluding certain items, beat his 36.3 percent estimate but attributed that to a reduction in expenses related to the company's slower-than-expected customer growth.

As AT&T is the first of the major U.S. telecom providers to report this quarter, Rethemeier said it was not clear if the lower wireless growth could reflect an industry wide trend.

Rethemeier estimated that AT&T's total wired phone lines fell 6.6 percent, compared with his estimate of 6.2 percent.

The company, which is developing video services to compete better with cable rivals, added 187,000 video customers in the first quarter, up from 111,000 net additions in the preceding quarter. It ended the quarter with 1.7 million video connections.

AT&T plans to complete its $10 billion share repurchase plan in the third quarter this year, subject to market conditions.

The company's shares have risen about 11 percent since the deal BellSouth deal compared with a roughly 5 percent increase in the S&P 500 Index.