AT&T MOBILITY POSTED A COMPANY RECORD 2 million net customer additions during the third quarter, fueled by strong sales of Apple Inc.’s 3G iPhone, but that growth also took a bite out of the carrier’s bottom line.
The industry’s No. 1 carrier reported that its strong growth included 1.7 million postpaid subscribers, a 40% increase from third-quarter 2007. A big chunk of that growth was due to the 3G iPhone launch during the timeframe. The carrier posted 2.4 million iPhone activations during the quarter with 40% of those activations from new customers. The carrier also said having the iPhone in its ranks brought in more higher-value customers with a 1.6-times higher average monthly revenues per user (ARPU). In fact, Ralph de la Vega, President and CEO of AT&T
Mobility, said the high sales of the 3G iPhone happened much quicker than with the original iPhone last year.
“This was 2.4-times our pace with the original iPhone through September of last year,” de la Vega said. “It took us nine months to reach the 2.4 million mark (with the original iPhone).”
The carrier also reported that more than two-thirds of the carrier’s net adds during the quarter came from customers choosing an integrated device like the iPhone. AT&T Mobility said iPhone activations have created a halo effect and has driven more traffic into the store, promoting sales of other devices.
More traffic
“Traditionally what happens in October in the wireless industry, at least from our perspective, is that you have a downturn in store traffic,” de la Vega said. “Traffic begins to pick up in mid-November and it really goes strong in December.
Same store traffic for the carriers was up 4% and total traffic rose 7% versus traffic from October 2007.
With the 3G iPhone and other smartphones a big part of AT&T Mobility’s success, it was no surprise that the carrier also saw improvement in wireless data revenues, growing 50.5% from last year to $2.7 billion. Total wireless revenues increased as well by 15.4% to $12.6 billion. Total monthly subscriber churn stayed consistent at 1.7%, while postpaid churn dropped slightly to 1.2%, down from the 1.3% in the third quarter, last year at this time.
However, AT&T Mobility did note that earnings and results were impacted by both the 3G iPhone and hurricane-related expenses. The subsidies which AT&T Mobility was required to pay to Apple for each iPhone sold reduced pretax third-quarter earning by $900 million or 10 cents per share. Hurricane costs, on the other hand, reduced pretax earnings by $145 million or 2 cents per share.
Economic impact
Although the 3G iPhone and other integrated devices tend to bring in higher value customers, de la Vega did say that during rough economic times, AT&T Mobility has noticed some changes with its customers.
“We are seeing customers watch their bundles to make sure they don’t exceed their plans,” he said. “We are seeing a little bit of a downturn on international roaming and long distance, but those are the only two areas that we have seen really any ARPU weakness.”
Looking to the fourth quarter, AT&T Mobility said it expects less dilution from the iPhone than in the third quarter, but does expect to at least sell more than previously anticipated. However, Seth Wallis-Jones, telecoms analyst with Global Insight, said the carrier might have bigger concerns up ahead.
“The rapid fall in wireline voice continues to be a major concern, while slowing growth in video and broadband with net addition well down on the year-earlier period are worrying signs that may be indicative of both rising penetration and lower demand in a tougher economy,” Wallis-Jones said. “Betting on the iPhone is risky as new competitors emerge and Verizon consolidates with Alltel.”
Addressing the downfall of wireline, de la Vega said AT&T Inc. has recognized this and has integrated the trend into its latest business plan for customers, merging both wireline and wireless services together.
“That’s where our technology is headed,” he said. “It’s a direction that customers are moving and it’s the thinking behind our decision to combine wireline consumer and wireless into a single organization.”
Updated Oct. 29 to include analysis, details.
