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AT&T Mobility posts strong connection growth, dip in profits

As is becoming common from domestic mobile operators, AT&T posted quarterly wireless results showing robust customer growth at the expense of its bottom line.

The carrier said it added 2 million net connections during the third quarter, more than doubling its Q3 2013 results thanks to strong growth in postpaid and “connected devices.” Postpaid net additions surged from 363,000 subscribers last year to 785,000 customers this year, while connected devices grew from 719,000 net additions last year to nearly 1.3 million this year boosted by a reported 500,000 net additions tied to connected carriers. Those results helped offset a decline in prepaid net customer additions, which dropped from 192,000 customers last year to a loss of 140,000 prepaid customers this year.

AT&T Mobility’s prepaid struggles continued from the previous quarter, which are connected to its recent acquisition of Leap Wireless and subsequent re-launch of services under the Cricket brand. The prepaid defections also impacted AT&T Mobility’s overall churn results, which increased from 1.31% last year to 1.36% this year.

Tablet devices continued to sell well for AT&T Mobility, with the carrier reporting 342,000 net connections tied to the non-voice devices, compared with 530,000 net additions tied to traditional smartphones. AT&T Mobility said it sold nearly 1.2 million postpaid smartphones during the quarter, with 81% of its postpaid customer base in the possession of smartphones at the end of the quarter – 67% of which were LTE-enabled.

AT&T Mobility continued to see strong adoption of its Mobile Share rate plans and Next device financing offer, which has altered the carrier’s revenue matrix. Connections on its Mobile Share plans accounted for 62% of its postpaid base at the end of the quarter, with total Mobile Share accounts tripling year-over-year to 16.7 million, with an average of three connections per account. A reported 51% of those accounts had data packages in excess of 10 gigabytes per month, up from the 30% at the end of the third quarter last year. AT&T Mobility recently offered up a promotion providing for significantly more data on Mobile Share plans, which was quickly copied by rivals.

The combination of Mobile Share and Next resulted in an 8% year-over-year drop in average revenue per user.

Revenues tied to wireless operations increase nearly 5% year-over-year to $18.3 billion for Q3, with all of that gain supported by an increase in equipment sales. AT&T’s wireless business accounted for 56% of the company’s total revenues for the quarter. However, expenses increased 7.5% over the same time period, pushing down segment income 2.5% to just under $4.5 billion for the quarter. Put another way, segment operating income margin dipped from 26.4% last year to 24.6% this year. AT&T attributed the increased expenses to higher equipment costs tied to continued strong sales of smartphones, and network systems expenses and marketing costs tied to the Leap acquisition.

To the surprise of some, AT&T also reported an increase in capital expenses during Q3, which came in at $5.2 billion. Reports had indicated that AT&T was trimming capex through the second half of the year.

Earnings before interest, taxes, depreciation and amortization came it at $6.65 billion for the quarter with an EBITDA margin of 43.1%, or roughly in line with estimates.

Overall, AT&T reported net income across all of its operations dipped from $3.8 billion during Q3 2013, or 72 cents per share, to $3 billion this year, or 58 cents per share.

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