AT&T Q1 Net Down on Health Charge; CFO Mum on Tiered Pricing

AT&T posted a Q1 profit of $2.48 billion, down 21 percent year-over-year partly due to a $1 billion charge attributed to the federal health care overhaul. The carrier is set to expand its wireless data reach, but limited capacity will affect prices, Chief Financial Officer Rick Lindner said on a conference call Wednesday.

The carrier added 1.9 million wireless subscribers, up from 1.2 million a year earlier and the biggest Q1 gain in company history. But the total of 512,000 postpaid customers it added was down 43 percent from a year earlier, even with 900,000 iPhone activations in the quarter. The results make it “hard to be optimistic about anyone else’s results without” the iPhone, which AT&T has a U.S. exclusive on, said Craig Moffett of Sanford Bernstein. Wireless churn was 1.3 percent, down from 1.56 percent a year earlier. AT&T ended the quarter with 87 million wireless subscribers. The research firm Jefferies recently lowered its estimate for subscriber growth at Verizon Wireless for Q1 from 1.65 million net additions to 1.515 million, citing slower than expected postpaid growth.

Lindner was tight-lipped about the carrier’s pricing plans, but said the whole wireless industry faces the question of tiered pricing. “We're dealing with some real limitations both from a technology standpoint and, more importantly, from a capacity standpoint,” he said. Everyone is moving to wireless, and there’s a “tremendous amount of demand in wireless data,” he said. But even among customers using similar devices, there are huge differences in data use, Lindner said. The industry must develop models understandable and fair to customers, he said.

The carrier will have “new products and product refreshes we are excited about,” Lindner said. Connected devices are an important new business, he said. The company added 1.1 customers, making 5.8 million total, to the business, which includes e-readers, GPS devices and soon the Apple iPad. The range of wireless devices will be broad and deep, Lindner said.

AT&T saw slight improvements in wireline services for business customers, but continued to lose wireline customers. Access lines declined 11.1 percent year-over-year. Still, Lindner said, the company is continuing to build its U-verse business. AT&T added 231,000 U-verse TV subscribers, making 2.3 million total. It also added 255,000 wireline broadband connections, using DSL and U-verse. AT&T’s U-verse TV results were in line with expectations and broadband was “surprisingly strong,” Moffett said. Still, the telco’s wireline unit, “a fixed-cost business losing revenues at a nearly 5 percent annual rate is tough to love,” he said.