Growth Slows at AT&T Wireless

Updated from Oct. 22

AT&T Wireless (AWE Quote) plunged 10% Thursday as investors wagered on winners and losers in the wireless industry.

The decline came a day after the company surpassed its sales target for the third quarter and raised fourth-quarter projections, but that failed to satisfy investors who saw troubling signs in weak subscriber growth. Sprint PCS (PCS Quote) delievered additional bad news on that front Thursday, saying its churn rate, or the number of subscribers who drop the service in a give period, jumped to 2.7% in the third quarter. PCS shares slid 13%.

AT&T Wireless, the Redmond, Wash., wireless service, posted third-quarter earnings of $156 million, or 6 cents a share, on $4.37 billion in sales. That compares to the year-ago loss of $2.04 billion, or 76 cents a share, on sales of $4.06 billion. Analysts had been looking for earnings of 6 cents on $4.2 billion in sales, according to a Multex poll.

The nation's No. 2 wireless operator said it expected 2003 sales to grow by 8%, raising its full-year revenue estimate to $16.9 billion. Previously, the company had been looking for about 6% growth.

But bears will point to a slowdown in subscriber growth and increased churn, or customer turnover rates. The company signed on 229,000 net new users, about half the number it added in the second quarter. Churn jumped half a percentage point to 2.7%, and average monthly revenue per user decreased by 40 cents to $61.20.

Nonetheless, bulls will likely point to the company's prediction Wednesday that free cash flow will exceed $1 billion for the year. Prior guidance merely promised positive free cash flow.

AT&T Wireless shares dropped 85 cents to $7.41, while PCS slid 68 cents to $4.64.