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AT&T's Profit Dented by iPhone Subsidy

Updated from 9:24 a.m. EST

Telecom giant AT&T (T - Get Report) said Wednesday that its fourth-quarter profits dropped 23% from a year earlier as the company felt the impact of iPhone 3G subsidies, storm-related costs and unfavorable foreign exchange rates.

AT&T reported fourth-quarter earnings of $2.4 billion, or 41 cents a share, down 10 cents from a year earlier. Excluding charges, the company reported earnings of 64 cents, down from 71 cents in the prior-year's quarter. Analysts had estimated 65 cents, although this did not account for the impact of foreign exchange, which took 1 cent out of AT&T's earnings.

The company's revenue was $31.1 billion, up 2.4% on the prior year's quarter, and essentially in line with analysts' expectations of $31.35 billion.

"Despite the economic environment, we grew revenues in 2008, and I expect 2009 will be another year of overall revenue growth and solid progress for our company," said Randall Stephenson, the AT&T CEO, in a prepared statement.

The company also explained that the iPhone 3G, hurricane-related expenses and foreign exchange cut its fourth-quarter earnings by 7 cents.

AT&T also fell short of Wall Street's earnings target in the third-quarter, partly due to a strong performance from Apple's (AAPL - Get Report) iPhone 3G.

At that time, the company's earnings took a hit from the July 11 introduction of the newest iPhone, a product for which AT&T is the exclusive authorized U.S. service provider. AT&T continues to feel the impact of the popular smartphone. As part of the iPhone subsidy agreement between the two companies, AT&T's fourth-quarter profit was lowered by about $450 million.

The iPhone, however, helped drive AT&T's fourth-quarter wireless growth, with the company adding 2.1 million subscribers to reach a total customer base of 77 million, 7 million more than the same period last year.

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