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AT&T's Subscriber Growth Nears Zero

NEW YORK ( TheStreet) -- Apple's (AAPL - Get Report) iPhone made all the difference for AT&T (T - Get Report) last quarter.

As big phone rivals AT&T and Verizon (VZ - Get Report) square off this week on first-quarter earnings, Wall Street awaits the numbers from Ma Bell's wireless unit now that the iPhone sells at Verizon.

Analysts expect that the loss of Apple iPhone exclusivity took the steam out of AT&T's wireless growth. The number of new so-called post-paid contract customers AT&T added in the first quarter fell uncomfortably close to zero, according to at least one analyst.

How close? UBS analyst John Hodulik had been calling for a net loss of 100,000 customers until he recently boosted his post-paid net add number for AT&T to 50,000. Most of the impact came as sales were siphoned off to the Verizon iPhone.

But what AT&T lost in new iPhones, it partially made up for in old iPhones. Thanks to the recent heavy promotion of the $49 iPhone 3GS, AT&T avoided an alarming net loss of customers, said Hodulik.

If Hodulik's 50,000 target is accurate, it would be 90% below the normal quarterly net add number of 538,250 post-paid customers that AT&T averaged last year.

Meanwhile, over at Verizon, analysts are expecting strong subscriber gains, not just from the iPhone but also from the popularity of the Google (GOOG) Android-powered HTC Thunderbolt.

The street consensus calls for Verizon to have added 900,000 post-paid customers, fueled by an estimated 2.9 million iPhone sales, according to a preview report by Morgan Stanley's Simon Flannery Monday.

But the loss of iPhone exclusivity doesn't fully explain the slowdown at AT&T.

While record numbers of U.S. customers are drawn to pricey smartphones, there's also been a strong shift to lower-cost prepaid services.

Hodulik points to the rising popularity of prepaid service and its corrosive effect on the post-paid market. Cheap phones and even cheaper month-to-month service plans have been catching on as people seek alternatives to hefty two-year service contracts.

Hodulik predicts that, industry wide, prepaid will be 65% of the total net new customers in the first quarter, up from 51% in the fourth quarter.
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