New Subscribers Goose AT&T Wireless, But Will They Spend Enough?

Analysts say churn and per-subscriber revenues are the numbers to watch.

Author:: Diane Hess
Publish date:: Apr 23, 2002 4:32 PM EDT

AT&T Wireless

(AWE)

impressed investors with its first-quarter results, reporting a 14.6% increase in service revenue as it added more subscribers than forecast.

On the heels of its aggressive mLife marketing campaign, AT&T Wireless tacked on 650,000 customers, above estimates for a 500,000 gain. By contrast, Cingular added 234,000 subscribers, while

Sprint PCS

(PCS)

gained 725,000 new customers in the quarter.

Shares of AT&T Wireless closed up 84 cents, or 10.4%, at $8.93 on Tuesday, as the company said that revenue for mobility services rose to $3.4 billion in the first quarter, from $2.9 billion a year ago.

AT&T Wireless said its churn rate, or the number of customers who dropped service in the quarter, fell to a low of 2.6%, as it aggressively went after subscribers to renew before their contracts ran out.

Some analysts said AT&T Wireless' churn rate could be the most important statistic of the quarter. "As we enter a period of increasing market saturation, it is less important for providers to grab new customers than it is to keep existing ones," said Bill Crawford, an analyst at U.S. Bancorp Piper Jaffray.

Still, AT&T Wireless reported a loss of $176 million, or 7 cents a share, in the first quarter, compared with break-even net income, or a loss of 2 cents a share, in the year-ago period.

And in the first quarter, AT&T Wireless' average revenue per user (ARPU), a key metric for the wireless industry, fell 5.8% to $58.60, leading some analysts to wonder if the company will meet 2002 targets.

"The biggest challenge for AT&T Wireless is ARPU," said Jennifer Fritzsche, an analyst at Wachovia Securities. "They are adding new subscribers, but they are signing on to lower rate plans."

Sean Butson, an analyst at Legg Mason, has tracked ARPU for 30 wireless carriers over the last three years, finding that it tends to be down seasonally in the fourth quarter but flat to up in the first quarter.

"The pricing pressure in the industry clearly affected them in the first quarter," Butson said.

On a conference call with analysts, AT&T Wireless said that it was expecting ARPU to rise in the second half of the year, as a result of revenue enhancements and new product offerings. Last week the company rolled out mMode, a wireless data service.

Still, Butson said it would be a challenge for AT&T Wireless to raise ARPU in the second half. "The lift would likely come from wireless data," he said. "I think it's a little early to be counting on that."