AT&T Wireless ( AWE) surprised Wall Street Wednesday morning with a small quarterly profit and some modest gains on the subscriber front. For its second quarter ended June 30, the company posted a profit of $61 million, or 2 cents a share, on revenue of $4.21 billion. That's down from the year-ago profit of $228 million, or 8 cents a share, on revenue of $4.16 billion. But investors had been expecting much worse. Analysts surveyed by Thomson First Call had forecast a penny-a-share loss on sales of $4.18 billion. AT&T Wireless said it added 15,000 users to its rolls during the quarter and that its monthly defection rate slipped to 3.4% in the latest period. Average revenue per user slipped to $58.80 in the second quarter from the year-ago $60.60, though the latest-period tally represents a gain from the first quarter's $56.60. "Our second-quarter results show we are on the rebound from our disappointing first quarter," said CEO John Zeglis. "Sequential improvements in practically all of our key metrics demonstrate that the initiatives we launched earlier this year are making a difference. The results come as Wall Street keeps an eye on the Redmond, Wash., cell phone service provider ahead of its scheduled merger with giant rival Cingular. The companies are due to combine at year-end in a $15-a-share deal creating the nation's largest wireless carrier, supplanting current No. 1 Verizon Wireless. AT&T Wireless said it "continues to make good progress in its merger process with Cingular Wireless," which remains under review by the Federal Communications Commission and the Department of Justice. AT&T Wireless said it "shares Cingular's goal of concluding the transaction as soon as possible, but before the end of the year." AT&T staggered into the arms of Cingular, a venture of local telcos BellSouth ( BLS) and SBC ( SBC), after a long spell of service disruptions and customer service shortfalls. Users' dissatisfaction with the company emerged this winter, when AT&T Wireless shocked Wall Street by reporting that a stunning 3.7% of its customers were leaving each month. That so-called churn rate, along with the loss of some 400,000 subscribers, was nearly off the charts for a big player.
The service problems aside, investors appear to like the prospect of Cingular and AT&T Wireless combining, since the combined company would have a huge footprint. On Tuesday, AT&T Wireless closed at $14.39.