Cingular, the wireless growth engine for co-owners AT&T ( T) and BellSouth ( BLS), isn't revving at top speed.
The Atlanta cell phone-service giant posted solid second-quarter numbers Thursday morning, but some eager fans wanted more. The nation's biggest wireless telco added 1.5 million net new subscribers, a drop from the 1.7 million that signed on in the first quarter and below the 1.8 million net users added in the fourth quarter. The three-quarter down trend doesn't exactly thrill investors. "Cingular's performance was not poor by any means, just not a good precursor for the wireless-services companies in general," says one New York-based investor who has been bullish on the sector. Of course, the picture truly would be bleak if the Verizon Wireless venture of Verizon ( VZ) and Vodafone ( VOD) were to deliver weak results next week. But according to the New York investor, "Verizon is slaughtering it again this quarter." Beyond the second quarter's possible market-share slippage, Cingular posted solid numbers. It posted net income of $540 million on $9.2 billion in sales. Those numbers compare with the first quarter's $354 million profit on $8.98 billion in revenue and the year-ago earnings of $147 million on $8.6 billion in sales. Average revenue per user was $48.84, a slight improvement from the prior-quarter level of $48.48. And data ARPU, a measure of how much messaging and Internet service Cingular is selling, rose to $5.77 from $5.22 in the first quarter. Customer defections continued to moderate. Monthly churn dropped to 1.7% from 1.9% in the prior quarter. Still, Wall Street tends to focus on the blemishes when its not blown away by a brilliant performance. For some Cingular watchers, there was a disturbing disconnect between lower-than-expected gross user additions and margins. Wireless telcos pay for most of the cost of a new subscriber's cell phone. With fewer total new signups, the subsidy costs should be lower, helping to at least pad profit a bit. But that wasn't the case at Cingular in the latest quarter. "It's just surprising that margins were not up more, considering the backdrop," says the New York money manager. AT&T shares rose a nickel to $27.52, and BellSouth fell 3 cents to $35.80 in early trading Thursday.