AT&T's iPhone Customer Base Grows
The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
) --
AT&T
's
(T) - Get Report
balance sheet took a huge hit in the fourth quarter.
A one-time break-up charge of $4.2 billion paid to T-Mobile for the merger's failure led the company report a net loss of $6.7 billion for the quarter vs. net income of $1.1 billion a year ago.
Also contributing to the loss was a significant charge of about $6.3 billion toward annual adjustments related to pension and post-retirement benefits accounting. Fourth-quarter holiday smartphone sales, however, helped the company post 70% growth in postpaid net subscriber adds and 4% growth in revenues to $32.5 billion compared to the year-ago quarter.
AT&T activated a record 7.6 million
Apple
(AAPL) - Get Report
iPhones during the quarter and sold more than twice as many
(GOOG) - Get Report
Android smartphones than it did in the year-ago quarter.
See our complete analysis for AT&T stock
here.
A record number of iPhone activations during the quarter puts to rest concerns that deteriorating customer service and heightened competition for iPhone customers from
Verizon
(VZ) - Get Report
and
Sprint
(S) - Get Report
may cause AT&T to lose its stranglehold on the high data ARPU generating iPhone subscribers.
With the nearest competitor Verizon reporting only 4.3 million iPhone activations for the quarter, it seems AT&T has done really well to retain as well as lure new iPhone customers with higher speeds that only its 4G HSPA+ network can provide on the iPhone.
However, AT&T has been giving away huge subsidies on the iPhone as well as other smartphones to drive sales. For example, a basic iPhone 4S model costs around $650 for the carriers which then subsidize it heavily to sell for $199. This has caused AT&T's wireless operating margins to contract hugely to just over 15% this quarter from close to 30% last quarter.
In return for the subsidy, however, AT&T locks in customers in a long-term contract for its postpaid plans. So we expect the subsidies to pay off in the longer run as they ensure a long-term patronage for AT&T's higher margin postpaid data plans, thereby reducing churn and bringing in steady cash flows. Smartphone users are typically heavy data users as well, which means that the average revenues generated per user will also increase. AT&T's postpaid data ARPU increased around 15% over the year-ago quarter, and we expect it to continue to increase over the coming years.
Last quarter, AT&T had posted only a third of Verizon's postpaid net adds although it managed to add more number of total connections. This quarter, however, a record number of iPhone activations has helped the company post much better number of postpaid net adds, at about 60% of Verizon's. While increasing the total subscriber base is essential for a carrier, having a greater postpaid mix among the added customers is even more crucial for the long-term value that each contractual postpaid subscriber brings to the carrier's business.
AT&T has been trying to improve its data speeds by expanding its LTE network into new markets and bringing out more LTE phones this year. AT&T showed a long list of LTE capable phones at the recently concluded CES 2012, so the huge capital expenditures that the company has incurred in building out its high-speed network should start to pay off soon.
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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
