Cingular Quarter Sings

User adds are much stronger than expected.
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Cingular's first-quarter performance suggests the nation's largest wireless telco is getting its game together.

The Atlanta-based joint venture of

AT&T

(T) - Get Report

and

BellSouth

(BLS)

surpassed expectations on subscriber growth, adding 1.7 million net new customers in the first quarter. Though user growth was slightly below the 1.8 million in the fourth quarter, industry observers were looking for net additions to be around 1 million.

In another positive development for the wireless giant, the customer defection rate or churn dropped to 1.9% a month, down from 2.1% in the previous quarter. Average revenue per user fell to $48.48 a month, down sequentially from $49.22 in the fourth quarter, as the company added more wholesale users.

But helping to offset the ARPU declines, Cingular says data revenue per user rose to $5.22, up 11% from the prior quarter as more customers used their phones to send messages and connect to the Net.

For the first quarter, Cingular posted net income of $354 million, reversing a $240 million loss in the year-ago period and expanding on the $204 million profit recorded in the prior quarter.

On an adjusted basis, excluding one-time items, Cingular's pro forma net income was $849 million, compared to a net loss of $258 a year ago and $811 million in profit in the previous quarter ended in December. First-quarter sales were $8.98 billion, up from $8.23 billion in the year-ago quarter and $8.5 billion in the fourth quarter.

For most of 2005, Cingular grappled with high churn and low subscriber growth as customers ditched the service. This was largely a carryover from the combination with AT&T Wireless and the disaffection created by the industry's poorest rated service.

Cingular continued to rack up huge operating costs, about $8.2 billion in the first quarter. Some of the charges were related to the AT&T Wireless merger, like $234 million for integration and $359 million in writeoffs of intangibles.

With the pending merger of AT&T and BellSouth, Cingular's results will soon be consolidated under the AT&T name. The wireless giant is also considering renaming the service AT&T Wireless,

reviving a name many users remember without much fondness.

BellSouth shares were up 27 cents to $33.67, and AT&T was up 3 cents to $25.97 in early trading Wednesday.