AT&T (T) has boosted its annual earnings expectations, saying recent mobile sales grew faster than originally projected.
Due to improving wireless trends–and the way AT&T has been revamping its subsidies–the company expects revenue to grow around 5% for the full year in 2014, up from its original expectation of 2% to 3% annual growth.
The Dallas-based company said strong second-quarter wireless trends will add 800,000 post-paid subscribers, which are high-value customers with contracts or long-term installation plans. The addition would be 175,000 more than the previous quarter.
Next smartphone sales, where customers pay the entire cost of the phone in installments in order to get more frequent upgrades, will reach 3.2 million in the second quarter, the company said. Next customers aren’t locked into a contract, but AT&T benefits by not having to subsidize phone costs to the tune of hundreds of dollars per customer. These subsidy-free subscriptions are expected to be about 50% of total sales by the end of the quarter.
More post-paid subscribers are also moving to a no-subsidy device option, called the Mobile Share Value pricing plan. By year-end, two-thirds of post-paid customers will be on this plan.
AT&T Next and Mobile Share Value plans are shifting the company’s revenue components–and therefore its margins. AT&T expects higher equipment revenues paired with lower service income: That puts pressure on wireless service margins year-over-year as more subscribers move to the subsidy-free options. Wireless service margins are expected to be over 40% in each of the three remaining 2014 quarters, compared to 60% margins overall last year.
AT&T is scheduled to release its second-quarter results after market close on July 23.