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AT&T boosts earnings forecast, adds more subscriptions

AT&T headquarters in San Antonio, Texas on Thursday, Oct. 12, 2006.(Photo by Jack Plunkett)AT&T headquarters in San Antonio, Texas on Thursday, Oct. 12, 2006.(Photo by Jack Plunkett)

AT&T, the second-largest wireless carrier in the U.S., reported on Thursday that it added more than 2.5 million new wireless subscriptions during its most recent quarter, mostly thanks to an increase in tablet and connected car subscriptions.

The wireless additions included 289,000 postpaid phone subscriptions, 466,000 prepaid phone subscriptions, and 1.6 million connected devices. Of those connected devices about 1 million were for cars and roughly 620,000 were for tablets or other computing devices.

AT&T (T) added to its recent run of successes by signing up new customers for car data plans. The telecommunications company is currently the market leader in wireless connections for cars, although rivals, like Verizon (VZ), have started making inroads into this lucrative market. Connected cars open up several new potential revenue streams for telecommunication firms, which include selling data and marketing information to car manufacturers and dealers.

However, AT&T continues to lose postpaid customers. Postpaid churn is an important metric for AT&T, because its postpaid customers are seen as more lucrative than prepaid customers. AT&T said that postpaid churn, which is the rate of customer defections, came in at 1.16% for the quarter, up from the previous quarter’s 1.01%.

Overall AT&T gained more wireless customers, mostly due to prepaid customers, and users under the Cricket and GoPhone brands are becoming more profitable as average bills increase. In addition, the company is pleased at its progress weaning its existing customers off of expensive subsidized phones.

Instead of selling phones with a subsidy—in which case the consumer would only pay between $0 and $200 when they sign up for a two-year service contract—AT&T is increasingly selling phones through month-to-month installments, which saves the company money.

Meanwhile, 80% of smartphone sales from the company’s most recent quarter were for phones purchased using installment plans. AT&T’s primary wireless rival, Verizon, sells 58% of its phones on installment plans.

When people buy phones on installment plans, like AT&T Next, they don’t upgrade as often, the company noted. “Customers seem to like the installment plan because they own the phone, and the phones have continued use and functionality,” an AT&T executive said.

AT&T Mobility, its wireless division, totaled $8.7 billion in revenue for the quarter, which was flat year-over-year. AT&T as a whole reported total earnings of 50 cents per share on revenues of $39.1 billion.

The company warned that analysts had failed to properly account for its July purchase of DirecTV in their estimates, which is why reported revenue fell short of Wall Street expectations of 69 cents per share on total sales of $40.42 billion. “It is clear many revenue estimates for DirecTV include the full month of July,” an AT&T spokesman said in a statement.

However, thanks to the $49 billion acquisition of DirecTV, AT&T raised its expected profit forecast for the year to $2.74 per share, up from $2.68. Net income for the third quarter was down 4.3% to $3 billion.

Revenue for AT&T as a whole was up 18.1% from the same quarter last year, mostly due to its July purchase of DirecTV. However, earnings per share were down from 60 cents per share from the same period, which AT&T attributed to expenses related to the merger and other one-time costs.

Shares of AT&T were up 1.1% in after-hours trading to $33.97.

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