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AT&T: iPhone Boosting Wireless Margins

Dallas — AT&T said it activated 1.6 million iPhone 3G devices in the first quarter, up anywhere from 50 percent to 60 percent compared to year-ago activations of 1 million to 1.1 million estimated by the Yankee Group

“It’s a real win for them,” said Yankee director Carl Howe. The number of activations is “surprising” for a “fairly premium priced product” during the economic downturn, he said.

 “It’s still a terrifically selling product for AT&T,” he added, even though the number of activations is down from 1.9 million during the fourth quarter of 2008 and down from 2.4 million during 2008’s third quarter, when sales soared because of the launch of the subsidized 3G version of the iPhone. “You should expect seasonality,” he said.

In the third and fourth quarters of 2008, year-over-year iPhone activations were up 114 percent and 110 percent, respectively. Precise comparisons between first-quarter 2009 and 2008 iPhone activations can’t be made because AT&T hasn’t disclosed the number of iPhone activations during 2008’s first half.

Said AT&T chairman Randall Stephenson, “I am particularly pleased with the success of our iPhone 3G initiative, which has driven strong high-end customer growth and delivered financial benefits ahead of our original outlook.”

The company’s iPhone strategy, combined with operation improvements and reduced churn rates, produced a sequential gain in AT&T’s first-quarter wireless service margins, before amortization and depreciation, the company said.

The margin gain, the company said, in part reflects the higher revenues generated by iPhone subscribers, who spend around 1.6 times more than other postpaid-service subscribers because of their data usage. iPhone users also churn less frequently than other postpaid-service subscribers, AT&T said.

In other iPhone-related financial statistics, AT&T said more than 40 percent of the iPhones activated in the first quarter, or about 640,000, were sold to people new to the AT&T wireless network. As a result, iPhone purchasers accounted for about 73 percent of the 875,000 net new postpaid subscriber additions in the quarter. Total net additions, comprising prepaid and postpaid service, hit 1.2 million to bring the carrier’s subscriber base to 78.2 million.

In touting its wireless gains, the company also reported that:

·         integrated devices, or phones with hard or virtual QWERTY keyboards, “accounted for more than 100 percent of the company’s postpaid net adds.”

·         integrated devices on the network doubled over the past 12 months to account for 31.7 million of the carrier’s 61 million postpaid subscribers .

·         the number of 3G devices on the network more than doubled in the past year to account for 40.8 percent of postpaid subscribers, up from the year-ago 19.5 percent.

·         wireless data revenues grew 38.6 percent to $3.2 billion compared to the year-ago quarter, with data revenue accounting for 27.2 percent of first-quarter wireless service revenue. That’s up from 21.5 percent in the year-ago quarter.

·         average revenue per subscriber (ARPU) for postpaid subscribers grew 2.1 percent year-over-year to $59.21, down sequentially from $59.59 in the fourth quarter but marking the ninth consecutive quarter that the company posted year-over-year gains in postpaid ARPU.

·         postpaid churn was 1.2 percent, flat with the year-ago quarter but down sequentially from 1.6 percent in the fourth quarter of 2008.

The company’s OIBDA wireless service margin grew to 40.9 percent compared to the fourth-quarter’s 35.8 percent but was down from the year-ago 41.7 percent. The OIBDA service margin represents operating income before depreciation and amortization, divided by total service revenues. It excludes handset sales and the impact of handset subsidies.

Overall first-quarter wireless revenues were up 8.8 percent to $12.86 billion compared to the year-ago quarter and included $1.19 billion in sales of handsets and other equipment. Handset sales were up 1 percent.

Operating income in the company’s wireless segment was up 13 percent to $3.3 billion compared to the year-ago period, and operating income margin grew to 26 percent from the year-ago 25 percent. That margin reflects handset sales and subsidies and includes depreciation and amortization.