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AT&T Posts Wireless Income Gains

Dallas – AT&T expanded its wireless operating margin and
began to grow its wireless operating income once again despite its continued
heavy reliance on sales of heavily subsidized iPhones, AT&T’s quarterly
financial report shows.

AT&T continued to activate more iPhones than rival Verizon
Wireless in the first quarter, and iPhones accounted for a larger share of AT&T’s
smartphone activations than Verizon smartphone activations, the report also

Out of 5.5 million smartphones activated on AT&T postpaid
retail plans in the quarter, 4.3 million were iPhones, or 78 percent of all smartphones
activated by AT&T. That compares with the iPhone’s fourth-quarter 81
percent share of AT&T smartphone activations, or 7.6 million iPhones out of
9.4 million total smartphones.

In contrast, Verizon activated more postpaid retail smartphones than
AT&T at 6.3 million, but only 51 percent were iPhones.

For AT&T, smartphone activations hit a record for any first
quarter and represented more than 78 percent of postpaid retail activations, close
to the 82 percent posted by AT&T in the fourth quarter.

Despite its reliance on heavily subsidized iPhones, AT&T nonetheless
posted an 11 percent gain in wireless operating income to $4.37 billion,
compared with a fourth-quarter 27 percent drop in operating income and a mere
0.3 percent gain in all of 2011.

AT&T’s wireless margin grew to 27.2 percent from a year-ago
25.8 percent and from the fourth quarter’s 24.2 percent.

AT&T’s wireless operating income and wireless revenues,
nonetheless, grew more slowly that they did at Verizon, whose wireless
operating income grew 28 percent to $5.2 billion in the quarter.

In wireless revenue, AT&T posted a gain of 5.4 percent to
$16.1 billion, while Verizon’s wireless revenues grew 8.2 percent to $18.3 billion.

AT&T’s wireless margins improved despite the sale of heavily
subsidized iPhones and smartphones, AT&T said, because of “improved
operating efficiencies and further revenue gains from the company’s 41 million
high-quality smartphones subscribers [who pay for data plans].”

Total data revenues grew 19.9 percent to $6.1 billion,
representing 38 percent of total wireless-segment revenues. Data revenues were
slightly lower than Verizon’s $6.61 billion, which accounted for 42.9 percent of
that carrier’s first-quarter wireless-segment revenues.

In other financial metrics, AT&T said:

–Seventy-eight percent of postpaid retail phones activated in
the quarter were smartphones, expanding the carrier’s smartphone-using postpaid
retail customer base to 59.3 percent of all retail postpaid subscribers.

— About 30 percent of retail postpaid smartphone subscribers are
using 4G devices.

— Total wireless net additions fell 63.4 percent from the
year-ago quarter to 726,000 because gains in retail postpaid and retail prepaid
net adds did not offset net-add declines of connected devices, such as telematics
systems and e-readers, and net-add declines in activations through resellers.

–The number of retail postpaid net adds grew 202 percent to
187,000 from a year-ago 62,000, and retail prepaid net adds grew 47 percent to

— Net adds through resellers fell 67 percent to 184,000, while
connected-device net adds fell 82 percent to 230,000 from a year-ago 1.27

–The company posted its highest-ever first-quarter activations
of branded-computing devices such as tablets, USB modems, portable Wi-Fi hot
spots and other data-only devices, adding 460,000 in the quarter to reach 5.8
million in use. Of the 460,000 data devices sold, 240,000 were tablets, and of
those, about three-quarters were activated on postpaid plans.

 The report also shows that
AT&T’s retail postpaid and retail prepaid net adds were lower than
Verizon’s 501,000 postpaid retail net adds and 233,000 prepaid retail net adds.