Wireless Leads As AT&T's Q3 Shows Growth

Boosted by higher-than-forecast growth in wireless services, AT&TT Tuesday reported a 13% jump in third-quarter per-share profit, as revenue, including the former BellSouth, rose 3.2% to $30.1 billion.

AT&T earnings, adjusted to exclude certain costs and accounting effects from major mergers, rose to 71 cents a share from 63 cents in the year-ago period. That's in line with the estimates of analysts polled by Thomson Financial.

Third-quarter wireless revenue jumped 14.4% to $10.9 billion. AT&T added two million wireless subscribers, ahead of estimates.

Wireless data revenue jumped 64% to $1.8 billion. Apple'sAAPL new iPhone, a smart phone and digital music player, fueled AT&T's wireless growth. AT&T is iPhone's exclusive wireless services provider in the U.S.

As of Monday, AT&T says it has 1.1 million iPhone customers, up from 146,000 on June 30. About 40% of iPhone users switched to AT&T from other providers.

"AT&T is firing on all cylinders in its wireless business," said Craig Moffett, an analyst at Bernstein Research. "For now, it's all about wireless. They're gaining market share, and wireless data adoption is a tail wind for everyone in the industry."

AT&T now has 65.7 million wireless subscribers, the most among U.S. phone companies. But AT&T is losing landline residential customers as cable TV firms ramp up phone services.

AT&T lost 468,000 consumer lines in the third quarter, up 41% from the 332,000 it lost in the year-earlier quarter.

"Line losses are like a snowball rolling down a hill, they're getting worse, not better," Moffett said, "which makes wireless growth even more important."

AT&T's 3.2% revenue increase -- its highest pro-forma sales growth in any one quarter since a series of mergers remolded the phone company -- surprised analysts.

AT&T's forerunner, SBC Communications, tripled in size through acquisitions that began in 2005. After SBC bought long-distance firm AT&T, the combined company swallowed BellSouth in late 2006 to gain full control of Cingular Wireless, now called AT&T Mobility.

While cost-cutting has boosted AT&T's earnings, an improved sales outlook also bodes well for the company, says John Hodulik, an analyst at UBS Research.

"One of the issues people have had with AT&T is that supposedly it's a no-growth company," said Hodulik. "Wireless is the biggest piece of the pie and it's growing nicely."

AT&T's broadband growth has slowed, though. AT&T added 500,000 customers for high-speed Internet connections in the quarter, down 9% from 550,000 a year earlier, including BellSouth.

AT&T's fledgling U-verse TV service delivered via hookups to homes gained traction. AT&T signed up 75,000 new TV customers in the quarter, double what it added the previous three months.

AT&T now has 126,000 U-verse subscribers. It plans to spend $6.5 billion through 2008 to reach 18 million homes with the Internet-based TV service.

"The consumer business is treading water (with cable competition), but there should be improving trends there as AT&T rolls out IPTV," Hodulik said.

AT&T also resells satellite TV services from EchoStarDISH and DirecTVDTV. AT&T added 140,000 satellite TV subscribers in the third quarter, down from 162,000 in the previous three months.

AT&T has almost two million satellite TV customers. Speculation continues that AT&T might try to buy EchoStar, which plans to spin off its equipment business.

AT&T, though, said nothing to support takeover speculation on Tuesday during its earnings conference call with analysts. "Nothing has changed with respect to our video strategy," said Richard Lindner, AT&T's chief financial officer.