Defying Doubters, AT&T Profit Rises 39%

AT&T, the nation’s largest telecommunications company, reported a 39 percent increase in its first-quarter profit on Wednesday, despite losing the exclusive rights to sell the iPhone in the United States midway through the period.

The company posted net income of $3.4 billion, or 57 cents a share, up from $2.5 billion, or 41 cents a share, a year earlier. Revenue climbed more than 2 percent, to $31.2 billion from $30.5 billion.

AT&T’s income met Wall Street forecasts while its revenue was slightly better than the forecast for $31.26 billion, but the company’s stock fell 18 cents, to $30.13 a share.

AT&T said it activated 3.6 million iPhone accounts during the period, nearly a million more than it activated a year earlier, easing concerns that Verizon, which began selling the iPhone in February, would cut into its market share immediately.

Nearly a quarter of the new iPhone subscribers were new to AT&T. The company also said that the number of subscribers who left the carrier stayed roughly the same as last year. In addition, AT&T added two million wireless subscribers in the quarter, a slight increase from the 1.9 million that it added in the first quarter a year earlier. AT&T’s overall pool of subscribers, which includes cable and land line customers, rose to 97.5 million, a 12 percent increase from a year earlier.

“We entered this quarter and this year with questions and uncertainty, in part related to the end of the iPhone exclusivity and its impact,” said Richard Lindner, the chief financial officer of AT&T, during a call to analysts and investors. “Hopefully we’ve answered those questions.”

Ralph de la Vega, the company’s chief mobility officer, said AT&T’s marketing push, which included commercials that highlighted technical limitations of Verizon’s CDMA network that do not allow smartphone owners to make voice calls and simultaneously perform data functions like browsing the Web, as being instrumental in retaining subscribers.

The company also attributed the popularity of connected devices like tablet computers, Kindles and personal Wi-Fi hot spots, as lifting the company’s profits. AT&T and third-party retailers sold 421,000 of those during the quarter, although the vast majority of those sales were iPad 3Gs, which made up 322,000 of those sales.

But analysts said it might be too soon to determine what the overall impact of the Verizon iPhone will be on AT&T.

“Is this as bad as it gets or will the real impact come only later with the iPhone 5,” wrote Craig Moffett, an analyst with Sanford C. Bernstein Research, in a note to investors.

The fifth-generation of the iPhone, which some speculate could be introduced by Apple in the fall, might be the true litmus test for the carriers, who will have to compete for customers whose current contracts are expiring as well as those intending to upgrade.

Mr. Moffett noted that while AT&T did, however, beat analysts’ expectations that it would lose about 50,000 of its contract subscribers, adding instead 62,000 contract customers, the figure was down from the same period a year earlier, when AT&T gained 512,000 new customers on contract.

Charles S. Golvin, a wireless industry analyst at Forrester Research, said the majority of the growth in the wireless industry stemmed from people who have never had a smartphone before.

“At this point, there aren’t any new contract customers in the United States,” he said. “It’s all about smartphone newcomers and stealing customers away from their competitors.” He noted that for the time being AT&T was still selling an older version of the iPhone, the 3GS, for $49, which might be behind the surge in iPhone activations for AT&T.

“There is something really appealing to someone who has never had a smartphone before to be able to get one for $50,” he said. But once the iPhone 5 arrives, he said, “we’ll really see how much customers care about the network they are on.”