AT&T doesn’t take Q3 off to wait for the iPhone

AT&T couldn’t have navigated the potential pitfalls of the 3^rd quarter any better. Despite having to wait out July through September without an iPhone ‘refresh,’ AT&T managed to sell 4.8 million smartphones, nearly half of which were Android or other smartphones, as well as boost revenues per user, lower churn and top the 100 million mark for total subscribers.

For the last four years, AT&T has been accustomed to getting a new iPhone every summer, which invariably triggers a huge wave of activations, carrying it over into the holiday 4th quarter where the frenzy begins anew. This year it didn’t have that luxury. Apple waited until mid-October to release the iPhone 4S and discount its previous models (CP: Apple iPhone 4S with Siri, iOS5, iCloud—but no 4G), which could have meant a doldrums quarter for AT&T. In addition, AT&T plans to launch its first LTE smartphones in the current quarter, which could have caused Android device buyers to delay their purchases---at least in the handful of markets where AT&T offers LTE (CP: AT&T LTE to go live Sunday).

But AT&T cleared both obstacles with room to spare. AT&T sold more than 2.4 million iPhones in Q3 and nearly an equal amount of Android, BlackBerry and Windows Phone 7 devices. Its total net adds numbered 2.1 million, bringing AT&T’s total subscription base to 100.7 million. Half of those adds were in the connected devices space, which tend to focus on lower-revenue machine-to-machine connections, but AT&T also connected 290,000 iPads and other tablets in the quarter.

Postpaid subscribers grew by 319,000, while prepaid grew by 293,000. Overall churn fell from 1.32% to 1.28% year-over-year, though postpaid churn did tick up one point to 1.15%. Postpaid average revenue per user increased 1.4% year-over-year to $63.69 a month, driven largely by smartphone data plans. AT&T said that more than 50% of its postpaid base now has a smartphone. 18 million of those smartphone customers have signed up for one of AT&T’s tiered data subscriptions, the majority of them opting for the higher-priced 2 GB plan.

If Q3 was good then Q4 has the potential to be outstanding, AT&T CEO of Mobility and Consumer Ralph de la Vega said during the company’s earnings call. Both the iPhone 4S, of which AT&T has already activated 1 million, will figure largely in AT&T’s Q4 report. In addition, AT&T will launch its first LTE smartphones, which should provide a boost among customers waiting for the ultra-fast mobile broadband technology. So far AT&T has LTE in just five markets, but de la Vega said it will turn the network up in Boston and Washington, D.C., shortly and have 70 million pops in 15 markets covered by year end. Add to all that the holiday season, which always serves to make Q4 operators’ best quarter, and AT&T may break some records.

“We expect the 4^th quarter to be one our strongest smartphone sales quarter ever,” de la Vega said.

Of course, there are a few factors that could drag on AT&T’s momentum. AT&T will be going head-to-head with Verizon Wireless, Sprint (CP: New iPhone 4S welcomes new operators) and even C Spire in the iPhone market (CP: Apple moving the iPhone through regional operators). While LTE could provide a big boost, its current limited footprint will dampen its nationwide appeal. But AT&T has one big advantage. It will be the only operator to offer a “free” iPhone, the 3GS, with contract. It’s previous commitment to Android remains strong as well. It's launching another five Android devices this quarter, several of which access its high-speed packet access plus (HSPA+), further reducing its dependence on the iPhone (Unfiltered: AT&T loads up on Android). De le Vega said that AT&T has already surpassed its goal of moving two-thirds of its cell site to high-capacity backhaul, allowing it market most of its network as 4G.

During the earnings call AT&T Chief Financial Officer John Stephens also discussed AT&T’s in-limbo acquisition of T-Mobile for the first time in a while. Stephens said it is making progress under the FCC’s review and hopes to come to terms with the U.S. Department of Justice, thus removing its antitrust suit against the merger (CP: DOJ lawsuit dashes AT&T’s hopes of an easy merger review). “Our expectation continues to be that we will reach a successful conclusion,” Stephens said.