Smartphone comes to AT&T’s rescue

AT&T’s (NYSE:T) earnings today painted a picture of growth driven not just by the dwindling prospect of luring away its competitor’s customers but through boosting revenues through data plans. AT&T announced an impressive increase in monthly average revenue per user (ARPU) of 3.4% for postpaid customers off the back of data revenue growth. What’s more, AT&T’s postpaid churn was at a record low, a further indication that its smartphone ramp-up is allowing it squeeze more dollars out of its customers as well as keep those customers loyal (or at least under contract).

AT&T added 1.6 million net customers in the second quarter, a Q2 record for AT&T, but fewer than many analysts expected since Q2 saw the introduction of both the iPhone 4 and the iPad. AT&T reported 3.2 million iPhone activations in the three months ending June 30, but given that AT&T offered cut-rate discounts on the iPhone 4 and older models for renewing contract subscribers, the vast majority of those activations (73%) came from within AT&T’s current subscriber base of 90.1 million. Evidence of that might also be seen in its record churn levels of 1.01% for postpaid and 1.29% overall.

The irony of the situation is that the exclusivity of the iPhone on AT&T’s network coming to an end is actually bolstering AT&T’s churn numbers as it tries down to lock down iPhone subscribers before the device appears on competitor networks, said Craig Moffett, senior analyst at Bernstein Research.

The most positive news for AT&T, though, was its growth in wireless revenue, which jumped 10.3% year-over-year, and monthly wireless post-paid ARPU, which grew 3.4% to $62.63. Wireless data revenues increased $936 million to $4.4 billion, and the number of data plans increased 24% in the last year. Integrated 3G devices now account for 29.7 million connections, about a third of AT&T’s overall subscriber base.

“For the past two years, the overriding question for AT&T has been ‘the growth question,’” Moffett said in an analyst note. “With postpaid penetration nearing saturation levels, and with U-Verse already passing its growth peak in wireline, revenue growth turned negative during the recession… and threatened not to recover. Wireless ARPU growth – led by the revolution in wireless data – is now AT&T's last best hope.”

The big worrisome spot in AT&T’s wireless results was the number of gross additions, which fell 19.8% year-over-year. AT&T may have grown its customer base in the second quarter, but it wasn’t exactly signing up wave after wave of new customers.”And that's with the iPhone,” Moffett said. “That can't be good news for competitors. Put simply, the post-paid pool is drying up.”

Wireline performance was mixed. AT&T recorded a 93.000-subscriber loss in broadband and access line losses fell another 11.3%. But U-Verse subscriptions increased 209,000. Enterprise revenues continued to suffer due to the recession, falling 4.8%.