AT&T mobile data growth still strong but leveling out
Flood of iPhone users helps boost AT&Tís margins, but arenít enough to deliver big data revenue gains
Volume economics are working both for and against AT&T. On one hand, AT&T has built up such a huge base of 3G iPhone customersónow numbering 6 millionóthat its monthly data subscriptions have offset the steep device subsidies AT&T used to acquire them. On the other hand, that data customer base has grown so large, new data customers are no longer having such a big impact on AT&T's average monthly revenue per subscriber, a key growth driver for the operator last year.
AT&T's first-quarter earnings were, per usual, a mixed bag, with wireline declines being offset by wireless gains. Profits fell from $3.46 billion to $3.13 billion as total revenue declined less than a percentage point to $30.57 billion. Though steep competition in the low-end prepaid market led to the 155,000 prepaid subscribers fleeing to Boost Mobile and other providers (T-Mobile faced the same pressures last quarter), AT&T more than made up for those losses on the high end with 1.6 million iPhone 3G activations. In total, AT&T added 1.2 million net customers to its network, bringing its grand total to 78.2 million subscribers.
AT&T's proudest achievement for the quarter, though, was boosting its operating margins back above 40%. When AT&T launched the iPhone last summer, it saw its wireless margins plummet from 41.2% to 33.5%, as AT&T shelled out enormous sums to subsidize the device for millions of users. In the first quarter, however, the effect of 4.5 million iPhone subscribers paying up on their data subscriptions sent margins up to 40.9%--a development AT&T's Chief Financial Officer Rick Lindner called a "pleasant surprise." As AT&T's iPhone subscriber base grows, the overall effects of subsidization will lessen further, even as it continues to activate 1 million-plus iPhones every three months, though Lindner said actual profit margins for AT&T overall would remain constant due to revenue pressures from the wireline side of the house.
"We said our upfront investment in iPhone customers would depress margins in the short term," Lindner said during AT&T's earnings call. But the attractive iPhone user profile along with long-term contracts would generate steady high-dollar revenue streams for years to come, he added. "That's what you see in our first-quarter results."
There was also a downside to those millions of data revenue streams carried over from previous quarters. Even 1.6 million new iPhone data plan subscriptions in the first quarter barely made a dent in AT&T's monthly average revenue per user (ARPU). Data ARPU growth had been booming for the last three years and was particularly strong in the last half of 2008 because of the iPhone launch. Postpaid data ARPU last quarter, however, crept up only 18 cents to $16.48, barely a 1% increaseótiny compared to the 11% increase in data APRU AT&T enjoyed between the third and fourth quarters of 2008.
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© 2014 Penton Media Inc.
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