Oct 22, 2008 2:56 PM,

AT&T's iPhone wildcard

By Kevin Fitchard

Apple's 3G phone spurs record sub and data growth rates and may be the key to insulating AT&T from a nasty economy

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AT&T’s third-quarter earnings today were all about the iPhone—and for good reason. The iconic 3G device was its saving grace in the previous three months, acting as a buffer to traditional seasonal declines and worries over consumer spending in the current economic climate. AT&T added more iPhone 3G subscriptions in the third quarter than it did overall net customers, and the Web-centric handheld contributed to astonishing growth in wireless data revenue.

AT&T Mobility president and CEO Ralph de la Vega and AT&T Chief Financial Officer Rick Lindner frankly stated surprise about the iPhone’s recent success. Not only were activations for the iPhone higher than expected, but they drove more traffic into AT&T stores, which in turn drove sales of other high-end feature- and smartphones, Lindner said. “We expected good iPhone volumes,” he said at AT&T’s earnings call, “but we also expected volumes in some other devices to be reduced. That’s not what we saw.”

The trend is continuing into the current quarter, de la Vega said. In October sales and activations traditionally fall only to pick up again in November as holiday shopping gets into full swing. This year, however, traffic to AT&T’s stores increased from September to the first half of October. Same store traffic is up 4% and overall store traffic is up 7% over the previous month, de la Vega said. Compared to the same three-week period last October, same store traffic is up 12% and total store is up 25%.

Despite attention being focused on the iPhone, AT&T has seen continued interest in its other 3G phone lines, de la Vega said, and it will has several full-keyboard smartphones in the pipeline that AT&T expects will provide data-centric handset alternatives to the iPhone: the Pantech Slate, the UTStarcom Quickfire and the highly anticipated BlackBerry Bold, which went on sale at AT&T today. “We have devices for every customer that walks into a store,” de la Vega said. “The traffic in the stores and our close rates are encouraging despite the economic climate we are facing.”