By Thomas Gryta
AT&T Inc. is pulling in more wireless customers, but at a
price.
The telecom company said Tuesday it expects to add more than
800,000 of the industry's valuable postpaid customers in the second
quarter, likely its biggest gain since the fourth quarter of 2009.
But it also said half of its users of phones such as the iPhone are
on discounted plans, and that two-thirds of those subscribers will
be on such plans by the end of the year, a shift analysts said
could reduce the long-term value of its customer base.
The impact is evident in AT&T's wireless revenue. The
company expects to have added about 2.4 million postpaid customers
over 12 months that will end in June. But the company is also
reporting that its wireless-service revenue won't show any growth
in the second quarter from a year ago.
The concern on Wall Street is that AT&T is adding customers
now at the expense of cutting its service pricing across all of its
postpaid customers. Citigroup analyst Michael Rollins estimates
that excluding the acquisition of Leap Wireless earlier this year,
AT&T's mobile-service revenue will be down as much as 4% for
the current quarter.
"AT&T is trading away service revenue in the near-term to
improve retention and customer goodwill," Mr. Rollins said. The
carrier's shares were down 0.6% at $35.23 in afternoon trading
Tuesday.
AT&T's pricing moves follow aggressive efforts by T-Mobile
US Inc. to take customers by paying early termination fees and
dropping charges like international data roaming fees that had
annoyed users. The moves have worked--AT&T's monthly
cancellation rate, called churn, is expected to be just 0.95% or
lower in the quarter--and put the spotlight on Sprint Corp. and
Verizon Communications Inc.
Verizon lost wireless-phone customers in the first three months
of the year for the first time ever, and Sprint has been
hemorrhaging subscribers for years. Sprint's shares were down 2.6%.
Verizon's were down 1.7%.
Many AT&T subscribers are opting for plans where they pay
for their own devices up front or via installment plans, forgoing
subsidized devices in exchange for lower rates in some cases and
faster upgrades. The new plans relieve AT&T of a costly burden,
but the lower rates risk hurting its business.
"Subsidies may be lower; however, they won't be low enough to
offset the pricing pressure," said New Street Research analyst
Jonathan Chaplin, who argues subscribers' lifetime value to the
company falls as they move to nonsubsidy plans.
AT&T said that its total revenue for the year will be up 5%.
The gain reflects accounting for sales of unsubsidized devices,
which are recognized all at once at the time of sale. The phone
sale was previously largely bundled into monthly service
revenue.
AT&T is holding a meeting with analysts in New York on
Wednesday evening, including Chief Executive Randall Stephens and
other top executives. Because of the pending $49 billion agreement
to buy DirecTV, analysts covering that company have also been
invited and more time was added for questions.
Write to Thomas Gryta at thomas.gryta@wsj.com
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