Telecommunications giant AT&T reported its earnings rose 5.5 percent during the third quarter, but profits fell short of analyst predictions. Ironically, the chief cause of both the rise in revenues and the disappointing profits was the same: The company’s strong sales of Apple’s iPhone 3G.
According to the company’s report, 2.4 million people activated an iPhone 3G during the third quarter, and 40 percent of those were new AT&T wireless subscribers.
“I am particularly pleased with the customer response to the iPhone 3G,” said Randall Stephenson, AT&T chairman and chief executive officer. “The new customers we’re winning are high-value, with attractive revenue and churn profiles. We’re expanding the market as users adopt more data and media-rich services and access a wide array of applications. These achievements are positive for the future of our business.”
The news, however, was disappointing to Wall Street — in midday trading, AT&T was down about five percent.
Before the release of AT&T’s earnings statement, analysts had predicted the company would earn 71 cents per share. AT&T fell well short of that target, reporting earnings of just 55 cents per share.
A significant portion of the shortfall (roughly 10 cents per share) was attributed to AT&T’s decision to subsidize the cost of the iPhone 3G. The company underwrites approximately $375 of the cost of each handset, enabling consumers to purchase the iPhone 3G for just $199 or $299, depending on the configuration they select.
When it rolled out its exclusive iPhone 3G to the public in July, AT&T had predicted that over the course of the coming year, handset subsidies would cost the company 10 to 12 cents per share. But thanks to the more than two million activations, AT&T hit the low end of its cost estimate in just three months.
Nonetheless, AT&T believes the significant subsidy is a useful…