AT&T Inc. (NYSE:T - News) today reported first-quarter results, highlighted by continued robust mobile broadband growth with record first-quarter smartphone sales and a two-fold year-over-year increase in branded computing subscribers.
“We delivered another robust mobile broadband growth quarter for a very solid start to the year,” said Randall Stephenson, AT&T chairman and chief executive officer. “We posted double-digit wireless revenue growth, and we set new first-quarter records in total net adds, connected device net adds and smartphone sales. Growth in tablets and other branded computing subscribers also continues to be strong.
“Mobile broadband networks are driving unprecedented growth and innovation, and AT&T is playing a leading role in bringing these benefits to customers,” Stephenson said. “That’s why our agreement to acquire T-Mobile USA, which we announced in March, is so important. Combined, the two companies’ spectrum and network assets will allow us to simultaneously address spectrum issues created by this increased demand and improve customers’ network experience as volumes continue to grow.”
First-Quarter Financial Results
For the quarter ended March 31, 2011, AT&T's consolidated revenues totaled $31.2 billion, up more than $700 million, or 2.3 percent, versus the year-earlier quarter, marking the company's fifth consecutive quarter with a year-over-year revenue increase.
Compared with results for the first quarter of 2010, operating expenses were $25.4 billion versus $24.6 billion; operating income was $5.8 billion, down from $6.0 billion; and AT&T's operating income margin was 18.6 percent, compared to 19.6 percent.
First-quarter 2011 net income attributable to AT&T totaled $3.4 billion, or $0.57 per diluted share. These results compare with reported net income attributable to AT&T of $2.5 billion, or $0.41 per diluted share, in the first quarter of 2010. Excluding 2010 significant items, earnings per share for the first quarter of 2011 was stable with earnings per share of $0.58 per diluted share in the year-ago first quarter.
First-quarter 2011 cash from operating activities totaled $7.7 billion, and capital expenditures totaled $4.2 billion. Free cash flow — cash from operating activities minus capital expenditures — totaled $3.6 billion.
Wireless Operational Highlights
Led by strong performance in mobile broadband in the first quarter, AT&T delivered continued solid growth in its wireless business, including record first-quarter subscriber growth and stable churn. Highlights included:
Mobile Broadband Drives Solid Subscriber Gains. AT&T posted a net gain in total wireless subscribers of 2.0 million, to reach 97.5 million in service. This included gains in every customer category. First-quarter net adds reflect adoption of smartphones, increases in prepaid subscribers, strength in the reseller channel and a record first quarter for connected devices such as eReaders, security systems, fleet management systems and a host of other products. Retail net adds for the quarter include postpaid net adds of 62,000. Excluding the impacts of the Alltel and Centennial integration migrations, postpaid net adds were approximately 165,000. Prepaid net adds were 85,000. Connected device net adds were 1.3 million, and reseller net adds were 561,000.
Tablet Sales Drive Branded Computing Subscribers. AT&T had a strong quarter with branded computing subscribers, a new growth area for the company that includes tablets, aircards, MiFi devices, tethering plans and other data-only devices. AT&T added 421,000 of these devices to reach 3.4 million, twice as many as a year ago. Most of those new subscribers were tablets with 322,000 added in the quarter. More than 80 percent of those tablets were booked to the prepaid category.
Sequential Churn Stable. Churn levels were relatively stable sequentially. Total churn was 1.36 percent versus 1.30 percent in the first quarter of 2010 and 1.32 percent in the fourth quarter of 2010. Postpaid churn was 1.18 percent, compared to 1.07 percent in the year-ago first quarter and 1.15 percent in the fourth quarter of 2010. Excluding the impacts of the Alltel and Centennial migrations, postpaid churn was 1.12 percent for the quarter, compared with 1.05 percent in the year-ago quarter and 1.10 percent in the fourth quarter of 2010.
Smartphone Sales Remain Strong. AT&T had another strong quarter of smartphone sales. (Smartphones are voice and data devices with an advanced operating system to better manage data and Internet access.) More than 5.5 million smartphones were sold in the first quarter, the third-highest quarter ever and an increase of more than 60 percent year over year. During the quarter, 3.6 million iPhones were activated. Approximately 65 percent of postpaid sales were smartphones.
At the end of the quarter, 46.2 percent of AT&T's 68.1 million postpaid subscribers had smartphones, up from 34.7 percent a year earlier. The average ARPU for smartphones on AT&T's network is 1.8 times that of the company's other devices. More than 80 percent of smartphone subscribers are on FamilyTalk and/or business discount plans. Churn levels for these subscribers are significantly lower than for other postpaid subscribers.
Double-Digit Wireless Revenue Growth. Total wireless revenues, which include equipment sales, were up 10.2 percent year over year to $15.3 billion. Wireless service revenues increased 8.6 percent, to $14.0 billion, in the first quarter.
Wireless Data Revenues Lead Growth. Wireless data revenues — driven by messaging, Internet access, access to applications and related services — increased nearly $1 billion, or 23.9 percent, from the year-earlier quarter to $5.1 billion. AT&T postpaid wireless subscribers on monthly data plans increased by 18.7 percent over the past year. Versus the year-earlier quarter, total text messages carried on the AT&T network increased by more than 25 percent to 179.8 billion, and multimedia messages increased by 54.2 percent to 3.7 billion.
Postpaid ARPU Expansion. Driven by strong data growth, postpaid subscriber ARPU increased 2.4 percent versus the year-earlier quarter to $63.39. This marked the ninth consecutive quarter AT&T has posted a year-over-year increase in postpaid ARPU. Excluding the impact of the Alltel merger, postpaid ARPU growth would have been about 3 percent year over year. Postpaid data ARPU reached $23.35, up 16.0 percent versus the year-earlier quarter.
Wireless Margins Reflect Strong Smartphone Sales. First-quarter wireless margins reflected increased operating costs associated with strong smartphone sales, high customer upgrade levels and the Alltel and Centennial merger costs, offset in part by improved operating efficiencies and further revenue growth from the company’s base of high-quality smartphone subscribers. AT&T’s first-quarter wireless operating income margin was 25.8 percent versus 30.0 percent in the year-earlier quarter, and AT&T’s wireless EBITDA service margin was 39.0 percent, compared with 44.5 percent in the first quarter of 2010. Without customer migration costs from the Alltel and Centennial mergers, service margin would have been 40.5 percent. (EBITDA service margin is earnings before interest, taxes, depreciation and amortization, divided by total service revenues.) First-quarter wireless operating expenses totaled $11.4 billion, up 16.8 percent versus the year-earlier quarter, and wireless operating income was $3.9 billion, down 5.3 percent year over year.