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AT&T sees slowing growth in wireless in 3Q

In this Oct. 18, 2011 photo, a man using a cell phone passes an AT&T store, in New York. AT&T Inc. on Thursday, Oct. 20, 2011, reported a decline in the number of iPhones activated in its latest quarter, as buyers waited for the new model. ( In this Oct. 18, 2011 photo, a man using a cell phone passes an AT&T store, in New York. AT&T Inc. on Thursday, Oct. 20, 2011, reported a decline in the number of iPhones activated in its latest quarter, as buyers waited for the new model. ( (AP Photo/Mark Lennihan)
By Peter Svensson
AP Technology Writer / October 20, 2011

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NEW YORK—Running one of the nation's biggest wireless networks has been a reliable way for AT&T to boost revenues, quarter after quarter, as people loaded up on phones, and then traded up to smartphones.

But the easy money may already have been made, AT&T's latest results show.

AT&T Inc. said Thursday that its wireless service revenue grew just 4.3 percent in the July to September period versus a year ago. That growth rate had often topped 10 percent in the recent years, but has now been declining for a year.

Contributing to the slowdown in growth was the delayed launch of the latest iPhone model, which just missed the end of the quarter. AT&T said it activated 2.7 million iPhones in the third quarter, the lowest number in a year and a half, as people waited for the new model.

On Tuesday, Apple Inc. surprised investors with global iPhone sales figures that were below lofty expectations. But AT&T said Thursday that it had already activated 1 million units of the iPhone 4S in the first five days on sale, setting a new record for a phone.

"The fourth quarter is going to be unbelievable," Ralph de la Vega, head of the consumer side of AT&T, told analysts on a conference call.

In an interview, de la Vega said growth in wireless service revenues will speed back up on the fourth quarter, as customers load up on iPhones and the data plans that go with them.

But there are longer-term trends behind the sluggish growth in service revenues. Almost everyone already has a phone, so there's not much growth to be had from new subscribers. Phone companies hope they'll make more money per subscriber instead, by selling them smartphones that require data plans. AT&T is a leader here, with more than half of its subscribers on smartphones. It is making more money from the data plans, but that barely offsets a decline in the revenue from phone calls.

"The wireless business simply isn't a growth engine anymore," said Sanford Bernstein analyst Craig Moffett.

AT&T is trying to juice the wireless business by buying No. 4 carrier T-Mobile USA for $39 billion, but the Justice Department is trying to stop the deal, saying it would remove a competitor from the market and raise prices. Observers give it only a small chance of being completed.

Dallas-based AT&T reported its net income fell to $3.62 billion, or 61 cents per share, for the quarter, down from $12.3 billion, or $2.07 per share, a year ago, which was boosted by the sale of a subsidiary and a tax settlement. Excluding those items, last year's earnings were 54 cents per share.

The latest earnings matched the average forecast of analysts polled by FactSet.

Its revenue slipped 0.3 percent to $31.5 billion from $31.6 billion a year ago. That was slightly below analysts' expectations of $31.6 billion.

In midday trading, AT&T shares fell 23 cents to $28.86. The stock trades in a tight band, but is closer to its 52-week high low of $27.20 than its 52-week high of $31.94.

AT&T's recruitment of subscribers to its contract-based wireless plans continued to recover in the third quarter after being slashed earlier this year by the advent of the iPhone at Verizon Wireless. Contract-based plans are the most lucrative.

In the quarter, AT&T gained a net 384,000 subscribers on contract plans, excluding the effects of two minor acquisitions. That was roughly in line with analyst expectations and an improvement from the first quarter's figure of 62,000. However, it was still only half the number it gained in last year's third quarter.

AT&T added a total of 2.1 million phones and other devices to its wireless network, for a total of 100.7 million phones and other devices on its wireless network. Half of the gains were non-phone, low-margin devices like Kindles. Only Verizon Wireless is bigger than AT&T.

Cable companies kept chipping away at broadband customers from AT&T's wired side, and AT&T's buildout of U-Verse, its own cable-TV service, slowed down. It added 176,000 TV subscribers to U-Verse, the lowest number in three years. Total broadband subscribers were flat -- the worst third-quarter showing yet for the company.

AT&T eked out a 0.2 percent increase in consumer wireline revenue compared to last year, as U-Verse barely made up for the loss of phone lines.

AT&T provides local phone service in 22 states, mostly in the Midwest and South.