AT&T Adds 4 Million iPhones But Wireless Growth Slows

In its fourth-quarter earnings release today, AT&T touted a record 2.8 million net wireless customers added during the period. But only 400,000 of those were new contract subscribers -- the most valuable type of customers coveted by wireless operators. What's more, that total was less than a third of the 1.3 million added a year ago, and did not meet Wall Street expectations.

The slowdown comes as AT&T braces for the end of its exclusive hold on the iPhone when Verizon Wireless begins selling the Apple device next month. During a conference call with analysts Thursday, AT&T CEO Randall Stephenson admitted that 2011 could get off to a rocky start, but expressed confidence the nation's No. 2 wireless operator would stabilize and grow through the year.

A key part of AT&T's strategy to become less reliant on the iPhone is embracing Android as Verizon Wireless did last year as a way to blunt AT&T's advantage with the iPhone. Already AT&T has begun selling Android devices last year, and at CES earlier this month announced more on the way, including the Samsung Infuse 4G and HTC Inspire 4G.

Recent comScore data showed Android edging past Apple in the U.S. smartphone market for the first time at the end of 2010, with a 26% share compared to Apple's 25%. "You can expect us to be a heavy participant in the Android market this year," said Stephenson. AT&T has also added Windows Phone 7 and BlackBerry handsets to diversify its smartphone lineup.

Despite the much-publicized launch of the Verizon iPhone in February, AT&T still activated 4.1 million of the devices in the fourth quarter. Stephenson took that as a positive sign that the company will be able to weather the transition when its main rival begins to offer the iPhone.

But given the much smaller number of new contract customers in the quarter, the vast bulk of iPhone activations were from people upgrading phones rather than new subscribers. Only 20% were from customers who were new to AT&T compared to 40% a year ago. Even without the iPhone, Verizon managed to add 872,000 contract subscribers during the quarter.

In addition to riding the Android wave, AT&T is also counting on the proliferation of connected devices to help drive mobile data revenue. To that end, the carrier added 442,000 iPad and Android tablets in the quarter and 1.5 million connected devices overall. That helped push data sales up 27% from a year ago to $4.9 billion.

AT&T also said the proportion of integrated devices -- handsets with QWERTY or virtual keyboards in addition to voice functionality that include the iPhone -- increased to 60% of its 68 million contract subscribers from 46.8% a year ago.

Overall, the carrier reported a fourth-quarter profit of $1.09 billion, or 18 cents a share -- down from $2.73 billion a year ago, or 46 cents a share. Revenue increased 2% to $31.3 billion.

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