• by Laurie Sullivan  @lauriesullivan, October 24, 2007

AT&T boosted profits in the third quarter by 41% on savings from acquisitions, successful marketing efforts, record wireless revenue and an exclusive deal to support Apple's iPhone.

Thanks to the iPhone, more than 950,000 customers have activated AT&T's mobile service since the start of the third quarter. Roughly 1.1 million customers signed up since Apple's device went on sale June 29.

Acquisitions also helped to cut costs and raise profits. With the approximate $86 billion purchase of BellSouth, the largest U.S. phone carrier gained control of the mobile phone joint venture then known as Cingular Wireless, creating synergies to cut personnel and marketing costs.

Not long ago, consumers considered AT&T a tired brand. It had weak appeal and high subscriber turn rates. Rival Verizon Wireless was thought to have the lead. Surprising Wall Street analysts, AT&T jettisoned the stronger Cingular brand, replacing it with AT&T Wireless.

"They've done a great job of repositioning the AT&T brand to stand for a high-quality wireless service," says Craig Moffett, senior analyst at Sanford C. Bernstein & Co.

AT&T says it's benefiting from a smooth integration of BellSouth, too. Savings generated by the purchase could exceed all expectations, reaching $3 billion in 2007. The company now has 65.7 million subscribers.

Net income reached $3.06 billion, or 50 cents per share, in the third quarter--from $2.17 billion, or 56 cents, in the year-ago quarter, the company said Tuesday. Although earnings per share slipped, much of the net income increase came from AT&T's acquisition of BellSouth in December 2006. Revenue nearly doubled, to $30.1 billion in the quarter, up from $15.6 billion in the year earlier.

AT&T reported that, excluding acquisition-related expenses and other one-time charges, it would have earned $4.3 billion, or 71 cents per share--compared with income of $2.4 billion, or 63 cents per share in the year-ago quarter. Adjusted profit met Wall Street forecasts. Thomson Financial analysts' consensus estimated 71 cents per share on revenue of $30.12 billion.

"It was generally in line with expectations, and there wasn't a whole lot that jumped off the page at us," says Chris King, senior telecom analyst at Stifel Nicolaus & Co. "The wireless subscriber number was stronger than expected, but many came from wholesale subscribers rather than retail. It's difficult for us to see where the company's taking market share from Verizon Wireless."

Perhaps a new music service will convince those teetering on the fence. As part of the company's marketing makeover, AT&T earlier this week unveiled a music service with Napster, an online service with more than 5 million songs, ahead of the CTIA Wireless I.T. & Entertainment show Monday in San Francisco.

The Napster Mobile Service, scheduled to launch in mid-November, will offer single songs for $1.99 and a monthly subscription fee of $7.49 that will let subscribers download five songs monthly. The songs are not available for download to Apple's iPhone.