Economy and iPhone subsidies trim AT&T's 2Q profit

The profit beat Wall Street estimates, however.

The country's largest telecommunications provider said Thursday it earned $3.20 billion, or 54 cents per share, in the April to June period. That was down from $3.77 billion, or 63 cents per share, a year earlier.

Analysts polled by Thomson Reuters were expecting earnings of 51 cents per share.

Dallas-based AT&T's revenue fell 0.6 percent to $30.7 billion, matching analyst expectations.

AT&T activated more than 2.4 million iPhones in the quarter, and more than a third of those were for customers who were new to the carrier. Apple Inc. and AT&T launched a new model of the phone on June 19.

AT&T subsidizes each new iPhone by hundreds of dollars, expecting to make the money back in service fees over a two-year contract. AT&T's operating margin in wireless declined to 23.8 percent from 25.5 percent a year ago.

AT&T added a net 1.37 million wireless subscribers, a strong showing in a market that's approaching saturation, and more than analysts had expected. Together with the evident popularity of the iPhone, it could mean that AT&T has benefited at the expense of other carriers this quarter.

AT&T is the first major telecom company to post results for the season. Verizon Communications Inc. reports on Monday, followed by Sprint Nextel Corp. and Qwest Communications International Inc. on Wednesday.

AT&T ended the quarter with 79.6 million wireless subscribers, remaining in second place behind Verizon Wireless.

In pre-market trading Thursday, AT&T shares rose 66 cents, or 2.7 percent, to $25.50. While the stock held up well in the market meltdown last fall, it has failed to keep pace with the recovery this spring. It has traded between $20.90 and $33.56 over the past year.

A long-running trend continued in the second quarter as AT&T lost 921,000 residential phone lines. Households are signing up for phone service from cable TV providers or opting to rely on cell phones alone.

AT&T said its earnings were also weighed down by pension and retiree benefit expenses that were $400 million higher, or 5 cents per share, than in the same period last year.

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