AT&T Trails Verizon in Customer Race

AT&T posted a large quarterly loss as it took a $4 billion charge for its failed T-Mobile USA takeover bid, and the phone giant continued to lag behind rival Verizon Wireless in the race to add new subscribers.

AT&T added 717,000 customers with long-term contracts in the fourth quarter, a 79% jump from a year earlier, on the strength of 7.6 million iPhone activations and 9.4 million smartphone sales overall. But AT&T is adding fewer new customers than rival Verizon Wireless, which added 1.2 million contract subscribers in the same period. Most of AT&T's iPhone and smartphone sales are going to existing subscribers. Excluding one-time items—notably the cost of handing over $3 billion in cash and $1 billion in wireless airwaves to T-Mobile parent Deutsche Telekom AG after the merger deal crumbled—AT&T posted a profit of 42 cents a share, down from 55 cents a year earlier. The carrier also contributed $1 billion to its pension plan. Like Verizon, AT&T's wireless profit margins suffered due to high outlays for subsidizing the iPhone and other handsets upfront in exchange for two-year customer commitments. The carrier reported its wireless service margin, not including some expenses, fell to 28.7%, from 37.6%. The fourth-quarter margin was 23.7% at Verizon Wireless. AT&T lifted average revenue per contract customer by seven cents to $63.76. That could rise further after AT&T lifted the price of data plans this month for new customers by $5, which it said was necessary to reflect higher average data usage. AT&T's traditional wireline business, which includes landline telephones and its U-verse cable and Internet service, continued to contract as more users opt for mobile phone service. Revenue for the business fell to $14.9 billion from $15.1 billion in the year-earlier period. AT&T brought in 208,000 new U-verse television customers compared with the third quarter.

Chief Executive Randall Stephenson lashed out at the Federal Communications Commission, faulting the agency for standing in the way of industry growth by failing to organize an auction for spectrum licenses and for opposing the T-Mobile deal. "This FCC made it abundantly clear that they'll not allow significant M&A to help bridge and free up spectrum," Stephenson said. "The FCC is intent on picking winners and losers rather than letting these markets work."

Harold Feld, legal director for Public Knowledge, said, “It is unfortunate that AT&T Chairman Randall Stephenson still believes that buying out the wireless industry is the only way to improve his company’s spectrum efficiency. His comment in this morning’s earnings call that the FCC has made it clear the agency won’t allow acquisitions as a means of increasing spectrum holdings is inappropriate for two reasons. The failed acquisition of T-Mobile would have had far wider implications than simply a spectrum acquisition. It is unfortunate that AT&T thinks that the only way it can increase its spectrum holdings is to purchase a competitor. Using its current holdings more efficiently would also go a long way to relieving the company’s purported spectrum shortage. In addition, the Commission did allow AT&T to purchase spectrum from Qualcomm.”