With payment shift, AT&T; misses estimates

AT&T Inc., the second-largest U.S. wireless carrier, missed earnings estimates as more customers chose smartphone installment plans, paying lower charges for wireless service in exchange for buying devices at full price over time.

Second-quarter profit of 62 cents a share, excluding some items, fell short of the 63-cent average estimate of analysts, according to data compiled by Bloomberg. Sales rose 1.6 percent to $32.6 billion, below the $33.2 billion average estimate. The company, which is buying satellite carrier DirecTV, had already raised its 2014 sales forecast and lowered its range of earnings estimates on June 3 because of the impact of the installment plans, called Next. It reiterated the outlook Wednesday.

The company added more than 1 million monthly wireless subscribers. The shift to Next helps keep customers from switching to T-Mobile US Inc., whose offer of smartphone financing early last year forced Dallas-based AT&T and the other carriers to catch up. The downside for AT&T and its rivals is that the trend cuts into their revenue from wireless services, since the companies have to account for smartphone installment payments separately.

"They're seeing pressure on the margin side of things, but they're hanging in there. That's the best thing you can do in this type of environment," Angelo Zino, an analyst with S&P Capital IQ, said in an interview before the earnings release.

Shares of AT&T fell 6 cents to close Wednesday to $35.88.

The average monthly wireless-phone bill fell to $62.28 from $67.49 a year earlier. Including Next installment payments for smartphones, the average bill was $64.35. Bills will increase "substantially" in the second half of the year as customers spend more on data for their new devices, AT&T said in a presentation posted online.

AT&T's wireless-service profit margin expanded 0.2 percentage point from a year earlier to 42.6 percent. Analysts had projected a service margin of 42.4 percent, based on a Bloomberg survey of nine estimates.

The company's 1 million new monthly subscribers surpassed the 816,000 average of analysts' estimates, though it fell short of Verizon Communications Inc.'s gain of 1.4 million. AT&T's additions included about 700,000 smartphone subscribers, compared with Verizon's 304,000 new phone subscriptions. About half of the smartphones AT&T sold were through Next plans.

In AT&T's landline video-and-broadband business, called U-verse, the company added 488,000 Internet users and 190,000 video subscribers. That compared with 641,000 U-verse Internet customers and 233,000 TV customers added a year ago.

Net income slid to $3.5 billion, or 68 cents a share, from $3.8 billion, or 71 cents, a year earlier.

To bolster its video offerings, AT&T agreed in May to buy El Segundo, Calif.-based DirecTV for $48.5 billion. As part of the deal, AT&T is selling its stake in America Movil SAB to longtime partner Carlos Slim for $5.57 billion. The sale added 8 cents a share to AT&T's net income in the quarter.

In another move to raise cash for the DirecTV purchase, AT&T agreed to sell as much as $2 billion in phone financing receivables to a group of banks led by Citigroup Inc.

Business on 07/24/2014

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