AT&T Holds the Line on Subscribers

Little wonder AT&T was so keen to buy T-Mobile USA.

As AT&T's first quarter results showed, without such a deal, the cost of maintaining wireless-subscriber growth could become painful. AT&T said its net additions of "postpaid" subscribers -- those valuable customers with contracts -- plummeted 88% to 62,000 from a year earlier. Among other things, that likely reflected the impact of Verizon Wireless finally getting to sell the iPhone. But the results could have been much worse.

There was only a slight drop in the number of new customers AT&T lured with the iPhone. And wireless churn among postpaid customers, or the percentage canceling their service every month, rose only fractionally. Excluding the impact of last year's Alltel deal, only about 143,000 extra customers appear to have canceled in the quarter, out of a total postpaid subscriber count of 68 million. Investors shouldn't celebrate yet. Holding the line on subscriber losses wasn't cheap. AT&T launched aggressive marketing efforts to sell more smartphones, including a cut-price $49 iPhone 3GS offer announced shortly before Verizon started selling the iPhone 4. AT&T acknowledged the additional subsidy costs from higher smartphone sales was largely why wireless operating expenses rose 16.8%. That sent operating income down 5.3% despite higher revenue. And it is a good bet a number of iPhone users on AT&T, unhappy with network-congestion problems, are waiting either for their contracts to end or for the next version of the iPhone before they switch to Verizon