(Updates with closing share price in fifth paragraph.)
Oct. 24 (Bloomberg) -- AT&T Inc., the second-largest U.S. wireless carrier, reported third-quarter profit that exceeded analysts’ estimates after adding subscribers and generating more revenue from smartphone data plans.
Earnings climbed to 66 cents a share, excluding one-time items, Dallas-based AT&T said in a statement yesterday. Analysts had projected 65 cents on average, according to data compiled by Bloomberg. Sales rose 2.2 percent to $32.2 billion, in line with the average estimate.
AT&T’s fourth-generation LTE wireless network and its U- verse fiber-optic system are helping fuel growth, Chief Executive Officer Randall Stephenson said. The company added 363,000 contract wireless customers in the period, compared with 151,000 a year ago. Analysts had predicted 342,000, according to an average of nine estimates compiled by Bloomberg.
“This is impressive, especially given significant fears about AT&T losing share to other Big 4 carriers,” Jennifer Fritzsche, an analyst at Wells Fargo & Co. in Chicago, wrote in a note.
AT&T shares fell 1.8 percent to $34.63 at the close in New York. The stock is up 2.7 percent this year.
Third-quarter net income attributable to AT&T rose 4.9 percent to $3.81 billion, or 72 cents a share, from $3.64 billion, or 63 cents, a year earlier.
Even with the jump in subscribers, AT&T’s gains were dwarfed by Verizon’s 927,000 new contract users last quarter. T- Mobile US Inc., meanwhile, gained an estimated 401,000 monthly subscribers, according to an average of seven projections compiled by Bloomberg.
AT&T is spending heavily -- $6 billion in the third quarter -- to upgrade its networks and gain an advantage against its competitors, and the pressure is evident in the margins, said Kevin Roe, an analyst at Roe Equity Research LLC in Dorset, Vermont.
“Unfortunately for AT&T wireless, the competitive challenges they are facing will only intensify through the first half of 2014 as T-Mobile and Sprint play catch-up on their national LTE rollouts,” Roe said.
AT&T is facing renewed price competition from T-Mobile, a company it once attempted to acquire. That may be taking a toll on its customer growth, said Colby Synesael, an analyst at Cowen & Co. in New York.
“There’s a component of AT&T’s subscriber base that is shifting to T-Mobile based on price,” said Synesael, who has a neutral rating on AT&T and the equivalent of a buy on T-Mobile.
AT&T added 178,000 smartphone customers last quarter. That segment now represents 75 percent of total wireless users, up from 66 percent a year ago. The increase helps boost the amount customers spend on their monthly service plans because smartphones gobble up more data.
“We’re setting the standard for 4G LTE speeds and network reliability,” Stephenson said in the statement. “With these initiatives, we’re seeing excellent growth across our major platforms -- mobility, U-verse and strategic business services.”
AT&T’s wireless service profit margin remained even with a year ago, at 42 percent. Analysts had predicted 41.3 percent. The average monthly wireless bill for contract customers was $66.20, in line with the average estimate.
AT&T’s landline revenue declined 1 percent to $14.7 billion, hurt by slumping demand for traditional phone connections. The company added 265,000 U-verse TV customers, though, helping make up for landline losses.
AT&T will raise $4.85 billion from a cell-tower deal with Crown Castle International Corp., announced earlier this week. The carrier agreed to sell or lease 9,700 towers to Crown Castle and lease back antenna space needed for its network.
The extra money, which will roughly double its cash holdings, gives the carrier the ability to fund some of its record $14 billion in planned network upgrades, pursue spectrum purchases or expansion abroad.
Stephenson has said AT&T is looking at the global opportunities, aiming to capitalize on the growth of mobile Internet use worldwide. Earlier this month, he outlined a wish list of industry policy changes that could make Europe more attractive for investment.
In its first major acquisition since its failed T-Mobile takeover in 2011, AT&T agreed to buy Leap Wireless International Inc. in July for $1.2 billion, adding 5 million customers and additional airwaves. Earlier yesterday, Leap said it has to reschedule its third-quarter earnings report due to an accounting error. The company plans to restate some of its financial filings dating back to 2011.
Leap also rescheduled its shareholder meeting to Oct. 30, in Denver, when stockholders will vote on the AT&T offer.
--Editors: Nick Turner, Niamh Ring