April 22 (Bloomberg) -- AT&T Inc., the biggest U.S. telephone company, said first-quarter profit rose 22 percent on sales of Apple Inc.'s iPhone and savings from a plan to cut 10,000 jobs after its 2006 purchase of BellSouth Corp.
Net income jumped to $3.46 billion, or 57 cents a share, from $2.85 billion, or 45 cents, a year earlier, the San Antonio- based company said today in a statement. Sales climbed 6.1 percent to $30.7 billion, meeting the average estimate in a Bloomberg survey of analysts.
AT&T rose in New York trading after reporting 1.3 million new wireless customers, in line with the 1.35 million estimate of UBS AG analyst John Hodulik. Customers dropped about 693,000 primary home-phone lines to switch to wireless handsets or cable providers' voice plans, a trend that has forced Chief Executive Officer Randall Stephenson to look to mobile sales for growth.
``Wireless continues to be a strength for the company,'' said Todd Rosenbluth, an analyst at Standard & Poor's in New York. He recommends buying the shares. ``Investors had concerns about the impact from the economy and the impact from competition, and we think the results AT&T has put up show business continues to be strong.''
Even after shutting off service to about 330,000 wireless subscribers who were using an older technology, customer turnover, or churn, was unchanged from a year earlier at 1.7 percent.
2 Million IPhones
AT&T had almost 2 million iPhone users on its network at the end of last year. While Apple plans to sell a new iPhone this year that offers faster Internet download speeds, demand for the current model was ``pretty stable'' last quarter, Chief Financial Officer Rick Lindner said in an interview. He declined to say how many of the handsets AT&T activated last quarter.
Profit, excluding costs such as acquisition expenses, was 74 cents a share, meeting the average estimate of 22 analysts in a Bloomberg survey.
AT&T climbed 22 cents to $37.81 at 4 p.m. in New York Stock Exchange composite trading. The shares have declined 9 percent this year. The stock's 7.8 percent drop in the first quarter was its biggest since 2005. Twenty-two analysts suggest buying the stock, six recommend holding it and one says to sell it, according to data compiled by Bloomberg.
Apple fell $7.96, or 4.7 percent, to $160.20 on the Nasdaq Stock Market after American Technology Research downgraded the shares, saying investors' expectations for earnings tomorrow may be too high.
$90 a Month
More than 40 percent of iPhone buyers are new AT&T customers, and the average user of the Apple handset spends more than $90 a month on wireless service, including Internet access, text messaging and other features, Lindner said. That compares with the $50.18 average for all of AT&T's wireless customers.
Mobile-phone customers spent 21.5 percent of their monthly bills on data services such as text messaging and Internet access, up from 16 percent a year ago. The extra spending makes the wireless business more profitable. AT&T's operating profit margin from wireless service rose to 41.7 percent from 38.9 percent a year ago, leaving out depreciation and amortization.
``They're definitely getting a better reputation of having a higher-end user,'' said Jennifer Fritzsche, an analyst at Wachovia Securities Inc. in Chicago. She expects the shares to outperform the broader market. ``The more-savvy wireless user is walking into their stores.''
Firing People
Stephenson, 48, is using the $86 billion BellSouth purchase to cut 10,000 jobs in overlapping functions such as marketing and technology. The company announced 4,650 additional firings April 18 to thin the ranks of managers in the home-phone business, incurring a $374 million pretax charge in the first quarter.
The acquisition expanded AT&T's home-phone territory to 22 states and gave it full control of the wireless unit it co-owned with BellSouth.
The first-quarter results ``reinforce the confidence we have in our outlook,'' Stephenson said in the statement. In a conference call with analysts, Lindner reiterated a January forecast for full-year revenue growth in the ``mid-single digits'' over 2007's $118.9 billion.
Sales to corporate customers, excluding revenue from an equipment business, expanded in the second half of 2007 for the first time since the 2005 merger that created the current AT&T. The turnaround was ``a pleasant surprise,'' Stephenson told investors in January.
`Solid' Demand
Total corporate revenue climbed 1.2 percent to $4.66 billion. Demand from large business customers remains ``solid,'' Lindner said.
Earnings reports have been mixed this month, with General Electric Co. and Alcoa Inc. missing estimates and Google Inc. and Caterpillar Inc. exceeding them.
AT&T has been the exclusive U.S. carrier for the iPhone since it went on sale in June. Apple, based in Cupertino, California, introduced a model in February with added storage capacity for music and movies. The faster model may debut in June, analysts at Sanford C. Bernstein & Co. and Piper Jaffray & Co. have said. Apple plans to sell 10 million iPhones this year.
AT&T lost 1.6 million primary residential lines in 2007. To compete with cable rivals such as Comcast Corp., the company is spending $7 billion on network upgrades over five years to offer speedier Internet connections and television service.
Subscribers to the company's U-verse service, which offers video over home-phone lines, rose by 148,000 to 379,000. AT&T reiterated its forecast for more than 1 million U-verse customers by the end of the year.
The company also plans to boost download speeds on wireless phones beginning in 2011 or 2012, when it will introduce a new generation of mobile technology. AT&T paid $6.64 billion in a U.S. government auction this year to acquire airwaves for faster Web access.
[Thanks: http://www.bloomberg.com]
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