AT&T Customers Hanging Up Too Soon

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AT&TOn the surface it looks like everything is coming up roses for AT&T (NYSE:T), as their recent earnings release glowed with net income up 5% to $3.6 billion and revenues up 2% to $31.8 billion.

But lurking behind the numbers is a disquieting trend: AT&T is generating fewer dollars per subscriber for each new phone sold, and the company gained a minimal number of new phone subscribers.

Calculations performed by AP suggest the average bill for AT&T smart phone users has fallen from $88 per month to $80 in the span of one year. Adding in the slowdown in consumer purchases of new phones and subscribers, the numbers suggest a trend that might be hard to slow or reverse.

The latter trend is simply a matter of demographics and hard cold facts: there are a finite number of consumers in the marketplace, including adults and children, who own a cell phone. Moving those users to a smart phone is critical, as smart phones generate more money per user since the device generates income from voice and data calls.

Therein lies the rub: smart phone bills went down 9% over the past year, a trend which threatens increasing revenue projections and profit margins.

Bills for non-smart phone users who are on contract-based plans are also shrinking, and shifting those users to smart phones has been the method by which AT&T keeps monthly bills for all contract-based plans rising. Contract based plans are more profitable on average for phone companies.

AT&T did manage to gain 187,000 customers on contract-based plans in Q1, but most of those were for tablet computer users brought in through purchases of Apple (NASDAQ:AAPL) iPads.

AT&T’s stumbles have benefited Verizon (NYSE:VZ), who added 501,000 subscribers to contract-based plans, half of which are tablet users. Additionally, Verizon has put nearly 3x as many customers on contract plans over the last five quarters.

Keep an eye on this measure across the entire spectrum of wireless carriers, as it may portend the winners in the race for customers and profits.


Article printed from InvestorPlace Media, https://investorplace.com/2012/04/atampt-customers-hanging-up-way-too-soon-aapl-t-vz/.

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