AT&T warned that strong sales of Apple's 3G iPhone would hit full-year margins as a result of the substantial subsidy it is providing on the handset.
The company revealed yesterday that it had sold 2.4m iPhones in the third quarter but the better-than-expected take-up by customers had resulted in a $900m hit to pre-tax earnings, equivalent to 10 cents a share.
The operator said that anticipated strong demand for the handset would hurt full year margins in its wireless unit.
The Houston-based group said that about 40 per cent of the iPhones sold during the three-month period were bought by new subscribers to its network. It said iPhone subscribers continued to spend more and have greater loyalty than other mobile customers.
"I am particularly pleased with the customer response to the iPhone 3G," said Randall Stephenson, AT&T chief executive. "The new customers we're winning are high-value, with attractive revenue and churn profiles."
In the short term, however, AT&T - the exclusive network provider for the iPhone in the US - warned that the subsidies associated with 3G iPhone sales would continue to hit profits and that the earnings dilution associated with the 3G iPhone would run above its previous expectations.
The shares were down $1.95 at $23.78 at the close in New York yesterday, a fall of 7.58 per cent.
AT&T cut its full-year operating margin outlook in its wireless business to 37 per cent down from 39-40 per cent.
AT&T's mobile unit, whose growth in recent years has offset the decline in its traditional fixed-line business, added 2m wireless subscribers in the quarter, taking its total customer count to 74.9m.
Postpaid churn, which measures how many subscribers with monthly contracts cancelled services, fell to 1.2 per cent, compared with 1.3 per cent in the year-ago quarter.
Overall, AT&T's results for the quarter ended September 30 fell somewhat short of Wall Street's earnings targets, mainly reflecting the impact of 3G iPhone subsidies. Net income increased to $3.23bn, or 55 cents a share, in the quarter, up from $3.06bn, or 50 cents a share, in the year-ago period. AT&T's traditional fixed line business continued to suffer.
