AT&T reported a decline in revenue that was below market expectations, but added more wireless subscribers than expected, driven by sales of tablet computers with cellular connections.
The No. 2 U.S. mobile service added 296,000 subscribers in the quarter, above expectations of just over 195,000, according to six analysts contacted by Reuters.
This included a net addition of 365,000 subscribers using tablet computers, implying a net loss of 69,000 higher-value phone subscribers. As a result Nomura analyst Michael McCormack said that AT&T's 0.9-percent growth in average monthly revenue per user (ARPU) missed his expectation for 1.9-percent growth.
"The concern's going to be how we should be thinking about ARPU going forward," said McCormack who expects a revenue growth slowdown across the industry as most consumers already have smartphones so operators have to look for growth elsewhere.
Earnings excluding items rose to 64 cents a share in the first quarter from 60 cents a share in the year-earlier period.
The company's wireless-service margin was 43.2 percent based on earnings before interest, tax, depreciation and amortization, up from 42.3 percent in the year-ago quarter. Six analysts surveyed by Reuters had expected the margin to hold steady at 42.3 percent.
Revenue fell 1.4 percent to $31.36 billion from $31.82 billion a year ago.
Analysts had expected AT&T to report earnings excluding items of 64 cents a share on $31.75 billion in revenue, according to a consensus estimate from Thomson Reuters.
On the earnings call, Chief Financial Officer John Stephens told analysts that the wireline business was hurt by weak demand from business customers, who are slowing spending due to concerns about the economy.
"The economy continues to be the issue," Stephens said.
Meanwhile, the company's wireless network continued to show strength in the quarter, CEO Randall Stephenson said in a statement. "And that helped drive our best ever first quarter for smartphone sales, improved wireless churn and strong growth in mobile-data revenues," he said.
After the earnings announcement, the company's shares slid in extended-hours trading. (Click here for the latest after-hours quotes.)