Record iPhone Activations Drive AT&T Subscriber Gains

A record 5.2 million iPhone activations drove up AT&T's subscriber numbers during the third quarter. The gains "guarantee" AT&T is capturing its highest-value customers, according to AT&T's Ralph de la Vega. The growth came even as AT&T capped its data plans while rivals offered unlimited plans. AT&T is continuing to build out a 4G network.

AT&T told investors Thursday that the wireless carrier racked up a net gain of 2.6 million wireless subscribers in the third quarter to reach 92.8 million. The additions were driven by a record 5.2 million iPhone activations -- 62 percent more than the 3.2 million iPhones that AT&T activated in the second quarter.

"A record number of customers signed new two-year contracts, and integrated-device sales outpaced our previous best by a wide margin," said AT&T CEO Randall Stephenson. "Mobile broadband is the industry's most powerful growth driver , and demand is in its early stages in both the consumer and business segments."

Getting Customers Under Contract

At the end of the third quarter, 57.3 percent of AT&T's 67.7 million postpaid subscribers had integrated devices -- up from 42 percent 12 months earlier. The record eight million customers who signed up for iPhones and other integrated devices in the quarter "guarantees we are getting under contract" the highest-value customers the carrier has, noted Ralph de la Vega, head of AT&T's wireless business.

What's more, about 24 percent of AT&T's 5.2 million iPhone activations in the quarter were customers new to the wireless carrier. "That's 60 percent above our previous record, and sales continue to be strong," de la Vega said.

The majority of AT&T's new integrated-device customers are expected to remain with AT&T's network because of the nature of their long-term commitments. "Approximately 80 percent of these subscribers are on family or business-related plans," de la Vega explained.

AT&T's third-quarter wireless churn -- the percentage of customers opting out of the carrier's network for a rival service -- was the lowest on record, de la Vega said. Moreover, AT&T added 3.8 million net 3G postpaid integrated devices in the quarter as well as more than 14 million in the past 12 months.

No Data-Cap Blowback

AT&T's third-quarter wireless data revenues rose 30.5 percent year over year to $4.8 billion, boosted by a 21.5 percent rise in AT&T wireless subscribers over the previous 12 months. The wireless carrier also said text-message traffic increased 34 percent and multimedia traffic more than doubled.

Though AT&T introduced capped wireless data plans in the third quarter -- even as its wireless rivals maintained unlimited data plans -- the continuing strong consumer demand for AT&T's wireless offerings effectively demonstrates that the carrier made the right decision, de la Vega said.

"It says that the scheme we came up with -- to give customers assurance that they were not going to incur larger overages and, at the same time, can enjoy a price break if they use less data -- is working very well," he said.

Meanwhile, AT&T continues to invest in network improvements such as HPSA+, which theoretically offers a 2X improvement in data-throughput speeds, as well as in backhaul upgrades expected to pave the way for the introduction of 4G. De la Vega said AT&T is on track to introduce 4G service in mid-2011 based on Long Term Evolution technology , which provides backward compatibility with AT&T's GSM and HSPA networks.

LTE trials are already under way in Baltimore and Dallas, de la Vega said. The carrier projects it will have 70 million to 75 million LTE point of presence accounts on its national network by the end of next year, he added.