In the just-reported third quarter, AT&T's new approach to device and service sales put pressure on the telecom giant's profit margins. Shares fell on the news.
Telecom giant AT&T (NYSE:T) just reported results for the third quarter of fiscal year 2014. Reacting to the news, shares fell as much as 3.4% in after-hours trading.
AT&T saw third-quarter revenues rise 2.5% year over year, landing at $33 billion. Diluted non-GAAP earnings fell 4.5% to $0.63 per share. Analysts were looking for earnings of $0.64 per share on $33.2 billion in total sales, so both results came in slightly below expectations.
The company added 2 million net net subscribers in the quarter, including 785,000 postpaid subscribers on long-term contracts. A year ago, AT&T added less than a million new subscribers and 363,000 postpaid users. Average revenue per user fell 8% compared with the year-ago period.
To put AT&T's subscriber figures into perspective, chief rival Verizon Communications (NYSE:VZ) added 1.5 million postpaid subscribers in the equivalent quarter.
On the hardwired side of AT&T's business, gains in the U-Verse TV and Internet service outweighed subscriber losses in traditional copper-based voice services. All told, wireline sales increased 3% year over year.
Digging a little deeper into wireless results, AT&T added 466,000 million net new postpaid smartphones and 434,000 data subscriptions for tablets. In addition, 500,000 new cars were sold with included AT&T data plans this quarter.
"Our strategy is on track, and our investments in giving customers best-in-class service to access content everywhere and on any screen continue to pay off," said AT&T CEO Randall Stephenson in a prepared statement. This strategy involves revamping the wireless business model with more subsidy-free device sales and shared data plans.
These new wireless tactics are putting pressure on AT&T's profits. Wireless operating margins came in at 24.6%, down from 26.4% in the year-ago period.