Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



AT&T Bitten by Apple

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Top telecom carrier AT&T (NYSE: T  ) knew that too much of a good thing was going to come back to bite it months ago. But even though the company warned investors that subsidizing the latest generation of the Apple (Nasdaq: AAPL  ) iPhone would be costly, it didn't think it would be hit so hard so fast with a $900 million drag on profits this quarter.

The bright side, of course, is that AT&T activated a ton of iPhones -- approximately 2.4 million since July 11th. The reported "pressure" on its profits equates to roughly $375 in subsidies per iPhone. The justification is in the long-term value of these users -- not only do 40% of them come from competing carriers like Verizon (NYSE: VZ  ) , Sprint Nextel (NYSE: S  ) and Deutsche Telekom's (NYSE: DT  ) T-Mobile, but they spend a lot more and churn a lot less than the average subscriber.

In terms of net wireless subscriber additions overall, AT&T basically matched last year's third quarter performance by bringing in two million new subscribers. Rounding out its major offerings, AT&T also added 148,000 new wireline broadband customers and 232,000 U-verse TV subscribers. The ramp up in U-verse TV subscribers also gives AT&T a total of 781,000 users now, well on its way to its target of at least a million by the end of 2008. Overall, this performance gave AT&T a solid quarter, with $31.3 billion in revenue and $3.23 in net income.

What stands out from AT&T's results is the huge impact of the iPhone. While some have pointed out this heavy dependence means the rest of the wireless business is weak, this is a faulty argument. AT&T is purposely chasing high-end customers at the expense of the lower end. The company is putting more resources into top-tier devices, such as Research In Motion's (Nasdaq: RIMM  ) new Blackberry Bold due out November 4th at a price of $299. These releases dwarf the "get 4 cheap Nokia (NYSE: NOK  ) phones for only $99" ads that were more common before Apple jumped into the fray.

Even though I'm not a current AT&T investor, I would welcome the carrier's focus on the more profitable high-end. Even though I'd expect the growth in numbers to slow, each subscriber is more valuable and dependable. Though not a guarantee, this gives me more confidence in the continued cash-generation capability and the generous 6.6% dividend yield.  

For more Foolishness:

Sprint Nextel is one of dozens of stocks recommended by the Motley Fool Inside Value team to beat the market going forward. To see what other stocks are trading below intrinsic value, check out a free 30-day trial of the newsletter service today.

Fool contributor Dave Mock has switched from checking coin returns on paper machines to scanning abandoned lottery tickets. He owns no shares of companies mentioned here. Sprint Nextel and Nokia are Inside Value picks. Apple is a Stock Advisor recommendation. The Fool's disclosure policy doesn't need a secret decoder ring and won't lead to a shamelessly-plugged advertisement.

Read/Post Comments (1) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 22, 2008, at 3:28 PM, MasterRoshi wrote:

    I could have sworn I overhead on morning TV news that iPhones outsold Blackberry's this last Q, but it wasn't specific as too 'units' vs $$$. Either way, not bad for it being Apple's one-trick-pony in the telecom market.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 760300, ~/Articles/ArticleHandler.aspx, 10/25/2016 8:22:15 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 11 hours ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 4:00 PM
T $36.86 Down -0.63 -1.68%
AT and T CAPS Rating: ****
AAPL $117.65 Up +1.05 +0.90%
Apple CAPS Rating: ****
BBRY $7.35 Down -0.02 -0.27%
BlackBerry CAPS Rating: *
DT.DL $11.83 Down +0.00 +0.00%
Deutsche Telekom A… CAPS Rating: ***
NOK $4.97 Up +0.05 +1.02%
Nokia CAPS Rating: **
S $6.92 Up +0.37 +5.65%
Sprint CAPS Rating: **
VZ $48.21 Up +0.01 +0.02%
Verizon Communicat… CAPS Rating: ****