A record 3.2 million iPhone activations helped boost AT&T's second-quarter earnings 26 percent year over year and prompted the company to increase its outlook for the full year.
On Thursday, the carrier reported earnings of $4 billion compared with $3.2 billion in the prior year's quarter. Sales inched up 0.6 percent to $30.8 billion from a year ago.
The company attributed the surge in earnings to the 3.2 million iPhone activations during the quarter, with around 27 percent of those from customers new to AT&T. Preorders of Apple's iPhone 4 were 10 times higher the first day than those for the iPhone 3GS a year earlier, AT&T added.
The carrier also saw fewer people exiting its service, with its churn rate shrinking to a record low of 1.29 percent from 1.48 percent a year ago. Overall, it added 1.6 million wireless subscribers during the quarter to reach a total of 90.1 million customers, a 13 percent gain over a year ago.
"We delivered another strong quarter, with improved revenue trends, double-digit earnings growth and solid cash flow," Randall Stephenson, AT&T chief executive officer, said in a statement. "These results add to our confidence going into the second half of the year."
Though sales only rose slightly, AT&T did not include results from its business software unit Sterling Commerce, which the company is selling to IBM for $1.4 billion
Beyond the contribution of the iPhone, other areas played a role in the earnings growth.
Overall sales from the wireless data segment, which includes Internet access, messaging, and related services, jumped $936 million, or 27 percent, to $4.4 billion. The number of wireless customers opting for AT&T's data plans rose more than 24 percent over a year ago.
Stephenson highlighted mobile broadband as the "industry's most powerful growth driver."
AT&T's U-verse service, which offers packages of digital TV, voice, and Internet, saw its sales surpass $1 billion for the quarter, more than twice the revenue seen in 2009's second quarter. The number of U-verse subscribers rose by 209,000, or almost 60 percent, to hit 2.5 million in the quarter.
Higher demand for U-verse helped give AT&T a 32 percent rise in consumer IP revenue, which now accounts for 40 percent of all sales in its consumer wireline, or landline, segment. Overall, revenue in the consumer wireline area was flat at $5.4 billion compared with last year's second quarter.
Though only a few months old, the iPad is slowly making a dent. AT&T said that between 400,000 and 500,000 iPad 3G devices were activated on its network during the quarter. Around 75 percent to 80 percent of those subscribers started with the $30 data plan. But as AT&T introduced its tiered pricing in early June, more of them started to sign up at the $25 plan. The company also reported what it described as a surprising level of interest in the iPad from business customers, many of whom are eyeing it as a potential replacement for laptops.
Cost cuts also played a role in AT&T's results. Operating expenses fell by around 2 percent compared with a year ago. And citing employee wages and benefits as some of its major expenses, the company has continued its layoffs, trimming more than 10,000 jobs since the end of 2009. Many of those cuts came from the weaker consumer wireline segment.
With the surge in earnings, AT&T revised its outlook for the full year. Though it didn't release specific numbers, the company now expects earnings per share, operating income margins, and cash flow to surpass their levels of 2008, an improvement from its prior forecast in which it said results would be on par with those in 2008.
Update at 9:25 a.m. PDT with more details and conference call.