AT&T; suffers iPhone setback

Times Staff Writer

In a first peek behind the iPhone launch, AT&T; Inc. said Tuesday that it had activated 146,000 of the handsets in the first two days of sales, which coincided with the last two days of its second quarter. Analysts had estimated that 200,000 to 500,000 of the highly anticipated Apple products would be sold in the first three days.

The nation’s largest phone company, the exclusive carrier for the iPhone, released quarterly results, but would not reveal how many of the devices were sold. It would say only that the iPhone continued to sell well this month after the initial weekend frenzy at Apple and AT&T; stores from June 29 through July 1.

Wall Street shaved 35 cents off AT&T;'s shares, which closed Tuesday at $39.68.

Apple Inc. didn’t fare as well. Its shares fell $8.81, or 6.1%, to $134.89 on fears that sales were slowing for what Chairman Steve Jobs had called an essential pillar in the company’s growth. Cupertino, Calif.-based Apple may reveal more about overall sales when it reports its quarterly earnings late today.


“I think it may be an understatement to say that no device in the history of the wireless industry has come out with more fanfare than the iPhone,” said Richard G. Lindner, AT&T;'s chief financial officer. “Expectations were certainly high.”

Analysts said part of the shortfall in activation might be attributed to glitches. Many customers had problems activating the phone online or simply didn’t bother activating their accounts until after the weekend.

In the second quarter, AT&T; posted net income of $2.9 billion, or 47 cents a share, an increase of 61% over earnings of $1.8 billion, or 46 cents a share, in the same period a year earlier. Quarterly revenue shot up 87% to $29.5 billion from $15.8 billion.

Enthused as analysts were about the company’s overall results -- driven by gains in wireless customers, wireless data revenue and corporate accounts -- they were still perplexed by the iPhone.

Piper Jaffray & Co. analyst Gene Munster called the number of activations a “disappointment.”

He said he believed actual sales would come in at about 200,000 for the first weekend.

“It does not fundamentally change our confidence that the iPhone will become the next major driver for Apple’s growth,” he said.

But AT&T; has much more than the iPhone going for it. Its mobile unit, previously called Cingular Wireless, gained 1.5 million customers in the quarter, to give it 63.7 million subscribers. Its churn rate -- the percent of those quitting the service -- fell to 1.2% from last year’s 1.5%.


“The iPhone is just one of a host of new data-rich products and services that we’ve recently launched,” Lindner said, pointing to Research in Motion Ltd.'s Blackberry Curve and other handsets and services that take advantage of AT&T;'s fast network.

San Antonio-based AT&T; also continues to add high-speed Internet customers, and its fledgling U-verse pay television service has 51,000 customers in 23 cities, up from 13,000 three months ago.

The company’s huge increase in quarterly profit stems mainly from the acquisition late last year of BellSouth Corp., which allowed it to take control of the stake in Cingular that it didn’t already own.

With those operations added into last year’s mix, AT&T;'s income grew 45%. Revenue, with BellSouth and Cingular results, rose 2%.