T-Mobile Deal Failure Costs AT&T $4 Billion (NYSE: T)
AT&T reported a $6.7 billion loss for the fourth quarter, largely stemming from the breakup fees incurred from its failed acquisition of T-Mobile USA. The breakup fees were reported to be $4 billion. During the same period last year, the company reported profits of $1.09 billion, or $0.18 a share.
Discounting charges from the breakup fee, the company’s profit was $0.42 a share, down from $0.55 a year earlier. Record iPhone sales and an influx of new subscribers increased revenue by 4% during the quarter, to $32.5 billion from $31.4 billion last year. Analysts’ expectations were for a profit of $0.43 a share and $31.95 billion in revenue.
AT&T sold 7.6 million iPhones during the quarter, beating previous sales records, and sold 9.4 million smartphones overall. Verizon, the country’s largest phone company, reported that it had sold 4.2 million iPhones and 7.7 million smartphones during the same period. AT&T added 2.5 million wireless customers, increasing the company’s base to 103.2 million wireless subscribers.
Randall L. Stephenson, chairman and chief executive of AT&T, said in a conference call that the strong sales were the result of a “blowout holiday season.” However, AT&T’s margins and earnings decreased significantly as the company covered large subsidies for smartphones, which are necessary to make the cost of the devices low enough for customers to buy them while agreeing to a contract.
Craig Moffett, an analyst with Sanford C. Bernstein, said, “Here we are at the peak of the smartphone cycle, and it’s not translating for companies,” and called AT&T’s margins “sorely depressed.” He said, “The original thesis was that AT&T would live through some subsidy pressures but eventually see dramatic growth in revenue. But we are three and a half years into the iPhone, and we’re still waiting to see those results.”
Mr. Stephenson acknowledged the slight depression in margins but said that since smartphone customers tended to generate more revenue than non-smartphone customers, he expected to “see some lift going into next year.” He said, “I am absolutely convinced that the smartphone is a platform. The customer that you hold with a smartphone, you will also sell a tablet, a connected device, a home monitoring service. I really believe it’s become a platform in terms of further penetration of mobile data.”