AT&T margin weakness fuels concern about U.S. cellular sector

Wed Apr 23, 2014 1:55pm EDT
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By Marina Lopes

NEW YORK (Reuters) - Increasingly aggressive discounting is taking a toll on AT&T Inc and U.S. cellular rivals as they struggle to attract customers in a nearly saturated market.

While recent price cuts by AT&T led to a surge in first-quarter subscriber adds that beat Wall Street expectations, average revenue per user fell, triggering a 3.2 percent share drop.

Other wireless carriers' shares also declined, with T-Mobile US Inc, which has roiled the industry with a series of discounts and new pricing plans, down 2.8 percent.

AT&T's result and the share fallout is the latest sign of how U.S. cellular phone providers, once seen as companies with strong growth potential, are having to resort to discounting in a bid to retain or lure clients.

"We don't like AT&T and only like Verizon slightly better, " said Michael Mullaney, chief investment officer at Fiduciary Trust Co in Boston.

All of the four main U.S. wireless providers have underperformed the Standard & Poor's 500 this year, with Sprint and T-Mobile, which were lifted by merger speculation last year, particularly weak.

"Telecom seems like it's in business just to pay its dividends. They're not growth stories at all, they're more like bond surrogates at this point, just making sure they have enough cash flow to cover their dividend payments over time," said Mullaney.

T-Mobile and AT&T have similar networks, making it particularly easy for them to lure each others' clients. Verizon Communications Inc and Sprint Corp lost 1 percent and 0.8 percent respectively.   Continued...

The AT&T logo is pictured by its store in Carlsbad, California, April 22, 2013. REUTERS/Mike Blake