AT&T reports $6.7 billion loss on hefty charges, iPhone costs

Thu Jan 26, 2012 12:20pm EST
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By Sinead Carew

(Reuters) - AT&T Inc (T.N: Quote) posted a $6.7 billion quarterly loss as it was weighed down by a hefty break-up fee for its failed T-Mobile USA merger and other big charges on top of costly subsidies for smartphones such as Apple Inc's (AAPL.O: Quote) popular iPhone.

While the No. 2 U.S. wireless provider beat analysts' expectations for subscriber additions, the growth came at a massive cost as its wireless service margins plummeted.

On top of the $4 billion break-up package charge, AT&T also took a big impairment charge for its telephone directory business, which it said it was considering selling.

While advanced devices like iPhones can help subscriber numbers and revenue, they also shrink earnings as operators like AT&T and its bigger rival Verizon Wireless heavily subsidize the devices to attract customers to two-year contracts.

AT&T's wireless service margin fell to 28.7 percent, based on earnings before interest, tax, depreciation and amortization, from 43.7 percent in the third quarter and 37.6 percent a year earlier, missing already low analysts' expectations.

"If there's any reason to be upset, it certainly is the margins," said Stifel Nicolaus analyst Chris King, who had expected a margin of 32 percent. However, he noted that strong smartphone sales should help AT&T in the long run.

Its shares were off 2 percent after the news. In a bid to help stem the decline, AT&T said it would begin to aggressively buy back shares under its 300 million share buyback plan.

In his first presentation to investors since the December collapse of his $39 billion bid to buy Deutsche Telekom's (DTEGn.DE: Quote) T-Mobile USA , Chief Executive Randall Stephenson spent much of the earnings call criticizing the U.S. Federal Communications Commission for opposing the deal.   Continued...