NEW YORK (Reuters) - AT&T Inc reported weaker than expected quarterly revenue as its wireless subscriber growth for the first quarter was driven by tablet computer users who pay lower fees than cellphone customers.
The No. 2 U.S. mobile service said it added 296,000 subscribers in the quarter compared with Wall Street expectations for just over 195,000, according to six analysts contacted by Reuters.
This included a net addition of 365,000 subscribers using tablet computers, implying a net loss of 69,000 higher-value phone subscribers. As a result Nomura analyst Michael McCormack said that AT&T's 0.9 percent growth in average monthly revenue per user (ARPU) missed his expectation for 1.9 percent growth.
"The concern's going to be how we should be thinking about ARPU going forward," said McCormack who expects a revenue growth slowdown across the industry as most consumers already have smartphones so operators have to look for growth elsewhere.
Revenue fell to $31.36 billion from $31.82 billion in the year-ago quarter before it sold its telephone directory business. Analysts, on average, had expected revenue of $31.74 billion, according to Thomson Reuters I/B/E/S.
While AT&T's wireless profitability was better than analysts expected, McCormack said its 29.5 percent profit margin for its wireline business was well below his expectation for 30.4 percent.
AT&T Chief Financial Officer John Stephens told analysts on a conference call that the wireline business was hurt by weak demand from business customers which are slowing spending due to concerns about the economy.
"The economy continues to be the issue," Stephens said.
AT&T's profit rose to $3.7 billion, or 67 cents per share, from $3.58 billion, or 60 cents per share, in the year-ago quarter.
It reported a wireless service margin of 43.2 percent based on earnings before interest, tax, depreciation and amortization, up from 42.3 percent in the year-ago quarter and beating the six analysts' expectations for 42.3 percent.
AT&T shares fell 2 percent to $38.15 in after-hours trade from their $39 close in the regular New York Stock Exchange session.
Reporting By Sinead Carew; Editing by Jim Marshall and Tim Dobbyn