(Reuters) - AT&T Inc (T.N), the No. 2 U.S. wireless carrier and the world's largest pay-TV operator, raised its 2015 earnings forecast as quarterly earnings beat expectations on cost cuts and gains in wireless and DirecTV subscribers.
AT&T shares rose 1.7 percent in after-hours trading on Thursday.
Reporting results for the first time since closing its $48.5 billion purchase of satellite TV operator DirecTV in July, AT&T lifted its adjusted earnings forecast to $2.68 to $2.74 per share from $2.62 to $2.68.
"It's early days, but it seems like they are gaining some traction in cross-selling ... and gaining momentum throughout the quarter selling DirecTV in wireless stores," Jefferies analyst Mike McCormack said.
As the U.S. wireless market stagnates, AT&T is seeking new revenue streams and betting on DirecTV's satellite TV business to help beef up its bundles of cellular, broadband, TV and fixed-line phone services. It has been expanding in Mexico after the recent purchase of the third- and fourth-largest wireless carriers in that country.
AT&T's net income, excluding DirecTV, fell to $3 billion, or 50 cents per share, in the quarter ended Sept. 30, from $3.13 billion, or 60 cents per share, a year earlier. Excluding items, earnings of 74 cents per share beat the average analyst estimate of 69 cents according to Thomson Reuters I/B/E/S.
Total operating revenue rose 18.6 percent to $39.1 billion, short of the average estimate of $40.4 billion.
Like its rivals, AT&T is shifting its subscriber base from contracts to monthly equipment installment plans, making customers pay the full price for their phones while charging them lower service fees. Previously, carriers offered two-year contracts that included subsidized phones.
Equipment revenue from this model grew profit margins in its wireless business, AT&T executives said on a conference call after its earnings report.
AT&T has also simplified its plans and billing system, leading to fewer customer service calls and more savings, they added.
Free cash flow is now expected to be in the $15 billion range or higher in 2015, the company said.
Among wireless consumers, AT&T reported 289,000 postpaid or monthly phone net new subscribers and 622,000 tablet net additions. It added 466,000 prepaid subscribers in the quarter.
DirecTV, whose pay-TV subscriber numbers fell in the second quarter, had 26,000 net additions in the latest period, AT&T said. However, it lost 91,000 AT&T U-verse video customers.
AT&T's rate of churn, or customer defections of monthly wireless users, was 1.16 percent in the quarter, higher than expected, McCormack of Jefferies said.
Reporting by Sudarshan Varadhan in Bengaluru and Malathi Nayak in New York; Additional reporting by Kshitiz Goliya in Bengaluru; Editing by Richard Chang and Lisa Shumaker