AT&T Announces Strong Earnings; Moving Ahead on T-Mobile

AT&T announced its second quarter earnings this week and the wireless provider did a lot better than expected.

The company earned $31.5 billion in revenue, up 2.2 percent from the year ago quarter, and its operating income of $6,165.0 million was up 1.3 percent from the second quarter of 2010. Wireless subscriptions were up 1.1 million to reach 98.6 million, with 331,000 customers being people who signed up for post-paid contracts. Its earnings per share were at 60 cents.

iPhone additions were steady from last quarter, with 3.6 million iPhone activations. 24 percent of those activations came from new customers. This year AT&T has faced competitive pressure from Verizon, which was the second U.S. based wireless carrier to hold the popular smartphone.

Both AT&T and Verizon will likely see steady iPhone addition numbers until Apple releases the next generation iPhone. Meanwhile, AT&T saw strong smartphone sales elsewhere with sales of non-iPhone smartphones doubling. In particular, AT&T has found great success with aggressive marketing of Android phones.

AT&T's performance surpassed analyst expectations of 59 cents on revenue of $31.31 billion according to a survey by Thomson Reuters. However, analysts are still looking for a bit more from the company.

There's no question they are enjoying the benefits of smartphone adoption, and their wireless business is handling the loss of iPhone exclusivity relatively well. But this is an enormous company with a tremendously complex mix of businesses. The aggregate growth of this company is still relatively slow, Sanford Bernstein analyst Craig Moffett said to Dow Jones.

One thing that has impeded the company's growth is its integration of Alltel and Centennial. When excluding customer defections from those two companies, the 331,000 number from above actually jumps to 504,000. The company also sold a substantial amount of tablets as well with 379,000 new tablet customers.

The company also addressed its possible merger with T-Mobile, which has faced scrutiny from the Federal Communications Commission as well as senate members. The Senate's Antitrust Committee Head Herb Kohl (D-Wis.) spoke out against the merger yesterday.

I have concluded that this acquisition, if permitted to proceed, would likely cause substantial harm to competition and consumers, would be contrary to antitrust law and not in the public interest, and therefore should be blocked by your agencies, Kohl said.

AT&T's general counsel on the earnings conference said the merger is moving along as planned. He says the F.C.C. as well as the Department of Justice have not done anything out of the ordinary that would indicate those agencies want to block the merger.

We remain comfortable with the process, AT&T general counsel Wayne Watts said to analysts. They are asking all the right questions.

To say the merger would be huge for AT&T is an understatement. Combining the second and fourth biggest wireless companies in the U.S. would create a giant that would vault into first place surpassing Verizon.

We believe AT&T's ambitious $39 billion proposed mega-merger with T-Mobile will help in regaining subscribers. Upon completion, the merger will create the leading wireless operator in the U.S. and further improve revenue and profits, adding more wireless subscribers with enhanced networks, Zacks.com said.

Shares of AT&T's stock were at $30.41, up 18 cents or 60 percent from $30.23 at the beginning of the day.

Follow Gabriel Perna on Twitter at @GabrielSPerna