AT& T gains with users opting for smartphone installment plans

AT&T Inc is reaping higher profits as customers who opted to pay full price for smartphones, reject discounts requiring two-year contracts.

Customers who signed up for AT&T's Next installment plans helped the company boost first-quarter earnings to 71 cents a share, excluding some items. Analysts had estimated 70 cents on average, according to data compiled by Bloomberg.

The company records the entire phone sale to Next customers up front, rather than incurring expenses for below cost sales.

While phone financing was adding to AT&T's profits for now, it would not be able to spread the revenue from those device sales over time, which might hurt profits down the road.

Although the company hiked its forecast for sales this year, it retained its goal for earnings growth at a ''mid-single-digit'' rate, as against the average analyst estimate of 9 per cent.

Bloomberg quoted Kevin Roe, an analyst with Roe Equity Research in Dorset, Vermont as saying better-than-expected overall results from AT&T Wireless would not turn investors into US telecom bulls, adding that the coming quarterly results would continue to be negatively impacted by the repricing of AT&T's installed base.

According to AT&T, revenue would expand 4 per cent in 2014, ahead of the average analyst estimate of 3 per cent.

Meanwhile, the company was looking to transform the business according to CEO Randall Stephenson, ''We have been working very deliberately to transform our business, and this quarter you really start to see the benefits.''

And for evidence of this there was the company expanding the potential deployment of its ultra-high-speed fibre service - U-verse with GigaPower - to include about two dozen metro areas with a total of about 100 municipalities. The service is set for launch this year in Dallas.

Yesterday, before the results were released, AT&T said it was partnering with Los Angeles-based Chernin Group in a venture that would acquire, fund and launch video services, including live programming and targeted video on demand. The two companies had committed over $500 million to the effort.

Stephens said he expected the first offering to come before the end of the year.