AT&T -1.8% AH on Q2 miss, wireless service revenue decline

|About: AT&T Inc. (T)|By:, SA News Editor

AT&T (NYSE:T) had 1.03M mobile postpaid net adds in Q2, above June guidance of 800K+. 707K smartphone net adds and 366K tablet net adds fueled the increase, which compares with 1.4M postpaid adds for Verizon.

However, prepaid subs fell by 405K, a decline much worse than Q1's 50K. Part of the decline stemmed from the loss of Cricket (Leap Wireless) subs. Reseller sub losses totaled 164K vs. 206K in Q1.

Wireless service revenue -1.4% Y/Y to $15.1B (46% of total revenue), and contributing to the Q2 miss; AT&T previously guided for no Q2 growth, as the adoption of cheaper Mobile Share plans take their toll. Phone-only postpaid ARPU fell 7.7%.

On the bright side, postpaid churn fell to 0.86% from 1.02% a year ago. 80% of postpaid phone subs have smartphones vs. 73% a year ago.

Wireless equipment sales (pressure margins) +44.8% to $2.8B thanks to strong adoption of AT&T's Next smartphone upgrade plans (drove 3.1M smartphone gross adds/upgrades). Wireless EBITDA margin fell 220 bps to 35.5%.

Wireline revenue -0.9% to $14.6B (45% of total) . Wireline voice connections fell by 758K to 27M, and broadband connections by 55K to 16.4M. U-verse TV connections grew by 190K to 5.9M.

U-verse revenue +24.8% Y/Y, allowing residential revenue to rise 3% to $5.7B. Business revenue fell 2.9% to $8.7B.

Only $159M was spent on buybacks, a big slowdown from recent quarters.

AT&T is reiterating guidance for 2014 free cash flow of ~$11B, and capex of $21B.

Q2 results, PR