AT&T’s Q2: Hello, new smartphone subscribers; Goodbye, Cricket prepaid customers

AT&T’s(s t) Q2 earnings report today was a tale of two carriers.
On the one hand, AT&T had a record spring quarter when it came to its core postpaid business, adding 1 million net new customers. But in its prepaid business, AT&T lost 405,000 subscribers, all casualties of AT&T’s acquisition of Leap Wireless.
From Ma Bell’s perspective it’s all good news, since postpaid customers buying premium data plans are far more profitable than pay-as-you-go subscribers. But if you were still under any illusions that AT&T was going to put its full support behind Leap’s Cricket service, you can dash them right now. As I’ve written before, AT&T only wanted to cannibalize Leap for its spectrum.
AT&T Mobility CEO Ralph de la Vega said on AT&T’s earnings call that these kind of defections from Cricket were expected as AT&T began transitioning Leap’s old CDMA networks and devices to GSM technology. De la Vega said the number of customers abandoning Cricket every month is already slowing down as AT&T gets them to try out AT&T’s new unified network.

Ralph De La Vega, AT&T Mobility CEO

AT&T Mobility CEO Ralph de la Vega (Photo: Om Malik)

However, no former Cricket customers upgraded to AT&T postpaid plans, de la Vega pointed out, meaning AT&T reached 700,000 smartphone net adds entirely by luring them away from other carriers. So we’re basically seeing flight in two different directions: postpaid customers arriving and prepaid customers leaving.
Turning to the numbers, AT&T recorded a profit of $3.6 billion, down from the $3.8 billion posted a year ago, off of revenue of $32.6 billion. On the wireline side, AT&T added 190,000 U-Verse TV subscribers and 488,000 U-Verse internet customers, though as always wireless continued to dominate its consumer business.
AT&T Mobility had a record postpaid churn rate of 0.86 percent, meaning a much smaller percentage of its core customer base departed for other carriers than in previous quarters. AT&T chalked that up to its evolving business model, which is focused heavily on shared data plans and its new Next upgrade program.
Graphic: AT&T

Graphic: AT&T

AT&T now has 15 million Mobile Share accounts, encompassing 41 million individual connections. Half of those accounts subscribe to a 10GB plan or greater monthly plan. The more individuals and devices AT&T has on the same data plan the less likely account holders will take their business elsewhere.
Meanwhile Next is proving to be one of AT&T’s most important programs ever. Next now accounts for more than 50 percent of all smartphone sales, which is helping AT&T move away from device subsidies and make money from phone sales. Subscribers in the Next program building up equity on their next smartphone upgrade are also proving to be more loyal and profitable customers in the long term.
De la Vega also noted that less than 10 million AT&T subscribers are grandfathered into unlimited data plans, contrary to a report earlier this week that AT&T still had 44 percent of its customers on the unlimited spigot.
AT&T’s results definitely question whether T-Mobile’s Un-carrier onslaught against the U.S. is working. In the first quarter we really saw T-Mobile throw its weight around. It cut into AT&T’s smartphone growth, but Verizon(s vz) really felt the pain, recording its first net loss in phone customers in recent memory.
But in Q2, both Verizon and AT&T rebounded, particularly in the postpaid market where they made big gains in smartphone and tablet connections. T-Mobile may be luring away prepaid customers, but it doesn’t look like either of the Big 2 are losing the customers they care most about.