AT&T’s Smartphone Sales Driving Data Revenue Growth

July 28th, 2011 by Trefis Team
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AT&T (NYSE:T) recently announced its Q2 results in which it mentioned that it had a great quarter in terms of smartphone sales, which is helping drive the data revenue growth for the company. Data revenues for Q2 were up 23% year-over-year while overall revenue grew by only 2.2%. Healthy smartphone sales are important for AT&T, which helps it compete against Verizon (NYSE:VZ) and Sprint (NYSE:S) in the telecom market.

Our $38.75 price estimate for AT&T stock is about 25% above market price.

Smartphone penetration is rapidly growing

AT&T sold 5.6 million smartphones including upgrades and new subscribers in Q2, which was the second best quarter ever for the company. The smartphone penetration (or the number of smartphone subscribers) out of the total postpaid subscriber base now stands at 50%, which is an increase from 36% a year ago. [1]

The average data revenues per subscriber (ARPU) for smartphones was 1.8x compared to other devices, which means that this parameter benefits immensely from increasing smartphone penetration.

Lower smartphone pricing point also helped

AT&T mentioned that the lower smartphone price points that it started to offer also drove smartphone growth. In particular it saw solid demand for its iPhone 3GS priced at $49. This is a smart move that capitalizes off the popularity of iPhones and gives many subscribers a way to enjoy the popular smartphone cheaply while driving additional data revenue for AT&T. The company also notes that newer models like the HTC Inspire and Motorla Atrix are selling well.

The management stated in the call:

So what we did this quarter, which worked extremely well, was to offer customers lower our price options to get into a smartphone, not just from the point of view of the price plans but also the device pricing. The iPhone 3GS at $49 is selling very well. We also have the HTC Inspire and the Motorola Atrix, two brand-new Android devices that are selling very, very well. So what you see, are people that are stepping up from quick-messaging devices and feature phones and stepping up to the higher data plans, and that’s what’s driving ARPU. [2]

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See our complete analysis for AT&T stock here

Notes:
  1. AT&T Q2 2011 earnings conference call transcript, SeekingAlpha, July 21st, 2011 [↩]
  2. AT&T Q2 earnings conference call transcript, Q&A session [↩]