Verizon outguns AT&T in Q1 smartphones

In the battle between wireless giants over consumers, Verizon Wireless toppled rival AT&T in the first quarter.

Growth in the traditional contract subscriber business -- seen as the bread and butter of the wireless carriers -- has been slowing for over the last several quarters. But Verizon appears to be weathering the slowdown better than most.

It wasn't much of a contest. Verizon added a net 677,000 new contract customers, compared with 296,000 net new contract subscribers at AT&T.

"The difference between subscriber trends at AT&T and Verizon is pretty stark," said Jonathan Chaplin, an analyst at New Street Research. "When compared to Verizon, these trends look pretty weak."

Drill down into the numbers and things look a little more bleak for AT&T. Take away the 365,000 tablets activated in the period and AT&T actually lost 69,000 phone customers in the period.

The first quarter is typically a weak one for the wireless industry as consumer spending cools following the holiday period. But a loss of subscribers is disappointing in any quarter.

AT&T, however, remains the king when it comes to iPhones sold in the U.S. It sold 4.8 million iPhones in the period, surpassing the 4 million iPhones sold by Verizon.

But increasingly, the iPhone has proven to be less of an edge as virtually every carrier, big and small, offers the device. AT&T sold 6 million smartphones in the period, short of the 7.2 million smartphones Verizon sold in the same quarter.

As the previous exclusive partner to Apple and the iPhone, AT&T has a legacy reliance on the phone that it is working to break from. The company has bet heavily on Windows Phone and the Lumia 920, as well as offered to sell the BlackBerry Z10, all in an effort to diversify its products.

Although Verizon also sees a bulk of its sales go to the iPhone, it has its Droid franchise of Android-powered phones, which provides a bit more balance to its mix.

AT&T, for its part, believes it is more important to convert its existing customers from a basic phone to a smartphone, which carries a higher monthly bill. It also noted that its customer turnover rate continued to fall, which means they are sticking with AT&T longer.

"When you covert them to smartphones, they are generating significant data usage and opportunity for revenue creation," Chief Financial Officer John Stephens said during a conference on Tuesday.

The slowdown is likely why AT&T has been so vocal about exploring new business options, including its connected home business, dubbed Digital Life, and connecting everything from cars to e-readers and dog collars. The success of the tablet business is one area that the company is also pointing to for continued growth.

But even as it has its eye on the future, AT&T still needs to shore up what continues to be a core part of its business.

Corrected at 4:26 p.m. PT: the previous story misspelled John Stephens' name.