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AT&T can thank connected cars and tablets for its growth

AT&T tops expectations for its second-quarter earnings, and manages to grow its base despite losing core phone customers.

AT&T can make the case that it isn't necessarily a phone company anymore.

CNET/Marguerite Reardon

The Dallas telecommunications giants said on Thursday that it added 2.1 million net new customers in the second quarter. But nearly all of its growth was driven by tablets and connected cars -- it added 1 million of them in the period.

The results underscore the continued shift in the make-up of its customer base, with much of the growth centered on tablets and connected devices, with diminishing growth contribution from traditional phone customers. It's also illustrative of the increased competitive pressure from smaller carriers T-Mobile and Sprint.

"Our moves to transform the company are working, and working well," Chief Financial Officer John Stephens said on a conference call Thursday.

Earlier this month, T-Mobile said it added 2.1 million customers in the second quarter. Verizon reported Tuesday that it added more than 1 million net new customers, and 1.1 million customers who pay at the end of the month, a lucrative base of higher-credit folks referred to as post-paid subscribers. Verizon's growth was likewise driven by tablets.

AT&T reported a second-quarter profit of $3.04 billion, or 58 cents a share. A year ago, it reported a gain of $3.55 billion, or 68 cents a share. Excluding costs related to its acquisitions of two Mexico carriers and its looming deal with DirecTV, it posted adjusted earnings of 69 cents a share.

Revenue rose 1.4 percent to $33 billion.

Analysts, on average, forecast earnings of 63 cents a share and revenue of $33.04 billion, according to data compiled by Yahoo.

AT&T, the nation's second-largest wireless carrier, added 410,000 post-paid customers, though the growth was entirely made up of 600,0000 tablets. The company lost roughly 200,000 basic phone customers in the period, part of its decision not to go after lower-end customers who are looking for deals. The company did add 331,000 prepaid customers through a strengthening of its efforts at its Cricket Wireless prepaid arm.

One of the company's biggest areas of focus is providing the wireless connection to a myriad of other products, beyond phones and tablets. That includes everything from medicine pill bottles to dog collars. But a central push for AT&T has been in cars, with the carrier signing up with the largest number of automakers to provide a cellular connection in their cars.

It's still unclear, however, whether consumers will pay an additional fee to connect their cars to a cellular network as drivers get comfortable with the feature.

The company's customer turnover rate on the postpaid side, meanwhile, was 1.01 percent, while total turnover was 1.31 percent.

On the landline side, the company said it lost 22,000 U-Verse TV customers. Stephens attributed the loss to fewer promotions and the decision to go after only higher-value customers. AT&T added 241,000 U-Verse Internet customers, offsetting losses in its older DSL service.

AT&T is hoping to supercharge its home services business with the acquisition of satellite TV provider DirecTV, which could close in the next few weeks. The company is hoping to marry DirecTV's national TV service with its own broadband and wireless offerings.

Updated at 1:54 p.m. PT to include executive comments from the conference call and background.