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AT&T Q1 profit edges up as it adds 291,000 net customers

The telecom carrier sells 6 million total smartphones in the first quarter, but customer gains are offset by a drop-off in its traditional phone, prepaid, and reseller businesses.

AT&T CEO Randall Stephenson at Mobile World Congress 2013
AT&T CEO Randall Stephenson at Mobile World Congress 2013 Stephen Shankland/CNET

AT&T on Tuesday reported a slight gain in profit amid growth powered by its tablet business.

The Dallas telecommunications provider posted a first-quarter net profit of $3.7 billion, or 67 cents a share. In the year-earlier period, it posted a profit of $3.6 billion, or 60 cents a share. Excluding the impact of the sale of its advertising business and a tax settlement, the carrier reported earnings of 64 cents a share, up from 59 cents a share from a year ago.

Revenue, meanwhile, fell 1.5 percent to $31.4 billion, also affected by loss of revenue from AT&T's advertising business.

The company was expected to post per-share earnings of 64 cents and revenue of $31.75 billion, according to Thomson Reuters.

"All in all, a solid start to the new year," Chief Financial Officer John Stephens said during a conference call today.

AT&T added 291,000 net new customers, driven by its tablet and connected business, but weighed down by a drop-off in its phone, prepaid and reseller businesses. The company has been pushing aggressively into the connected devices business, which supplies a cellular connection to nontraditional devices such as medicine pill bottles, dog collars, and cars.

The tablet business has largely been driven by Apple's iPad franchise.

The big carrier is eager to get into the connected devices business because its core revenue driver -- the traditional contract wireless customer -- is starting to see a slowdown. It lost 69,000 phone subscribers in the period, despite selling 6 million smartphones.

AT&T has been the largest U.S. supplier of iPhones, and reported 4.8 million iPhones sold in the period.

In comparison, Verizon Wireless sold 4 million iPhones in the period, half of which were made up of older, less expensive iPhones.

While the share of Android phones continues to rise around the world, the iPhone remains the biggest franchise for the two carriers, and AT&T in particular. AT&T has made strides to diversify its portfolio, embracing high-profile Android smartphones, Microsoft's Windows Phone, and BlackBerry, all in an effort to wean itself off of its dependence on Apple.

The high cost of the subsidy the carriers pay to Apple means there is a reverse impact on their earnings. The more iPhones a carrier sells, the bigger the hit to its immediate earnings. But the carrier ends up making more money off the subscriber through the life of the two-year contract.

AT&T said that more than 10 million subscribers are on its mobile data share plan, and more than a quarter of that total have opted for a 10 gigabyte plan or higher. Roughly 15 percent of subscribers have switched over from an unlimited data plan.

On the landline side, AT&T continues to make progress with its U-Verse service. The company added a record 731,000 U-Verse subscribers, although it lost 607,000 DSL customers. It also added 232,000 U-Verse TV customers.

In regions where U-Verse is available, AT&T is taking market share, Stephens said. The company is poised to take further share after it expands the reach of U-Verse through its Project VIP investment in the network.

Update, 2:44 p.m. PT: with additional background, details, and executive comments.

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