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AT&T shrugs off T-Mobile as earnings top expectations

The telecom adds more than 1 million wireless customers, including 625,000 subscribers who signed on to a long-term contract.

AT&T's lab store in the company's Mobility headquarters in Atlanta. Roger Cheng/CNET

AT&T managed just fine in the face of increasing competitive pressure from T-Mobile.

The first quarter marked the first period in which T-Mobile's aggressive plan to pay up to $350 in early termination fees to cover switching costs would take effect, and whether AT&T would be able to withstand the competitive heat. With few customers without cell phone service up for grabs, the move is part of a broader escalation by the carriers to poach subscribers from one another.

AT&T didn't stand still either, initially offering $200 for any T-Mobile customers willing to switch and then offering a more competitive family plan. It also tweaked the price of its 2GB mobile share value plan, dropping the price by $15.

The carrier added more than 1 million wireless customers in the period, including 625,000 who signed up for a long-term contract, a lucrative base of customers referred to as "post-paid subscribers."

The Dallas telecommunications giant posted a quarterly profit of $3.7 billion, or 70 cents a share, essentially flat from a year-ago profit of $3.7 billion, or 67 cents a share. Excluding onetime items, including costs related to its acquisition of Leap Wireless, per-share earnings were 71 cents, the company said Tuesday.

Revenue, meanwhile, rose 3.6 percent, to $32.5 billion.

Analysts, on average, forecast earnings of 70 cents a share and revenue of $32.47 billion, according to a survey taken by Thomson Reuters.

AT&T, the second-largest wireless provider in the US after Verizon, was able to maintain surprisingly higher earnings despite posting strong customer growth -- the company typically takes a hit in profitability when subscriber numbers go up, since the carrier has to shoulder the cost of the devices it's subsidizing. That the company was able to maintain its earnings growth in the face of customer growth suggests more customers are taking AT&T up on its Next monthly installment plan, in which the customer pays for the device.

The number of contract customers was split evenly, with 311,000 buying smartphones, and 313,000 tablets.

The company's other source of growth was through connected devices. AT&T added 693,000 devices in the period.

The carrier has had to maintain its growth through other devices as its core smartphone business slows. While the 311,000 new smartphone customers was a higher number than analysts expected, it's far lower than in years past. T-Mobile is expected to boast the highest smartphone growth among the national carriers.

On the U-Verse home wireline side, AT&T hit a total of 11.3 million customers. It added 201,000 U-Verse TV customers and added a net gain of 634,000 U-Verse Internet customers, offsetting the losses in its traditional DSL business.

Looking ahead, AT&T said it expects consolidate revenue growth of 4 percent for the year, higher than the 2 to 3 percent range it had previously projected.

It expects free cash flow in the $11 billion range. The company plans to invest $21 billion in capital expenditures.

AT&T shares rose 15 cents, or 0.4 percent, to $36.41 in after-hours trading.