AT&T swings to profit as it feels the heat from T-Mobile

The company's results, which show a one-time gain from its benefit plans, include adding a net 566,000 wireless contract subscribers and 440,000 tablets.

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Roger Cheng (he/him/his) was the executive editor in charge of CNET News, managing everything from daily breaking news to in-depth investigative packages. Prior to this, he was on the telecommunications beat and wrote for Dow Jones Newswires and The Wall Street Journal for nearly a decade and got his start writing and laying out pages at a local paper in Southern California. He's a devoted Trojan alum and thinks sleep is the perfect -- if unattainable -- hobby for a parent.
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AT&T's head of mobility, Ralph de la Vega, on stage at the developer conference as CES kicks off. Roger Cheng/CNET

AT&T swung to a profit in the fourth quarter as it deals with pressure from rival T-Mobile.

The Dallas telecommunications company posted a fourth-quarter profit of $6.9 billion, or $1.31 a share, compared with a year-earlier loss of $3.9 billion, or 68 cents a share. Excluding one-time items, including gains from its benefit plans, per-share earnings were 53 cents, AT&T said Tuesday.

Revenue rose 1.8 percent to $33.2 billion.

Analysts, on average, projected earnings of 50 cents a share and revenue of $33.1 billion, according to Thomson Reuters.

AT&T has notably faced stiffer competition, particularly from T-Mobile, which has gleefully skewered the company over the last year. (That included T-Mobile CEO John Legere crashing an AT&T party while at the Consumer Electronics Show.) Earlier this month, AT&T said it would pay T-Mobile customers $200 to switch over, coupling that with a credit of up to $250 for phones that were traded in.

A few days later, T-Mobile upped the ante, saying it would pay up to $350 in early termination fees to cover the cost of switching over to its service. The company also offered a credit of up to $300 for smartphones, which have to be turned in if used in conjunction with the ETF credit.

T-Mobile, the smallest carrier in the nation, added 1.6 million subscribers in the period, outstripping all of its competitors.

AT&T also couldn't keep up with Verizon Wireless, which added a net 824,000 phones and a net 625,000 tablets in the fourth quarter. That's despite a recent push touting the superiority of its network over Verizon.

There's also a subtle change in how AT&T is reporting its numbers. The company said it added 1.2 million smartphones under contract, an impressive number, but one that includes both upgrades and new subscribers, a relatively new metric.

Typically, a company offers net numbers, or a measure of how many new people signed up for the service when subtracting those who canceled their service. A company typically doesn't throw in the number of existing customers who upgraded to a smartphone.

AT&T, for its part, noted the competitive environment, and said it would move accordingly.

"There's no doubt the competition will remain strong," CEO Randall Stephenson said on a conference call with analysts. "There's no doubt we'll continue to modify the value proposition."

Stephenson and CFO John Stevens, however, wouldn't mention T-Mobile by name, only noting that AT&T would change according to customer choice.

AT&T, meanwhile, said it added a net 566,000 wireless customers on a contract, with 440,000 net tablet customers. In total, it added a net 809,000 wireless subscribers when counting phones, tablets, its connected devices business, as well as prepaid and reseller business, which both saw a loss.

The company touted the turnover rate for its contract customer base, which fell to 1.11 percent from 1.19 percent a year ago.

As with the last quarter, the company seems to be performing well when it comes to smartphone sales, but is likely losing customers in the low end, consumers who probably still have a basic phone, and are likely looking at T-Mobile's aggressive offers.

AT&T's early upgrade program, Next, has seen more than 1 million sales, representing 15 percent of all so-called postpaid smartphone additions and upgrades.

AT&T's wireless service revenue grew 4.8 percent to $18.4 billion.

On the wireline side, the company added 630,000 U-Verse Internet customers and 194,000 U-Verse TV customers.