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AT&T up 2014 sales forecast on bullish Q2 customer gains

The carrier expects to add a net 800,000 post-paid subscribers as customers flock to its Next smartphone payment plan.

AT&T ad depicts nerdy engineers
AT&T's geeky network guys campaign must be working. Screenshot by CNET

AT&T is feeling pretty good right now.

The Dallas telecommunications giant on Tuesday raised its full-year revenue forecast to growth of 5 percent, or $135.24 billion, up from a prior estimate of 4 percent growth.

One of the key components behind the more bullish outlook is AT&T's move to offer a monthly installment plan under its Next smartphone program, alongside continued strong customer growth on the wireless side.

AT&T's embrace of the model where customers pay for their own devices in monthly payments underscores a broader shift in the industry, one in which consumers are starting to separate what they pay for wireless service and what they pay for their devices. The carriers have had to quickly fall in line with this practice or risk getting left behind by the competition.

For the most part, it has been for the better, with T-Mobile -- which introduced this concept -- and AT&T both benefiting from the change. The forecast comes after a surprisingly strong first quarter for AT&T.

AT&T said today that in the second quarter, it expects to add 800,000 customers who pay at the end of the month and meet higher credit checks, a category of lucrative users known as post-paid subscribers. The turnover rate of its post-paid base will also fall to 0.95 percent or lower, down from a rate of 1.07 percent in the first quarter.

The company, meanwhile, sold 3.2 million smartphones through its Next program, now expected to be roughly half of its total sales. Roughly half of its smartphone customer base is already on a no-device-subsidy Mobile Share plan, with the total expected to grow to two-thirds by the end of the year.

AT&T's no-subsidy plans come with a break on the wireless bill, so service revenue are expected to be pressured. But because customers end up paying more for their device, the higher equipment revenue makes up for the decline.

The company also maintained its 2014 forecast for adjusted earnings per share growth at the low end of the mid-single digit range, capital expenditures in the $21 billion range, and free cash flow in the $11 billion range.