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AT&T's Q3 profit inches up to $3.8B, tops expectations

Only 178,000 of the company's 1 million net new customers signed a contract to get a smartphone, with much of its growth coming from tablets and pre-paid customers.

Josh Miller/CNET

AT&T added nearly 1 million customers in the third quarter, but only 178,000 of them signed a contract to get a smartphone, as the company's profits topped Wall Street expectations.

The disparity between the total customers added -- which includes tablets and connected devices -- and the number of post-paid smartphone customers underscores the declines the industry has faced when it comes to its bread-and-butter phone customer.

More and more, the company has had to rely on other avenues of growth, including tablets, but connecting other devices such as dog collars and medicine pill bottles. The advent of shared data plans have also encouraged customer to add multiple devices under a single plan.

At the same time, both face renewed competition from T-Mobile, which has made a lot of noise and added a lot of smartphone customers thanks to a slew of promotional programs.

The Dallas-based telecommunications company posted a third-quarter net profit of $3.8 billion, or 72 cents a share, compared with a year-ago profit of $3.6 billion, or 63 cents a share. Excluding one-time items including spectrum transfers and a tax item, adjusted earnings were 66 cents a share.

Revenue rose 2.2 percent to $32.2 billion.

Analysts, on average, forecasted earnings of 65 cents a share and revenue of $32.19 billion.

The results come less than a week after Verizon reported a profit of $2.23 billion and added 1.1 million net retail connections, which were also made up by a larger mix of connected devices and tablets.

In the third-quarter, AT&T signed up a net new 388,000 tablet customers and 192,000 pre-paid subscribers, which jumped on to its LTE-capable GoPhones and new pricing plans in the period.

In total, the company had a base of 50.6 million post-paid customers, and 75 percent were on a smartphone. It sold a total of 6.7 million smartphones in the period. CFO John Stevens said on the call that AT&T had experienced some supply constraints, hinting at the shortage in iPhone 5S inventory.

The turnover rate among contract customers fell to 1.07 percent from 1.08 percent a year ago.

The big growth, however, came from connected devices, which saw a net addition of 719,000.

While the connected devices business offers the potential for a lot of profit -- they usually involving connecting some machine to the cellular network and don't require costly customer service -- they tend to generate lower profits. So a high number of net additions of connected devices doesn't always translate into a huge lift in revenue.

Wireless revenue rose 5.1 percent to $17.5 billion, as the phone-only postpaid average revenue per user rose only 3.1 percent versus a year ago.

The wireline business, meanwhile, saw reenue fall by 1 percent, although its U-Verse home business recorded its first billion-dollar month. U-Verse TV added 265,000 customers, while U-Verse Internet added 655,000, although it lost a total of 26,000 broadband customers due to the steady deterioration of the DSL business.