Defying predictions of an industry slowdown, Cingular Wireless said Wednesday that it tripled third-quarter profit to a record $847 million as sales rose 9.2% to $9.55 billion from the year-earlier period.
The largest U.S. wireless phone company, a joint venture of AT&T (NYSE:T - News) and BellSouth (NYSE:BLS - News), added 1.36 million subscribers in the quarter to boost its customer base to 58.7 million. That's up 61% from the 867,000 it added in the year-earlier period. Cingular added 1.5 million subscribers in the previous quarter.
"We've reached some important milestones operationally and financially," said Peter Ritcher, Cingular's chief financial officer, in a conference call with analysts.
Shares in AT&T climbed 2.4% Thursday to 37.75. BellSouth also gained 2.4%, closing at 44.39.
Analysts have been forecasting a slowdown in the wireless phone industry's subscriber and revenue growth in 2006.
But Cingular and Verizon Wireless, the second biggest mobile phone company, are still on a roll. They're increasing market share at the expense of smaller rivals, such as Sprint Nextel (NYSE:S - News), analysts say.
"We're well on our way to achieving industry-leading (financial) metrics," Ritcher said, calling the quarter a "watershed point."
Cingular reported a third-quarter profit margin of 35.6%. Ritcher says the figure should rise to near 40% by the end of 2007.
Cingular's rivalry with Verizon Wireless has heated up since Cingular acquired AT&T Wireless in 2004. With the purchase, Cingular leapfrogged Verizon in total customers.
AT&T will own 100% of Cingular after its deal to acquire BellSouth closes. The Federal Communications Commission is still reviewing the merger, though the Justice Department has OK'd the deal.
Verizon Wireless has had bragging rights over network reliability and profitability. But Cingular has been closing the gap in both areas.
It has worked to reduce dropped calls, busy signals and no-service dead zones. That has lowered customer disconnects, analysts say, pushing up operating results.
"They're achieving Verizon-like performance," said Roger Entner, analyst at Ovum Research. "Customer churn is down, average revenue per customer is up and net subscriber additions are strong."
Cingular is the first big wireless phone company to report third-quarter results. Verizon Communications (NYSE:VZ - News) reports third-quarter results on Oct. 30. Sprint Nextel's earnings are due out Oct. 26.
"It's a constructive start to the reporting season," said David Barden, analyst at Bank of America.
Cingular's third-quarter sales of $9.55 billion were up 9.2% vs. last year and 3.6% over the $9.22 billion it posted in the second quarter. At UBS Research analyst John Hodulik says Cingular added more post-paid subscribers -- those who sign service contracts -- than expected. About 70% of Cingular's 1.36 million additional subscribers in the third-quarter were new customers under contract.
Despite Cingular's gains, analysts see trouble for the industry.
UBS Research estimates that the U.S. wireless industry will add only 21 million subscribers in 2006. That would be down 17% from the 25.7 million the industry added in 2005.
Sprint Nextel's stock has dropped more than 30% since April. Analysts say Sprint Nextel, the No. 3 wireless firm, has lost business customers to Cingular and Verizon.
"They're gaining at Sprint's expense," said Ovum's Entner. "Cingular's results are probably confirmation Sprint will have another rotten quarter."
Copyright 2006 Investor's Business Daily, Inc.
