Cingular posts quarterly profit, revenue up

Cingular Wireless, the No. 1 U.S. mobile service provider, Wednesday posted a quarterly profit versus a year-ago loss with stronger than expected subscriber growth.

The venture of AT&T Inc. and BellSouth Corp. , posted first quarter net income of $354 million compared with a loss of $240 million. Revenue rose to $9 billion, up 9.1 percent.

Cingular, the first of the U.S. mobile providers to report this quarter, said it added 1.7 million subscribers during the period, well above average estimates of 1.2 million from six analysts contacted by Reuters.

The results bode well for industry wide growth prospects, said Roe Equity Research analyst Kevin Roe.

"Overall they posted an excellent first quarter," he said.

But another noted that Cingular in particular appeared to be relying more on customers who opt for lower-cost programs.

A dwindling number of potential new U.S. customers is making wireless providers more dependent for growth on less predictable customers who pay for calls in advance rather than via monthly bills.

Stifel Nicolaus analyst Chris King said that, while Cingular's subscriber growth was stronger than he expected, a high proportion of such "prepaid" customers dragged on average monthly revenue per user (ARPU), a key industry benchmark.

"(Prepaid) is becoming an important part of its business which is good and bad," said King. "It's going to help on overall subscriber growth, but its going to pressure ARPU's and margins."

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Cingular ARPU fell to $48.48, down 0.8 percent from the fourth quarter of 2005 and below King's forecast of $49.

Cingular has trailed its second biggest rival, Verizon Wireless, in profitability and set a target to lead the industry by all measures by the end of 2007. Verizon Wireless is a venture of Verizon Communications and Vodafone Group Plc.

AT&T plans to buy BellSouth next year, giving it full ownership of Cingular. AT&T shares dropped 1 percent, or 27 cents, to $25.67 in morning trading on New York Stock Exchange where BellSouth stock fell 37 cents at $33.03.

Cingular said customer cancellations, known in the industry as churn, dropped to 1.9 percent from 2.2 percent a year ago and 2.1 percent in the fourth quarter.

"Cingular got out of the gate fast in the first quarter of 2006," Chief Executive Stan Sigman said in a statement. "We continue to move in the right direction on our major metrics -- churn, customer additions, margins, revenue growth and more." (Additional reporting by Paul Thomasch)