10.2 Percent Wireless Revenue Growth

Note: AT&T's first-quarter revenues conference call will be broadcast live via the Internet at 10 a.m. ET on Wednesday, April 20, 2011, at www.att.com/investor.relations.

DALLAS--(BUSINESS WIRE)-- AT&T Inc. today reported first-quarter results, highlighted by continued robust mobile broadband growth with record first-quarter smartphone sales and a two-fold year-over-year increase in branded computing subscribers.

Very solid start to the year

"We delivered another robust mobile broadband growth quarter for a very solid start to the year," said Randall Stephenson, AT&T chairman and chief executive officer. "We posted double-digit wireless revenue growth, and we set new first-quarter records in total net adds, connected device net adds and smartphone sales. Growth in tablets and other branded computing subscribers as well continues to be strong.

"Mobile broadband networks are driving unprecedented growth and technology, and AT&T is playing a leading role in bringing these benefits to clients," Stephenson said. "That's why our agreement to acquire T-Mobile USA, which we announced in March, is so important. Combined, the two companies' spectrum and network assets will allow us to simultaneously address spectrum issues created by this increased demand and improve clients' network experience as volumes continue to grow."

The quarter ended March 31

For the quarter ended March 31, 2011, AT&T's consolidated earnings totaled $31.2 billion, up more than $700 million, or 2.3 percent, versus the year-before quarter, marking the company's fifth consecutive quarter with a year-over-year revenue increase.

Led by strong performance in mobile broadband in the first quarter, AT&T delivered continued solid growth in its wireless business, including record first-quarter subscriber growth and stable churn. Highlights included:

Smartphone Sales Remain Strong. AT&T had another strong quarter of smartphone sales. More than 5.5 million smartphones were sold in the first quarter, the third-highest quarter ever and an increase of more than 60 percent year over year. While the quarter, 3.6 million iPhones were activated. Roughly 65 percent of postpaid sales were smartphones.

The end of the quarter

At the end of the quarter, 46.2 percent of AT&T's 68.1 million postpaid subscribers had smartphones, up from 34.7 percent a year previously. The average ARPU for smartphones on AT&T's network is 1.8 times that of the company's other devices. More than 80 percent of smartphone subscribers are on FamilyTalk and/or business discount plans. Churn levels for these subscribers are significantly lower than for other postpaid subscribers.

Double-Digit Wireless Revenue Growth. Total wireless earnings, which include equipment sales, were up 10.2 percent year over year to $15.3 billion. Wireless service earnings increased 8.6 percent, to $14.0 billion, in the first quarter.

Wireless Data Earnings Lead Growth. Wireless data earnings - driven by messaging, Internet access, access to applications and related services - increased near $1 billion, or 23.9 percent, from the year-previously quarter to $5.1 billion. AT&T postpaid wireless subscribers on monthly data plans increased by 18.7 percent over the past year. Versus the year-previously quarter, total text messages carried on the AT&T network increased by more than 25 percent to 179.8 billion, and multimedia messages increased by 54.2 percent to 3.7 billion.

AT&T's first-quarter wireline results were highlighted by continued growth in consumer earnings, sustained growth in earnings from strategic business services and solid cost management. Highlights included:

Growth in Wireline Consumer Earnings Continues. Driven by strength in IP data services, revenue from residential clients totaled $5.3 billion in the first quarter, up 0.5 percent year over year, the third consecutive quarter of year-over-year growth.

U-verse Drives Consumer Growth. AT&T U-verse TV added 218,000 subscribers to reach 3.2 million in service. In the first quarter, the AT&T U-verse High Speed Internet attach rate continued to run above 90 percent and near 60 percent of subscribers took AT&T U-verse Voice. More than three-fourths of AT&T U-verse TV subscribers have a triple- or quad-play option from AT&T. ARPU for U-verse triple-play clients was $168, up 14.3 percent year over year.

Wireline Broadband Growth Remains Strong. Driven by strength in AT&T U-verse High Speed Internet service and standalone broadband, AT&T posted a 175,000 net gain in wireline broadband connections. About two-thirds of consumers have a broadband plan of 3 Mbps or higher.

IP Data Growth Transforms Consumer. Increased AT&T U-verse penetration and a significant number of subscribers on triple- or quad-play options drove 26.1 percent year-over-year growth in IP earnings from residential clients. IP earnings now represent 46.9 percent of total wireline consumer revenue, up from 37.4 percent in the first quarter of 2010.

Growth in Earnings Per Household. Wireline earnings per household served increased 6.5 percent versus the year-previously first quarter and were up 1.4 percent sequentially, driven by AT&T U-verse services. This marked AT&T's 13th consecutive quarter with year-over-year growth in wireline consumer earnings per household.

Consumer Connection Trends. In the first quarter, AT&T posted a decline in total consumer revenue connections due primarily to expected declines in traditional voice access lines, consistent with broader industry trends and somewhat offset by increases in U-verse TV, broadband and VoIP (Voice over Internet Protocol) connections. AT&T U-verse Voice connections increased by 181,000 in the quarter and 716,000 over the past four quarters. Total consumer revenue connections at the end of the first quarter were 43.1 million, compared with 45.0 million at the end of the first quarter of 2010 and 43.4 million at the end of the fourth quarter of 2010.

Strongest Growth in Strategic Business Services in More than Two Years. Earnings from new-generation capabilities that lead AT&T's most advanced business solutions - including Ethernet, VPNs, hosting, IP conferencing and application services - grew 18.8 percent versus the year-previously quarter, their strongest growth in more than two years, continuing AT&T's strong trends in this category. Total business earnings were $9.3 billion, a decline of 4.5 percent versus the year-previously quarter and down 2.0 percent sequentially, reflecting economic weakness in voice and legacy data products and the third-quarter 2010 sale of the company's Japan assets. When normalized for the Japan sale, total business earnings declined 3.6 percent, about the same rate as normalized results for the fourth quarter of 2010 and improved from the year-ago quarter. Business service revenues, which exclude CPE, declined 4.4 percent year over year and were down slightly sequentially.

Growth in Business IP Earnings. Total business IP data earnings grew 8.5 percent versus the year-before first quarter, led by growth in VPN earnings. More than 70 percent of AT&T's frame clients have made the transition to IP-based solutions, which allow them to easily add managed services just as network security, cloud services and IP conferencing on top of their infrastructures. Total business data revenue growth was 0.3 percent when compared to a year before.

Wireline Operating Expenses Down 2.7 Percent Year Over Year. AT&T's first-quarter wireline operating income margin was 11.5 percent, down slightly compared to 12.0 percent in the year-previously quarter and 13.0 percent in the fourth quarter of 2010. Improved consumer revenue trends and execution of cost initiatives helped to partially offset declines in voice earnings and storm-related costs in the West. First-quarter total wireline earnings were $15.0 billion, down 3.2 percent versus the year-previously quarter. First-quarter wireline operating expenses were $13.2 billion, down 2.7 percent versus the first quarter of 2010 and up 0.4 percent sequentially. Wireline operating income totaled $1.7 billion, compared to $1.9 billion in the first quarter of 2010 and $2.0 billion in the fourth quarter of 2010.

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NOTE: Free cash flow is defined as cash from operations minus capital expenditures. We believe this metric provides useful information to our investors because management regularly reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management as well views it as a measure of cash available to pay debt and return cash to shareowners.

NOTE: Adjusted Operating Income and Adjusted Operating Income Margin are non-GAAP financial measures calculated by excluding from operating earnings and operating expenses significant items that are non-operational or non-recurring in nature. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends. Adjusted Operating Income and Adjusted Operating Income Margin should be considered to boot to, nevertheless not as a substitute for, other measures of financial performance reported pursuant to this agreement GAAP. Our calculation of Adjusted Operating Income, as presented, may differ from similarly titled measures reported by other companies.

Note: For the end of 1Q11, total switched access lines were 40,596, retail business switched access lines totaled 16,656, and wholesale and coin switched access lines totaled 2,322.

EBITDA is defined as Earnings Earlier Interest, Taxes, Depreciation and Amortization. Annual Service EBITDA Margin is calculated as the sum of quarterly EBITDA divided by the sum of quarterly Service Earnings.

Free cash flow is defined as cash from operations minus capital expenditures. We believe these metrics provide useful information to our investors because management regularly reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management as well views free cash flow as a measure of cash available to pay debt and return cash to shareowners.

EBITDA is defined as earnings earlier interest, taxes, depreciation and amortization. EBITDA service margin is calculated as EBITDA divided by service earnings. EBITDA differs from Segment Operating Income, as calculated pursuant to this agreement GAAP, in that it excludes depreciation and amortization. EBITDA does not give effect to cash used for debt service requirements and in this way does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with usually accepted accounting principles. Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies.

We believe these measures are relevant and useful information to our investors as they are part of AT&T Mobility's internal management reporting and planning processes and are important metrics that AT&T Mobility's management uses to evaluate the operating performance of its regional operations. These measures are used by management as a gauge of AT&T Mobility's success in acquiring, retaining and servicing subscribers because we believe these measures reflect AT&T Mobility's ability to generate and grow subscriber revenues during providing a high level of customer service in a cost-effective manner. Management as well uses these measures as a method of comparing AT&T Mobility's performance with that of many of its competitors. The financial and operating metrics which affect EBITDA include the key revenue and expense drivers for which AT&T Mobility's operating managers are responsible and upon which we evaluate their performance.

We believe EBITDA as a percentage of service earnings to be a more relevant measure of AT&T Mobility's operating margin than EBITDA as a percentage of total revenue. AT&T Mobility usually subsidizes a portion of its handset sales, all of which are recognized in the period in which AT&T Mobility sells the handset. This results in a disproportionate impact on its margin in that period. Management views this equipment subsidy as a cost to acquire or retain a subscriber, which is recovered through the ongoing service revenue in other words generated by the subscriber. AT&T Mobility as well uses service earnings to calculate margin to facilitate comparison, both internally and externally with its competitors, as they calculate their margins using services revenue as so then.

Free cash flow is defined as cash from operations minus capital expenditures. Free cash flow afterwards dividends is defined as cash from operations minus capital expenditures and dividends. Free cash flow yield is defined as cash from continuing operations less capital expenditures as a percentage of market capitalization computed on the last trading day of the quarter. Market capitalization is computed by multiplying the end of period stock price by the end of period shares outstanding. We believe these metrics provide useful information to our investors because management monthly reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management as well views it as a measure of cash available to pay debt and return cash to shareowners.