Chicago (IL) - If it wasn't for Apple's iPhone, AT&T would have had tough time this past holiday quarter. AT&T's landline
business suffered as more and more customers are switching to wireless. Thanks to 1.9 million new iPhone 3G activations in the quarter,
however, AT&T's wireless business grew. The iPhone is also stimulating AT&T growth
at the expense of its rivals as most new wireless subscribers
switched networks just to get the iPhone 3G. In fact, if it wasn't for subsidies
and 3G network upgrades, AT&T's net income would've also risen.
AT&T's quarterly
figures reveal several interesting facts. Let's see what they are.

AT&T posted its fiscal 2008 fourth quarter
earnings Wednesday (for period ending December 31). The numbers show a high correlation between Apple's
handset and AT&T's fortunes. If it wasn't for Apple's iPhone,
the telecom giant would have dropped the ball as landline business revenues dropped dramatically: AT&T lost 1.56 million
landline lines in the quarter, and a total of 6 million for all of 2008. Broadband
services also dipped as 236,00 new subscribers were added in the
quarter, down from 396,000 new additions a year ago. Only its TV service U-verse grew substantially more than doubling, adding 264,000 new subscribers, up from 105,000 in the same quarter a year ago.

Its wireless business made up for the landline decline.
AT&T added 2.1 million new wireless subscribers in the quarter,
which is down from 2.7 million a year ago. The growth slowed due primarily to a matured
market as most now have at least
one cellphone with a service plan. It's remarkable that 90%
of new subscribers came to AT&T thanks to iPhone 3G and its service lock.

AT&T activated 1.9
million iPhone 3G units in the quarter, down 21% from 2.4 million
activations in the
previous quarter
when Apple and AT&T launched iPhone 3G to a peak demand. Nearly
760,000 iPhone activations in the quarter came from people switching
over from rival networks.

AT&T CEO Randall Stephenson has only kind words
to say for Apple's handset: "The success of our iPhone 3G launch has driven
wireless growth and helped redefine the wireless data space."
The higher-margin iPhone subscribers also helped drive mobile data
traffic - and since it's more lucrative, AT&T's revenue per
subscriber increased from $57.35 a year ago to $59.59 in the holiday
quarter.

Mixed landline and wireless performance, combined with layoff expenses, 3G network upgrades and subsidies led to a slight 2.4% increase in quarterly revenue, and a more substantial 23% drop in quarterly net income.

Quarterly
revenue was $31.1 billion,
up 2.4% from $30.4 billion a year ago. Annual 2008 revenue climbed 4.3%
to $124 billion. Net income for the quarter was $2.4 billion, or 41
cents a share, down 23% from 3.1 billion, or 51 cents a share, a year
earlier. Annual earnings in 2008 were $12.9 billion, or $2.16 a share,
up
from $11.95 billion, or $1.94 a share, for 2007. Excluding one-time
charges, AT&T profited 64 cents a share in the quarter, nearly
matching Street's 65 cents a shareconsensus.

The
23% drop in net income is attributed both to a $450 million
investment for 3G network upgrades in 2008, as well as subsidies that came into
play with the changed business model of iPhone 3G. It is estimated that
AT&T pays Apple around $400 for each handset. The carrier then
gradually recovers this money during the lifetime of an obligatory
2-year service contract. Subsidies make the iPhone 3G's $199 price
possible, but AT&T takes an upfront hit which negatively impacts earnings in the short-term.

• Of 2.1 million new wireless subscribers added in the quarter a whopping 1.9 million, or 90%, were iPhone 3G customers.

• Since
  its launch, AT&T activated 4.3 million iPhone 3Gs in 2008, over
  double the number of first-generation iPhones activated in 2007.
• Average revenue from iPhone customers is 60% higher than that of non-iPhone AT&T wireless subscribers.
• iPhone 3G contributed mostly to AT&T's 13.2% anunual wireless growth in revenue.
• Wireless business accounted to 41.4%
  of total revenue for the quarter, up from 37.4% a year ago.
• iPhone contracts provide 60% higher than average
  service revenue thanks
  to an obligatory $30 a month unlimited 3G data plan, a $10 premium over
  $20 a month EDGE data plan sold with the first-gen iPhone.
• iPhone users continue to dominate mobile web, pushing AT&T's wireless data use growth to 51.2% annually.
• Nearly
  40% iPhone 3G activations for the quarter, the same percentage as in previous quarter, were for
  customers switching from a different provider. The percentage ammounts to 760,000 new subscribers for the quarter, 960,000 in the previous quarter, meaning that iPhone 3G draw around 1.8 million subscribers from rival networks since it laucnhed.
• iPhone users rarely
  drop their AT&T service, unlike rest of the carrier's customers,
  especially postpaid subscribers. Lower churn rate equals to
  significantly lower marketing costs.
• Of almost 12 million iPhone 3G units that Apple shipped worldwide by the end of 2008 (6.9 million units in fiscal 2008 fourth quarter and 4.3 million units in fiscal 2009 first quarter),
  AT&T activated 4.3 million units, meaning that international sales
  accounted to well over 60% of all iPhone 3G units sold in 2008
  worldwide.
• Compared with RIM's BlackBerry Storm sold
  exclusively by Verizon, the iPhone 3G outsold Storm in the quarter four
  to one and five to one if we compare respective devices' first quarter
  on the market. Verizon's holiday quarter
  report does not divulge Storm sales, although the Wall Street Journal
  cites anonymous sources "familiar with the matter" who claim that
  Verizon shipped 500,000 Storm units in the first month following the
  November 21 launch.
• RIM's co-chief executive officer Jim Balsillie
  said that the desire to rush the phone to market before holiday led to
  buggy software and negative reviews but promised a software patch to
  fix these issues. Balsillie dubbed such problems as the "new reality" for smartphones.

IMPORTANT NOTES FOR OUR NUMBER-OBSESSED READERS

For
the sake of argument, please note that this comparison between iPhone 3G
figures reported by Apple and AT&T is not 100% accurate simply
because Apple's fiscal quarters differ from calendar quarters, unlike
with AT&T
whose fiscal quarters match calendar ones. More precisely, AT&T's
third and fourth fiscal 2008 quarters fell between July 1 - September
30 (92 days for the period) and October 1 - December 31 respectively (92 days for the period), matching calendar 2008 quarters, spanning 184 days in total.

At
the same time, Apple's fourth fiscal 2008 and first fiscal 2009
quarters differ slightly from the third and fourth calendar 2008
quarters and ran between June 29 - September 27 (91 days for the period) and September 28 - December 27 respectively (91 days for the period), or 182 days
in total. Note the two days difference between duration of Apple's and
AT&T's two comparable quarters in the second half of last year.

On
top of that, the difference between ends of quarters makes accurate
comparisons skew slightly. Since Apple's fiscal 2008 fourth quarter
ended September 27, three days earlier than AT&T's fiscal 2008
third quarter (ended September 30), some of the iPhone 3G activations
that AT&T reported for its quarter actually fell in Apple's
following quarter, more specifically the ones that occurred between
September 28 and September 30. Similarly to this, Apple's fiscal 2009
first quarter does not account for the last four days of December 2008
that were in fact included in AT&T's fiscal 2008 fourth quarter.

Although
aforementioned slight discrepancy between respective companies'
quarters is measured in days and should not skew results significantly,
it is worth mentioning.

LOWEST CHURN RATE, HIGHEST ATTRACTION RATE
Apple's iPhone has the lowest churn rate (perecentage of subscribers who drop their service), which yields lower marketing costs. It is still the only phone with the "oomph" to convince customers to switch from a rival network just to get it. A steady 40% of all iPhone 3G activations past year were for customers switching from a rival network.