Shares of AT&T (NYSE: T) were down more than 2% Thursday after the telecommunications giant posted a huge fourth-quarter loss due in large part to a breakup fee related to its decision to abandon plans to acquire T-Mobile USA.
Before trading began Thursday morning, AT&T announced a fourth-quarter loss of $6.7 billion, or $1.12 a share, versus a profit of $1.1 billion, or 18 cents a share, in the year-ago quarter.
However, excluding one-time costs -- and I'll get to those in a minute -- AT&T posted a Q4 net profit of 42 cents a share on revenue of $32.5 billion. Adjusted EPS were below the year-ago quarter's 55 cents a share, while revenue was up 3.6% from last year's $31.36 billion.
Analysts' average estimates called for adjusted earnings of 43 cents a share on revenue of $31.95 billion.
That's a hit on revenue and a miss on earnings. Mix it all together and AT&T shares were down in early Thursday trading as much as 74 cents, or 2.4%, to 29.47.
Now for the one-time costs, and they were significant. The obvious one, of course, is the breakup fee for AT&T's failed bid to buy T-Mobile USA from Deutsche Telekom for $39 billion.
AT&T knew it faced an uphill struggle -- and that's an understatement -- in gaining federal approval of the deal. It also knew that it owed Deutsche Telekom as much as $4 billion if the deal fell through. In the end, AT&T wisely opted for the ultimately less expensive latter option, which translated into a cost of 44 cents a share in the fourth quarter.
But that was only the third-largest write-off for AT&T in Q4. The company also incurred a cost of 65 cents a share for a loss on benefits plans, and another cost of 48 cents a share for asset depreciation.
In terms of its core business, AT&T and its shareholders have reason to be pleased with the company's fourth quarter. The 9.4 million smartphone sales were 50% more than the previous best quarter and nearly double Q3's 4.8 million units sold.
While AT&T reported selling more than twice as many Android phones as it did in the year-ago quarter, the iPhone was the star in the quarter ended December 31. AT&T activated 7.6 million iPhones (mostly the 4S model), versus 4.3 million activated in the same quarter by Verizon Wireless.
Nearly 57% of AT&T's 69.3 million postpaid subscribers use smartphones, up from 42.7% a year ago. That's considerably higher than Verizon's percentage of smartphone subscribers, which also is trending up but was at just 44% in the fourth quarter.
In terms of overall wireless subscribers, AT&T gained ground on Verizon, which added only 1 million net wireless subscribers in Q4 for a U.S. market-leading total of 108.7 million. AT&T added a net of 2.5 million wireless customers in Q4, giving it a total of 103.2 million.
Verizon's slim lead in subscriber numbers, though, is meaningless. There are two co-leaders in the U.S. wireless market -- Verizon and AT&T. Had the T-Mobile deal gone through, there'd be a clear leader and one large competitor, with Sprint Nextel on life support. Antitrust regulators didn't like where that might lead, and that's why AT&T eventually was forced to withdraw its bid.
Which leaves AT&T competing with Verizon the old-fashioned way, investing in its high-speed fourth-generation mobile broadband network to keep up with Verizon's 4G efforts and trying to increase the percentage of subscribers using smartphones.
That's because, like Verizon, AT&T sees money in data usage. AT&T's wireless data revenue increased 19.4% in the fourth quarter to $5.9 billion. And the company announced last week that it was increasing prices for its various tiered data plans by $5.
AT&T said about 22 million, or 56%, of all smartphone subscribers are on tiered data plans, with about 70% of those on higher-tier plans. Currently, 5GB of data for smartphone or tablet subscribers costs $50.