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AT&T subscriber growth beats but profit margin misses

By Sinead Carew

NEW YORK (Reuters) - AT&T Inc's fourth-quarter profit was lower than expected but the telephone company promised earnings and revenue growth this year even if the economy does not improve.

Along with growth from its existing business, Chief Executive Randall Stephenson said on Thursday that AT&T is also eyeing overseas opportunities. He said the idea would be to profit from wireless expansion in countries where services are not yet as advanced as in the United States.

"The question is if there are opportunities for us to participate in that growth around the world" Stephenson said on a conference all with analysts. "There's just a lot of different ways to think about it. There's a lot of options."

Stephenson declined to say if AT&T would make overseas acquisitions in response to a question about a recent report that it was considering European transactions. Instead, he listed options such as international roaming deals for AT&T customers traveling overseas and the possibility for overseas expansion of a home security business AT&T is developing.

AT&T, the No. 2 U.S. mobile service provider, posted stronger than expected fourth quarter subscriber growth but this also put pressure on its wireless profit margin as it spends heavily on every new subscriber it signs up.

It added 780,000 mobile subscribers in the quarter compared with the average expectation for 699,200 from 10 analysts, with the lowest estimate at 475,000 and the majority of estimates at 700,000 or higher.

AT&T's wireless growth was slower than bigger rival Verizon Wireless, a venture of Verizon Communications and Vodafone Group Plc, which reported subscriber additions of 2.1 million on Tuesday. Sprint Nextel, the No. 3 U.S. mobile provider, does not report its results until February 7.

AT&T's fourth quarter loss was $3.86 billion or 68 cents per share, compared with a loss of $6.68 billion or $1.12 per share in the year-ago quarter when it shouldered big charges including the break-up fee for its failed purchase of T-Mobile USA, a Deutsche Telekom unit.

Excluding unusual items earnings per share was 44 cents per share, a penny lower than Wall Street analysts had expected, according to Thomson Reuters I/B/E/S.

"When you have better subscriber growth its understandable your earnings miss a little," said Guggenheim Securities analyst Shing Yin, adding that the results overall were "acceptable."

While AT&T's sale of 8.6 million Apple Inc iPhones in the quarter helped subscriber numbers it hurt profits as AT&T pays Apple a big subsidy for every iPhone it sells so it can offer discounts to customers who commit to contracts.

AT&T's wireless service profit margin based on earnings before interest, tax, depreciation and amortization was 29.1 percent, compared with the average expectation for 31.29 percent from ten analysts contacted by Reuters.

Stephenson said he would keep a close watch on a strategy outlined by smaller rival T-Mobile USA to offer smartphone installment plans under which consumers would pay for their smartphones gradually. If it followed this plan, AT&T would not have to pay a big upfront subsidy for phones.

"That's something we've looked at on several occasions. I kind of like that idea," Stephenson said. "Its something we're going to be watching."

AT&T forecast 2013 earnings per share growth in the upper-single digit percentage range or higher and revenue growth exceeding 2 percent based on strength in wireless and its wireline consumer business. It said that the growth assumed "little improvement" in the economy.

"Guidance was good but not dramatically good," said Hudson Square Research analyst Todd Rethemeier.

Revenue rose to $32.58 billion from $32.5 billion and compared with Wall Street expectations for $32.2 billion, according to Thomson Reuters I/B/E/S.

AT&T shares were down 2 cents in late trade at $33.73 after closing at $33.75 on the New York Stock Exchange.

(Additional reporting by Nicole Leske; Editing by Bernard Orr)

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