AT&T Dinged by Drop in New Mobile Contracts

AT&T (T) has oodles of experience fixing lines that go dead for various reasons. But this telecom titan could use a little help of its own in trying to repair its rapidly declining growth in new cellphone contracts.

The Dallas-based telco carrier suffered a 43% drop in the number of new cellular contracts issued in the first quarter, with the number falling to 512,000 net new customers, according to AT&T's earnings results released Wednesday. And the view going forward doesn't get much better.

AT&T's new cellular contract growth has been on the decline since its peak in 2008, when it landed 4.5 million net new contracts (new contracts minus the ones it loses) on the wings of its exclusive Apple (AAPL) iPhone deal and the launch of the iPhone 3G. This year, AT&T's cellular contract growth is expected to decline by 32.7% over last year to 2.8 million, according to a Deutsche Bank AT&T report. Next year, the number is seen falling even further to 2.3 million.

A Tough Economic Climate

That's not good news for AT&T. Cellular contract growth is one of the key metrics investors follow because there are a number of other potential revenue streams that flow from the device. It helps to keep customers hostage for two years under contract. Among the other goodies are data packages, pricey Bluetooth earphones, ringtone downloads and, of course, the phone service itself that await sale to customers.

Those new contracts add up and played a role in the nearly $12.9 billion in first quarter revenues generated by AT&T's wireless services unit. The company as a whole generated a total of $30.6 billion in the quarter, up 0.3% over year-ago figures.

In addition to a maturing market, AT&T faced a tough economic climate that made it difficult to woo customers in the first quarter. Wall Street, however, expects AT&T to see some improvement during the year, when Apple's latest iPhone comes out in the summer. Also helping could be Google's (GOOG) Android-based phones by Dell (DELL) and HTC debut and the fact that Palm's (PALM) Pre and Pixi ride on its network. Motorola's (MOT) Motoblur device could also give it a boost.

Android to the Rescue?

AT&T's lineup of Android-based phones may aid its defense, as it faces the prospect of losing its exclusivity to its cash cow relationship with Apple's iPhone.

And while a number of industry observers expect that exclusivity could go "poof" this fall with a CDMA version of the iPhone on Verizon's (VZ) network, one analyst believes otherwise.

Brett Feldman, a Deutsche Bank analyst, noted in his AT&T earnings preview report that he suspects commercial availability of an iPhone on Verizon won't likely occur until early 2011.

In the meantime, AT&T investors may be inching to move off the carrier as well. Shares of AT&T fell 1.2% to $26.34 at the close on Wednesday.