Has AT&T Stopped Relying on the iPhone?

AT&T

AT&T (NYSE:T) reported second-quarter earnings Tuesday, and sales of smartphones using Google’s (NASDAQ:GOOG) Android operating system beat sales of Apple’s (NASDAQ:AAPL) iPhone at the second-largest wireless carrier in the United States.

According to a conference call with AT&T’s head of wireless, Ralph de la Vega, and reported by CNET, Android phones made up most of AT&T’s 6.8 million smartphones sold during the quarter. Without giving specifics, he said that the carrier sold more iPhones this quarter than it did last quarter, but that lower sales of the Apple device could be related to rival carrier T-Mobile US (NYSE:TMUS) introducing the iPhone on its network.

AT&T still has more iPhones on its network than any other wireless provider in the U.S., but the company is welcoming a shift toward Android. Wireless carriers must pay device subsidies for the different smartphones they offer, and Apple’s iPhone is much more expensive for carriers than Android devices.

Wireless penetration in the U.S. is getting closer to 100 percent, meaning that wireless carriers have to find new ways to grow. One way AT&T wants to grow its profits is by cutting back on device subsidies, which means pushing customers away from the expensive iPhone.

AT&T’s earnings fell short of analyst expectations, something the company blamed on the necessity of offering large discounts on smartphones in order to lure customers into signing long-term contracts. The company’s earnings per share came in 1 cent under analyst expectations of 67 cents. Revenue was up 1.6 percent to $32.1 billion, and the company added more than two million new customers to its network in the quarter.

The company also recently unveiled a new upgrade plan called AT&T Next that allows customers to switch to the latest smartphone up to once a year. Customers don’t have to put a downpayment on the device, but instead make payments that amount to the full price of the phone over the course of 20 months. Next actually pushes the device subsidy cost onto the consumer, as the plan makes the customer pay the unsubsidized cost over time.

Chief Financial Officer John Stephens said during the company’s conference call that the Next plan would help consumers get the latest devices faster instead of having to wait two years to upgrade while also helping AT&T access the retail value of the refurbished smartphones that get traded in. That’s where having the most iPhones of any network will help the company, since those devices command the biggest resale value. He said the company plans to sell the refurbished devices or use them as replacements for customers with insurance plans.

For now, it’s uncertain if the Next upgrade plan will take off among consumers. T-Mobile recently released its own upgrade plan that allows customers to purchase a new phone every six months at the subsidized cost while adding a $10 a month fee to their plan that includes insurance on the device. T-Mobile’s CEO, John Legere, has pointed out that AT&T Next results in customers paying up to twice as much for a device.

Follow Jacqueline on Twitter @Jacqui_WSCS

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