AT&T Inc. posted third-quarter revenue below estimates as it added fewer customers than expected, citing a shortage of the latest Apple Inc iPhone.
The company's profit beat Wall Street expectations and it raised its target for free cash flow for the year as slower customer growth likely helped keep costs in check.
The No. 2 U.S. mobile service provider said it had only 151,000 net new subscribers in the quarter, compared with the average expectation for 358,000, according to five analysts contacted by Reuters.
This was dramatically slower than bigger rival Verizon Wireless, which added 1.5 million subscribers in the quarter.
AT&T blamed its weak growth on a shortage of the latest iPhone, which went on sale in the last week of the quarter. This meant that the vast majority of third-quarter iPhone sales went to existing customers, stunting its growth of new customers.
Hudson Square Research analyst Todd Rethemeier said the better-than-expected profit failed to offset his disappointment over the weak growth, suggesting Verizon Wireless is taking market share from AT&T.
"The profitability is way up from what I thought, but it's because they didn't sell as many phones," Mr. Rethemeier said.
Slow customer growth likely helped the company post better-than-expected earnings for the quarter as each new customer comes with a hefty cost for wireless service providers.
AT&T's profit rose to $3.64-billion (U.S.), or 63 cents per share, from $3.62-billion, or 61 cents per share, and was 3 cents ahead of Wall Street expectations, according to Thomson Reuters I/B/E/S.
However, revenue fell to $31.46-billion from $31.48-billion and missed the analysts' average estimate of $31.59-billion, according to Thomson Reuters I/B/E/S.
The company raised its target for 2012 free cash flow by $2-billion to $18-billion.
Verizon Wireless is a venture of Verizon Communications and Vodafone Group PLC.