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By PETER SVENSSON, AP Technology Writer

NEW YORK – (NYSE: T) added fewer contract-signing wireless customers in the first quarter than it has since 2004, an indication that the saturation of the market is even starting to catch up with the carrier of the iPhone.


The country’s largest telecommunications provider said Wednesday that it added a net 512,000 wireless customers under contracts, down 43 percent from a year ago.

Over the past week, analyst reports indicated that AT&T was expected to add between 500,000 and 600,000 contract-signing customers.

AT&T activated about 900,000 iPhones for new customers. However, it lost some iPhone subscribers to other carriers as well, so it’s not clear how much the iPhone contributed to the net gain of 512,000. Another 1.8 million people who were already AT&T customers also got iPhones.

Customers under contract pay a lot more than those who "prepay" for service, or buy service through a wholesaler like Tracfone.

The low number of new contract customers actually helped AT&T’s results in the short term, because it didn’t have to sell as many subsidized phones. And the subscribers it does have were more profitable because more signed up for data plans.

AT&T earned $2.48 billion, or 42 cents per share, in the first three months of the year. That was down 21 percent from a year ago. But excluding items, AT&T earned 59 cents per share, beating the average forecast of 54 cents per share by analysts surveyed by Thomson Reuters. The items included a previously announced charge of $995 million, or 17 cents per share, to reflect a change in the health care reform package regarding the tax treatment of benefits.

Revenue was $30.6 billion, flat with a year ago and slightly below analyst expectations for $30.7 billion.

In morning trading, AT&T shares fell 33 cents to $26.33.

AT&T’s earnings also were helped by relative stability on the wireline side of the business. Like all phone companies, AT&T is losing landlines as people opt for cell phones or landline service from cable companies. But AT&T said it managed a 0.8 percent increase in consumer revenue from the prior quarter – the first such uptick in more than two years. It’s due to investments in its U-Verse service, which delivers TV and faster Internet service in an attempt to take on cable companies.

In total, AT&T added 1.9 million wireless subscribers, a figure comparable to the best quarters in recent years. But 1.1 million of those were not using phones. Instead they were on e-readers such as Inc.’s Kindle and GPS units that download traffic updates and maps wirelessly.

The number of gadgets that aren’t phones but use the wireless network is expected to grow explosively in the next few years, and AT&T is taking a lead in recruiting manufacturers to its network. However, each device doesn’t yield much revenue: perhaps $3 to $4 per month, compared to $62 per month for the average phone subscriber under contract.

AT&T ended the quarter with 87 million wireless subscribers. It has been trailing Verizon Wireless, which had 91.2 million at the end of last year and is set to report first-quarter figures Thursday.

AT&T is the first major wireless company to report for the first quarter. Analyst Craig Moffett at Sanford Bernstein said the low number of new contract customers, even with help from the iPhone, made it "hard to be optimistic about anyone else’s results without it."

AT&T is the exclusive U.S. carrier for the iPhone, but Verizon Wireless is expected to soon get to sell a version of the device.