By Sinead Carew
NEW YORK, Oct 23 (Reuters) - AT&T Inc posted netincome that was a penny ahead of Wall Street expectations onWednesday on wireless profit margins that were better than someanalysts expected.
While revenue was slightly behind analyst estimates,investors kept the shares steady in late trading because the results were roughly in line with expectations.
"Their revenue and profitability were close to in line withexpectations, but in the bigger picture AT&T is struggling togrow," said MoffettNathanson analyst Craig Moffett, who cited wireless service revenue growth of 3.7 percent, down from 4.4percent in the year-ago quarter.
In order to continue growth, AT&T has said it would considermaking acquisitions in Europe, despite misgivings from someinvestors, but it declined to give an update on thisconsideration on Wednesday.
AT&T, the No. 2 U.S. mobile service provider reported363,000 net postpaid subscriber additions in the quarter, whichwas better than its year-ago growth and slightly ahead of expectations from eight analysts for over 344,000.
But customer additions were well behind bigger rival VerizonWireless , which reported 927,000 new customers inthe quarter on Oct 17.
Moffett said AT&T is losing market share to Verizon and itsmuch smaller rival T-Mobile US, which has beenaggressively marketing its services to AT&T customers.
Chief Financial officer John Stephens said AT&T was seeingsome competitive pressure as price-sensitive customers witholder phones left for rival services, but he noted that manybasic phone customers have switched to AT&T smartphones.
AT&T reported a third-quarter profit of $3.81 billion, or 72cents, per share compared with $3.63 billion, or 63 cents, pershare in the year-ago quarter.
Excluding unusual items, the company earned 66 cents pershare in the third quarter compared with analyst estimates of 65cents, according to Thomson Reuters I/B/E/S.
The company's wireless service margin was 42 percentcompared with a UBS estimate of 41.3 percent.
Stephens told analysts on a conference call the marginstrength was partly because an increase in usage of AT&T's newerhigh-speed wireless network was making that business more costefficient. The company also cited a change to its smartphoneupgrade policy and the sale of high margin tablet computers.
He noted that smartphone sales, which often drive up costs,were restricted by handset supply constraints. Stephens did notgive details, but Verizon Wireless said last week it had asignificant shortage of Apple Inc iPhones in thequarter.
Revenue rose to $32.16 billion from $31.46 billion but wasslightly behind Wall Street expectations for $32.19 billion,according to Thomson Reuters I/B/E/S.
AT&T shares were largely unchanged in late trading afterclosing at $35.27 on the New York Stock Exchange.
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