By Sinead Carew
NEW YORK, Oct 23 (Reuters) - AT&T Inc posted net income that was a penny ahead of Wall Street expectations on Wednesday on wireless profit margins that were better than some analysts 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 with expectations, but in the bigger picture AT&T is struggling to grow," said MoffettNathanson analyst Craig Moffett, who cited wireless service revenue growth of 3.7 percent, down from 4.4 percent in the year-ago quarter.
In order to continue growth, AT&T has said it would consider making acquisitions in Europe, despite misgivings from some investors, but it declined to give an update on this consideration on Wednesday.
AT&T, the No. 2 U.S. mobile service provider reported 363,000 net postpaid subscriber additions in the quarter, which was 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 Verizon Wireless , which reported 927,000 new customers in the quarter on Oct 17.
Moffett said AT&T is losing market share to Verizon and its much smaller rival T-Mobile US, which has been aggressively marketing its services to AT&T customers.
Chief Financial officer John Stephens said AT&T was seeing some competitive pressure as price-sensitive customers with older phones left for rival services, but he noted that many basic phone customers have switched to AT&T smartphones.
AT&T reported a third-quarter profit of $3.81 billion, or 72 cents, per share compared with $3.63 billion, or 63 cents, per share in the year-ago quarter.
Excluding unusual items, the company earned 66 cents per share in the third quarter compared with analyst estimates of 65 cents, according to Thomson Reuters I/B/E/S.
The company's wireless service margin was 42 percent compared with a UBS estimate of 41.3 percent.
Stephens told analysts on a conference call the margin strength was partly because an increase in usage of AT&T's newer high-speed wireless network was making that business more cost efficient. The company also cited a change to its smartphone upgrade 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 not give details, but Verizon Wireless said last week it had a significant shortage of Apple Inc iPhones in the quarter.
Revenue rose to $32.16 billion from $31.46 billion but was slightly 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 after closing at $35.27 on the New York Stock Exchange.