By Sheila Dang and Pushkala Aripaka
(Reuters) - AT&T Inc (T.N) reported lower-than-expected quarterly profit on Wednesday as the No. 2 U.S. wireless carrier lost subscribers from its pay TV business, sending its shares down more than 3 percent after the close of trading.
The company has been relying on promotions and discounts to stabilise its wireless and pay-TV subscriber numbers, which have taken a toll on its margins, New Street Research analyst Jonathan Chaplin said in an interview.
AT&T is fighting the U.S Department of Justice in court to complete its $85.4 billion (£61.27 billion) takeover of Time Warner Inc (TWX.N), which it has called necessary for it to compete for advertising dollars and in an industry increasingly dependent on content.
Chaplin said AT&T's entertainment business performed worse than he expected in the quarter, coming in 4.5 percent lower than his forecast.
Net income attributable to the company rose to $4.76 billion, or 75 cents per share, in the quarter, from $3.47 billion, or 56 cents per share, a year earlier.
On an adjusted basis, the company earned 85 cents per share in the first quarter, missing analyst estimates of 87 cents per share, according to Thomson Reuters I/B/E/S.
Total operating revenue fell 3.4 percent to $38.04 billion.
The company attributed the revenue decline to a new accounting standard and held its full-year profit forecast steady. Excluding the accounting changes, revenue would have been $38.9 billion.
Analysts expected revenue of $39.31 billion, according to Thomson Reuters I/B/E/S.
Shares of the Dallas-based company fell more than 3 percent to $34.05 after the bell.
The company, which owns satellite television service DirecTV, lost 187,000 traditional U.S. video customers, fewer than the 257,000 customers analysts had expected them to lose, according to research firm FactSet.
As more viewers seek to cut pay-TV packages, AT&T added 312,000 customers to its DirecTV Now streaming service.
The Time Warner deal, which would give AT&T access to content like HBO's "Game of Thrones" and Warner Bros' "Justice League," reflects AT&T's effort to compete for advertising dollars against Alphabet's (GOOGL.O) Google and Facebook (FB.O).
AT&T Chief Executive Randall Stephenson surprised investors last week when he said during trial testimony that the company would introduce a new video service called AT&T Watch, a package of TV channels without sports, for $15 per month.
(Reporting by Sheila Dang in New York and Pushkala Aripaka in Bengaluru; Editing by Arun Koyyur and Scott Malone)