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NEW YORK (Reuters) – AT&T Inc survived the expiration of its inner U.S. rights to delude the Apple Inc iPhone.

The No. 2 U.S. ambulatory assist provider, which is planning to acquire T-Mobile USA, eked out a offense increase in subscribers in the first quarter, surprising Wall Street, though whatever analysts said the ontogeny came at likewise broad a cost.

Its net constituent of 62,000 lessen customers in the lodge was such weaker than its fourth-quarter ontogeny of 400,000 but meliorate than the expiration of 83,000 customers expected, on average, by seven analysts polled by Reuters.

The fall echolike the Feb 10 start of the iPhone by Verizon Wireless, a venture of Verizon Communications and Vodafone Group Plc.

AT&T, which reported results on Tuesday, also attributed whatever defections to changes in meshwork technologies for whatever customers that resulted from its acquisition of Alltel assets and Centennial.

But Wall Street analysts were impressed that it managed to ready client defections in analyse as some feared the Verizon iPhone would beam hordes of customers fleeing AT&T, which has been criticized for slummy meshwork performance.

"It doesn't countenance same (Verizon Wireless) decimated AT&T as some grouping intellection they might," said Piper Jaffray shrink Christopher Larsen.

AT&T, which low the toll of digit iPhone model to $50 in the quarter, also noted that it ease added 3.6 million newborn iPhones to its meshwork in the lodge and that 23 proportionality of those customers switched from competition services.

Anticipation of the Verizon Wireless iPhone appeared to drive a silence in Jan sales, Chief Financial Officer Rick Lindner said, but the Feb start caused such less of a burble among AT&T customers than the consort had expected.

"In Feb funnily we actually saw state pick up and March was our strongest period in the quarter. We had beatific momentum leaving the lodge and feat into the ordinal quarter," Lindner told Reuters in a telephone interview.

As a result Lindner said he expects an improvement in subscriber ontogeny for the rest of the year.

WEAK MARGINS

But AT&T's efforts to retain subscribers appeared to come at a onerous outlay to profitability.

Its wireless assist acquire edge based on earnings before interest, taxes, discourtesy and amortization dropped to 39 proportionality from 44.5 proportionality a assemblage earlier. It also fell brief of an judge of 41.3 proportionality from Pacific Crest shrink Steve Clement.

"This should place concerns on iPhone (subscribers) to rest for the time being, but the margins are ease a concern," Clement said.

AT&T expects margins to meliorate during the year, according to Lindner, but he did not give limited targets on a word call with analysts, beyond sticking to the company's long-term target of roughly 45 percent.

AT&T earnings chromatic to $3.4 billion, or 57 cents a share, matching the cipher Wall Street estimate, according to composer Reuters I/B/E/S. A assemblage earlier it posted a acquire of $2.5 billion, or 41 cents per share.

Revenue chromatic 2.3 proportionality to $31.25 1000000000 compared with shrink expectations for $31.26 billion, according to composer Reuters I/B/E/S. Its results came the period before the scheduled report of Verizon Communications.

AT&T is due to surpass Verizon Wireless as the No. 1 U.S. ambulatory assist if regulators approve its plan to acquire No. 4 T-Mobile USA, a unit of Deutsche Telekom.

AT&T shares were downbound 17 cents, or 0.56 percent, at $30.14 in hour trading on the New York Stock Exchange.

(Editing by Derek Caney and Steve Orlofsky)

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