NEW YORK, July 23 (Reuters) - AT&T Inc posted aquarterly profit on Tuesday that missed Wall Streetexpectations as it was hit by rising costs, and its shares fell1 percent in late trade.
AT&T's revenue was helped by growth its wireless andenterprise businesses but strong wireless growth comes at a costbecause the company has to pay hefty subsidies for each newwireless customer it adds to its network.
"Both wireline and wireless revenue were a little betterthan I expected," said Hudson Square analyst Todd Rethemeier,but he noted that the difference was not big enough to boost thecompany's shares.
AT&T shares fell to $35.40 in late trade after closing at$35.81 on the New York Stock Exchange.
Revenue rose to $32.08 billion from $31.58 billion, comparedwith Wall Street expectations for $31.81 billion. Earnings pershare of 67 cents, excluding unusual items, were a penny behindanalysts' estimates, according to Thomson Reuters I/B/E/S.
The No. 2 U.S mobile service provider, said it added morethan 550,000 contract customers in the quarter, slightly aheadof its target for about 500,000 and an improvement from its320,000 net additions in the year-ago quarter.
However, this pushed down its wireless profit margin basedon earnings before interest, tax, depreciation and amortization(EBITDA) was 42.4 percent in the quarter compared with 45.8percent in the second quarter of 2012 due to higher costs.
And its growth rate was still well behind the 941,000 netadditions at bigger rival Verizon Wireless , whichreported its financial results on July 18.
AT&T also faced additional competitive pressure in thequarter as smaller rival T-Mobile US started sellingthe Apple Inc iPhone, a top seller for AT&T.
It posted total earnings of $3.82 billion, or 71 cents pershare, compared with $3.97 billion, or 66 cents per share, inthe year-ago quarter.
Chief Financial Officer John Stephens said on a conferencecall with analysts that the economy continued to be challengingbut the company was still able to see some improvements in itsenterprise business, which is one of the most vulnerable toeconomic fluctuations.
"Even with little help from the economy, business wirelineshowed sequential improvement," Stephens said.
He said the company was on track to meet its targets forrevenue and earnings growth for the full year. AT&T had forecast2 percent revenue growth for the year.
AT&T said it added 233,000 U-verse TV subscribers in thequarter, leaving it with more than 5 million TV customers.Including Internet customers it said it had 9.4 million totalU-verse subscribers at the end of the quarter.
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