AT&T says it lost phone subscribers in Q1

The company said Tuesday that it added a net 296,000 devices to its contract-based plans in the first quarter, but the gain was due entirely to tablets, which carry lower monthly fees.

Excluding tablets, the carrier lost a net 69,000 devices from its contract-based plans, the first such loss.

When AT&T was the only U.S. carrier with the iPhone between 2007 and 2011, it regularly added more than the 1 million net new devices to its contract-based plans per quarter.

Overall, the shift resulted in slower growth in what people pay on average for each device every month. Average revenue per user under contract rose 0.9 percent, down from a 1.9 percent gain in the fourth quarter through December.

The results mean AT&T, the nation's second largest wireless carrier, is slipping further behind market leader Verizon Wireless, which said last week that it added a net 677,000 devices to contract-based plans in the quarter.

Verizon ended the quarter with 93.2 million devices under contract compared to 70.7 million for AT&T.

The results came as AT&T reported a 3 percent gain in net income to $3.7 billion, or 67 cents per share, for the quarter that ended March 31.

Excluding the sale of an advertising business, adjusted earnings came to 64 cents per share, matching the expectation of analysts polled by FactSet.

Revenue fell nearly 2 percent to $31.36 billion, below the $31.74 billion that analysts were looking for. Excluding the ad business sale, revenue would have risen 0.9 percent.

"We had a solid start to the year," Chief Financial Officer John Stephens told analysts on a conference call.

AT&T racked up 6 million smartphone activations in the quarter, including 4.8 million iPhones. That was lower than the busy Christmas quarter in which it had a record 10.2 million smartphone activations, of which 8.6 million were iPhones.

Stephens acknowledged that the addition of more tablets to the network is negatively affecting average per-device spending. He said that low-price cellular data plans for tablets may not be permanent.

"We put that in place to see how it would work, to stimulate demand," he said. "I won't suggest to you that it is a permanent offering, but I will suggest to you we will continue to monitor it and make our decisions as we go forward."

Shares of the Dallas company fell 1.8 percent to $38.31 in after-hours trading following the release of the earnings report.