UBS Securities downgraded shares of carrier AT&T Inc. (NYSE: T) to neutral from buy, citing expectations for lower earnings and free cash flow growth in 2011 and 2012.

On Jan.27, the telecom giant AT&T reported a 60 percent fall in its fourth-quarter profit, weighed down by an asset impairment charge. However, excluding one-time items, the company's profit topped Street view by a penny.

In 2010, AT&T earned $3.35 a share and excluding items, it earned $2.29 a share. The company, which is the second-largest wireless carrier in the U.S., behind Verizon (NYSE: VZ) spent $20.3 billion in capital expenditures, while generating $14.7 billion in free cash flow.

Looking ahead, the company said it expects mid-single digit or better earnings per share growth versus 2010 earnings, excluding changes in capitalized interest. However, AT&T said it expects only a modest improvement in free cash flow, with capital expenditures in the low-to-mid $19 billion range.

Given slower growth in 4Q and expectations for increasing competitive intensity, we now expect AT&T to lose 100K postpaid subscribers in 1Q11 and another 50K in 2Q vs previous expectations for a gains of 100K and 50K, analyst John Hodulik wrote in a note to clients.

The analyst, who also cut the price target on the AT&T shares to $29 from $31, said 2011 expected to be a rougher road than we previously thought.

Hodulik also lowered his 2011 earnings estimate to $2.38 a share from $2.55 a share. Wall Street expects the company to earn $2.49 a share for 2011, according to analysts polled by Thomson Reuters.

However, the analyst still expects the company to have positive postpaid subscriber growth for the year, but believes the negative net subscriber additions will keep shares range bound until the return to growth.

Shares of Dallas, Texas-based AT&T closed Friday's regular trading session at $27.49 on the NYSE.