AT&T Inc posted a smaller-than-expected drop in quarterly profit due to strong growth in its nascent video and high-speed Internet service, sending shares up 2 percent.

Growth in wireless subscribers, which met Wall Street expectations, also helped AT&T offset declines in its traditional telephone business.

The biggest U.S. phone company's first quarter profit fell to $3.13 billion, or 53 cents per share, from $3.46 billion, or 57 cents a share, a year earlier. The results beat the average analyst forecast of 48 cents per share, according to Reuters Estimates.

While revenue edged down 0.6 percent to $30.57 billion, which was below average analyst expectations for $31.06 billion, investors were pleased with AT&T's performance in its growth markets, including its U-verse video service.

You had broadband net adds very strong, U-verse net adds very strong and wireless was very strong, said Commresearch analyst Gregory Lundberg. For this economy, it was an outstanding performance.

AT&T added 284,000 subscriptions to U-verse in the first quarter, ahead of three analyst estimates that ranged from 240,000 to 281,500 subscriptions. It added 264,000 subscribers in the fourth quarter, giving U-verse a total subscriber base of 1.3 million.

The company added 359,000 broadband Internet subscribers in the quarter, well ahead of Lundberg's forecast for 225,000 additions.

AT&T, which trails Verizon Wireless, owned by Verizon Communications and Vodafone in mobile phone customers, added 1.2 million net cell phone customers in the quarter, in line analyst expectations.

The company said 1.6 million customers activated services on the AT&T network using Apple Inc's iPhone during the quarter, more than 40 percent of which were new AT&T customers.

AT&T shares rose 2 percent in premarket trade on Wednesday to $25.80.

(Reporting by Sinead Carew; editing by John Wallace and Derek Caney)

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