AT&T reported a 26 percent rise in fourth-quarter profit, fueled by wireless subscriber additions, particularly among users of e-readers, smartphones and netbook computers to the Web.

AT&T's results reflect consumers' willingness to pay to read newspapers online, find restaurants, text with friends or navigate city streets using mobile devices. AT&T added some 2.7 million net subscribers in the fourth quarter -- nearly 1 million more than analysts predicted.

But analysts were not entirely impressed with the figure, saying they were surprised AT&T added just 910,000 of the highly prized monthly paying customers. Analysts had forecast a figure above 1 million.

Profit margins were also slimmer than some had expected, likely due to strong sales of Apple Inc's iPhone. While AT&T's exclusive right to sell iPhone has paid big dividends -- it recorded 3.1 million iPhone activations in the quarter -- it also has hurt profit margins since AT&T subsidizes the smartphone.

Its relationship with Apple will soon expand, with the two companies now involved in a data deal for the upcoming tablet computer called iPad, announced to much hype this week.


The iPad will not hit the market for months, but other similar devices are already proving beneficial to AT&T.

Analysts said, in fact, the quarter's upside surprise came from the number of customers that AT&T added for devices such as Inc's Kindle, Sony Corp's <6758.T> Reader Daily Edition, and the Barnes & Noble Nook. In the emerging devices category, AT&T brought about 1 million users aboard.

Devices such as e-readers are seen bringing in much less monthly revenue per customer than traditional cellphone subscriptions, analysts say. But unlike the iPhone, products like Kindle are not subsidized by operators and therefore offer solid profit margins.

I don't want to overstate the value of it, but it's a very high profit margin business, said Piper Jaffray analyst Chris Larsen. There is very little cost associated with the business -- it might be a low revenue per individual user business, but it's a high margin business.

Quarterly earnings rose to $3.01 billion, or 51 cents a share, from $2.40 billion, or 41 cents a share, a year earlier, when the company took charges for staff cuts and investment losses. Its earnings matched expectations on Wall Street.

Revenue fell nearly 1 percent to $30.9 billion, which was also in line with the average estimate of analysts polled by Thomson Reuters I/B/E/S.

Overall expenses in the fourth quarter fell to $26 billion from $26.2 billion, and the company said it would continue to look at ways to improve its cost structure.

For 2010, AT&T said it would deliver stable consolidated revenues and stable-to-improved consolidated operating income margins, leading to stable-to-improved earnings per share.

Its shares were up 14 cents to $25.76 cents on the New York Stock Exchange.

(Reporting by Paul Thomasch and Sinead Carew; Editing by Derek Caney)