As is now customary for AT&T, the company emphasized achievements in its cellular and wireless broadband businesses in its quarterly earnings report, its modest advances in wireline almost an afterthought.

AT&T reported a modest first quarter net gain of 218,000 U-verse TV subscribers, to reach 3.2 million total. It said it continues to have high broadband (90 percent) and voice (60 percent) bundle rates.

The company's net gain in wireline broadband connections was 175,000. AT&T U-verse Voice connections increased by 181,000 in the quarter (and by 716,000 in the past four quarters).

The growth in the number of U-verse customers, coupled with an increase in U-verse triple-play subscriber ARPU (to $168 a month), led to a 26.1 percent increase in wireline consumer IP data revenues.

Overall wireline revenue increased only half a percent, however, to $5.3 billion, as AT&T lost wireline connections – about 300,000 in the quarter, and about 1.9 million across the last year.

AT&T said it also recorded the strongest growth in business services in two years.

Wireless services
AT&T added millions of new iPhone customers in the first quarter despite losing its exclusive rights to the hugely popular smartphone to Verizon Wireless.

Investors feared that AT&T's iPhone customers would defect to Verizon Wireless when it began selling a CDMA version of the device in February, but AT&T appears to have dodged the worst effects of the change.

The company activated 3.6 million iPhones during the first quarter, 1 million more activations than the same period last year. Churn from AT&T's iPhone customers remained unchanged year-over-year, and new subscribers accounted for nearly one-quarter of AT&T's iPhone activations during the quarter.

"We faced a lot of questions with another iPhone competitor entering the market," said Ralph De La Vega, the head of AT&T's wireless business, during a conference call today. "Without a doubt, this quarter validated our strategy and our ability to compete."

AT&T knew in advance that they would lose their exclusive rights to the iPhone in the first quarter of 2011. The company began upgrading their subscribers to mitigate the impact of the change, locking them into long-term contracts.

AT&T said last quarter that more than 90 percent of its iPhone subscribers were under contract, preventing customers from leaving to Verizon Wireless if they didn't want to pay an early termination fee.

AT&T's executives appeared confident in the company's ability to retain its iPhone customers in the months to come. CFO Rick Lindner said the company doesn't expect "significant changes" in iPhone churn rates for the rest of the year.

However, postpaid churn did rise slightly over last year, an increase Lindner attributed to Verizon getting the iPhone.

Excluding turnover from the company's integration of Alltel and Centennial customers, postpaid churn increased seven basis points to 1.12 percent in the first quarter, compared with 1.05 percent during the same period last year. Including AT&T's prepaid customers and other wireless subscribers, overall churn rose six basis points over last year to 1.36 percent.

AT&T may not be out of the woods just yet when it comes to iPhone defections despite today's relatively stable results, says Frost and Sullivan senior analyst Samir Sakpal.

"We'll have to wait and see in the next few quarters how it shapes up," Sakpal says.

Verizon didn't begin selling the device until well into the first quarter, and the effects of a competitor landing the iPhone may take months to manifest as customers come off their contracts.

AT&T added 2 million new subscribers in the first quarter, with the majority of the company's net adds coming from its connected device unit. The company added 1.3 million connected devices, 85,000 net new prepaid customers and 165,000 net postpaid customers, excluding the impact of the Alltel and Centennial integration migrations.

Postpaid subscriber ARPU rose for the ninth consecutive quarter to $63.39. Overall, AT&T made $3.4 billion on sales of $31.2 billion.

Smartphone sales remained strong. AT&T posted its best-ever first-quarter smartphone sales with 5.5 million units sold. By the end of the quarter, 46 percent of AT&T's 68 million postpaid subscribers had smartphones. Just 322,000 tablets were added in the quarter.