By Thomas Gryta 

AT&T Inc.'s quarterly profit rose 17% on the back of last year's DirecTV acquisition but the company stumbled in its effort to add new wireless and video customers.

The Dallas-based telecom giant has been trying to diversify beyond its wireless business, which still accounts for nearly half of its total revenue. It is in the midst of integrating its $49 billion purchase of DirecTV, which made it the biggest pay-TV provider in the U.S. and added operations in Latin America.

In the March quarter, the wireless business lost 363,000 mainstream phone connections. On the video side, the company lost 54,000 U.S. subscribers despite gains at DirecTV.

Wells Fargo had expected a loss of about 200,000 mainstream phone customers. Rival Verizon Communications Inc. reported a first-quarter loss of about 8,000 last week, while T-Mobile US Inc. said Tuesday it added 877,000 such customers in the latest quarter. Sprint Corp. reports May 3.

Phone additions are considered important because they provide more service revenue than tablets, and customers with postpaid phone accounts tend to stick around longer. Overall, mainstream connections, including tablets, rose 129,000 in the quarter, ending the period at 77.1 million.

On the video side, AT&T has been pushing its nationwide DirecTV satellite service and de-emphasizing its old U-verse service that operates in a 21-state footprint. In the fourth quarter, more people left U-verse than joined DirecTV. That pattern continued in the first quarter as DirecTV added 328,000 connections while U-verse lost 382,000.

Despite the drop, the company expects to add video customers for the full year, Chief Financial Officer John Stephens said in a conference call with analysts Tuesday.

For the three months ended March 31, net income rose to $3.8 billion, or 61 cents a share, from $3.26 billion, or 63 cents, a year ago. Excluding items, the company earned 72 cents a share.

Revenue rose 24% to $40.54 billion with the addition of DirecTV. Wireless service revenue was flat at $14.8 billion. Analysts projected earnings of 69 cents a share on revenue of $40.47 billion.

AT&T's recent quarterly results have made for difficult comparisons to prior periods because the company reorganized its reporting structures after the DirecTV deal closed. The company said it is on track for annual cost savings from the deal of $1.5 billion or more by year-end.

Wireless carriers increasingly are focusing on video, which is driving the bulk of wireless data traffic. Verizon has launched its own mobile video service, go90, while T-Mobile offers free video streaming for its customers for many major video services.

In March, AT&T said it planned to offer over-the-top video services later this year but details are scant. Pricing and programming, the key components of any such product, are unclear. AT&T is in the process of securing new rights for the service, which will come over the Internet and not through a set top box.

Wireless carriers are navigating a competitive and promotional wireless market, but AT&T has de-emphasized traditional consumer wireless and has been pushing bundles to get more customers on its networks. The company recently began offering unlimited wireless data plans to customers who pay for DirecTV or U-verse. On Tuesday, AT&T said more than 3 million wireless subscribers have signed up for the unlimited plan.

Write to Thomas Gryta at thomas.gryta@wsj.com

 

(END) Dow Jones Newswires

April 26, 2016 18:43 ET (22:43 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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