By Thomas Gryta 

AT&T Inc. is having to work harder to keep its wireless subscriber count growing as tough competition prompts more customers to leave for rivals and cuts into its profit margins.

Chief Financial Officer John Stephens said at an investor conference Tuesday that the company's fourth-quarter churn, a measure of service cancellations, would be higher than it was a year earlier. Still, the company expects to add net postpaid connections in the quarter compared with a year earlier.

He also said the carrier's wireless-service margins would take a hit in the fourth quarter, though for the full year they would be equal to or better than they were a year earlier.

The warning comes after rival Verizon Communications Inc. said late Monday that its own profit is under pressure because of the promotions needed to get customers to sign up and stick around. Verizon said more of its customers were leaving for other carriers this quarter than in the last quarter or last year as smaller rivals push their own deals.

Verizon, which had been slow to participate in the industry's ongoing price war, also said the promotions would hurt its profitability.

AT&T cut prices for many of its customers earlier this year, leaving it in a better position to fend off rivals offering cheaper plans.

AT&T's debt level is rising as the carrier pursues acquisitions of satellite broadcaster DirecTV, Mexican carrier Iusacell and airwave licenses in an unexpectedly expensive U.S. government-spectrum auction.

The carrier will focus its use of cash on dividends and getting indebtedness back in line with its target for the next three years, Mr. Stephens said. The move is a shift for AT&T, which has spent billions of dollars in recent years using cash to repurchase its own stock.

Corrections & Amplifications

AT&T said adjusted wireless service margins would show an "impact" from competition in the fourth quarter, but that full-year margins would be comparable or better than a year earlier. A previous version of this story incorrectly said the carrier's wireless-service margins for the quarter would be comparable or better than a year earlier.

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

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