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AT&T said a record 5.2 million customers activated iPhone in the third quarter compared with analyst expectations for about 4.8 million, helping the company boost data growth and lock in customers for the next two years.
Mizuho analyst Michael Nelson was impressed with the company's subscriber growth and increase in customers using data services such as mobile web.
He added that AT&T's free cash flow of $4 billion US beat his estimate for $3.2 billion, suggesting that it would likely be able to return cash to shareholders by buying back shares along with its typical end of year dividend increase.
The first of the top U.S. phone companies to post earnings this quarter, AT&T added 745,000 net monthly bill-paying subscribers, slightly ahead of the average expectation for about 716,000 subscribers from six analysts contacted by Reuters.
The No. 2 U.S. mobile service's third-quarter net profit rose to $12.3 billion, or $2.08 per diluted share, from $3.2 billion, or 54 cents per share in the year-earlier quarter.
Before unusual items such as a gain from the sale of its Sterling Commerce unit, AT&T said its earnings would have been 55 cents per share, in line with analyst expectations, according to Thomson Reuters I/B/E/S.
Revenue rose to $31.58 billion from $30.73 billion in the third quarter a year earlier and compared with the average analyst expectation for $31.25 billion.
It said wireless data revenue growth was 30.5 percent to $4.8 billion.
In its connected devices category, which includes gadgets like the Amazon.com Inc Kindle e-reader, AT&T said it added 1.2 million customers.
The company ended the quarter with 92.8 million mobile customers, including 2.6 million third-quarter additions.
Analysts had expected a strong wireless quarter for AT&T in its first full quarter selling the latest iPhone model, but had also warned of temporary weakness in its mobile profit margin as strong phone sales also mean hefty subsidy costs.
Stifel Nicolaus analyst Chris King said that, at 37.6 percent, AT&T's wireless profit margins were well below his estimate for 39.2 percent. Other analyst had expected margins of more than 40 percent.
The company's success in adding iPhone customers was key for this quarter as it means that it has locked in these customers for two years.
Many analysts expect Apple to expand distribution to AT&T's Verizon Wireless, a venture of Verizon Communications and Vodafone Group Plc, as soon as the first quarter.
Verizon is due to report earnings on Oct. 22.
AT&T said its iPhone activations were 62 percent higher than its previous record quarter of 3.2 million activations but most of these came from existing customers. It said that 24 percent of iPhone sales were to customers that were new to AT&T, compared with about 40 percent for the first iPhone.