AT&T Inc. (NYSE:T) did the thing companies are supposed to do on earnings day. It beat on the top line. It beat on the bottom line. It raised guidance. And the stock still fell 5.87% to $22.04 by Wednesday afternoon.

That is the market's way of saying: nice numbers, but what happened to the phone customers?

The telecom giant continues to lean on wireless, fiber and bundled services for growth. The trouble is that fierce competition in the U.S. wireless market, plus the potential entry of Space Exploration Technologies Corp.'s (NASDAQ:SPCX) Starlink Mobile, could pressure customer acquisition costs and profit margins. Investors apparently read the quarter as a warning shot rather than a victory lap.

AT&T Beats Earnings And Revenue Estimates

Start with the headline numbers, because they were genuinely good. AT&T reported adjusted earnings of 65 cents per share, beating the analyst consensus estimate of 60 cents.

Revenue increased 5.3% year over year to $32.3 billion, exceeding Wall Street's estimate of $31.7 billion.

Revenue from AT&T's Advanced Connectivity segment, its largest business, rose 7.2%, driven by 6.1% growth in service revenue. Meanwhile, Legacy segment revenue declined 24.5% as AT&T continued to phase out its copper network. Latin America revenue increased 13.2%, supported by favorable foreign exchange rates and growth in postpaid wireless subscribers.

So the mix is shifting exactly the way management wants it to: more connectivity, less copper.

Wireless Subscriber Growth Misses Expectations

Here is where the story gets less comfortable. AT&T added 379,000 postpaid phone subscribers during the quarter, down from 405,000 a year earlier and below analysts' expectations of 387,410.

The weaker-than-expected additions came despite promotions and iPhone 18 Pro subsidies aimed at retaining customers, Bloomberg reported Wednesday. That is the part that stings. AT&T spent on incentives and still came up short of the consensus number.

Postpaid phone churn, which measures the percentage of customers leaving the service, stood at 0.92%.

The broadband side was brighter. AT&T added 769,000 high-speed internet customers, including 442,000 fiber subscribers and 327,000 fixed wireless customers. The company recorded more than 1 million combined internet and wireless customer additions for the second consecutive quarter.

Its strategy of bundling fiber and wireless services continued to gain traction. About 42.8% of households using AT&T's advanced home internet service also subscribed to its wireless plans. That is the bundle doing its job, and it is a number worth watching as the competitive pressure builds.

Profit And Cash Flow Improve Despite $2.6 Billion Charge

AT&T's adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased to $12.5 billion from $11.9 billion a year earlier.

However, net income fell sharply to $891 million from $9.31 billion. The decline reflected a $2.6 billion noncash impairment charge related to its Mexico wireless business, which is held for sale, along with employee separation costs.

Operating cash flow increased to $10.5 billion from $10.2 billion, while free cash flow rose to $5 billion from $4.9 billion. Capital expenditures totaled $5.1 billion during the quarter.

In other words, the accounting loss is loud but the cash engine is still humming.

Could SpaceX's Starlink Threaten AT&T?

Competition remains a major concern as Space Exploration Technologies Corp., better known as SpaceX, prepares to expand its satellite-to-mobile services through Starlink Mobile.

Bloomberg Intelligence analyst John Butler warned that Starlink Mobile could squeeze AT&T's margins by forcing the company to spend more on attracting and retaining wireless customers.

However, TD Cowen analysts believe AT&T's combination of fiber and wireless services could provide a competitive advantage against emerging satellite-based mobile services. The bull case is essentially that a bundle is harder to poach than a single line, and satellites are better at covering gaps than at delivering the everyday home broadband experience.

AT&T Raises 2026 Earnings Forecast

AT&T raised its 2026 adjusted earnings forecast to $2.40 per share from its previous range of $2.25 to $2.35. The revised outlook exceeds the analyst consensus estimate of $2.34 per share.

The company also increased its Advanced Connectivity service revenue growth forecast to a mid-single-digit annual rate through 2028, up from its previous low-single-digit outlook.

AT&T reaffirmed its forecast for adjusted EBITDA growth of 3% to 4% in 2026, accelerating to at least 5% by 2028. It also maintained its outlook for double-digit compound annual growth in adjusted earnings per share through 2028.

Advanced Connectivity EBITDA is expected to grow at a mid-to-high single-digit annual rate, including more than 6% in 2026. Meanwhile, AT&T expects Legacy service revenue to decline more than 20% this year. The business should become immaterial by the end of 2029.

AT&T Targets 60 Million Fiber Locations By 2030

AT&T continues to expand its fiber network as it seeks to strengthen its position in the broadband market. The network now reaches 39.7 million consumer and business locations.

The company expects to surpass 40 million locations by the end of 2026 and exceed 60 million by 2030.

AT&T reiterated plans to invest $23 billion to $24 billion annually in capital expenditures between 2026 and 2028. It also maintained its free cash flow forecasts of at least $18 billion in 2026, $19 billion in 2027 and $21 billion in 2028.

AT&T Plans More Than $45 Billion In Shareholder Returns

AT&T reaffirmed its commitment to return more than $45 billion to shareholders through dividends and stock repurchases between 2026 and 2028.

The company maintained its annualized dividend of $1.11 per share. It also reiterated plans to repurchase approximately $24 billion of stock during the three-year period, including about $10 billion in 2026.

For income-focused investors, that is the pitch: a steady dividend, a big buyback and a fiber build that should keep cash coming in the door.

AT&T Price Action

T Price Action: AT&T shares were down 5.87% at $22.04 at the time of publication on Wednesday, according to market data.

The quarter had beats, a raised forecast and a hefty return plan. What it did not have was enough new phone customers to satisfy a market that is already bracing for a satellite-shaped competitor. That is the tension AT&T will have to resolve in the quarters ahead.