Excluding items like merger and severance costs, AT&T earned 64 cents per share, missing the average estimate of analysts polled by Thomson Reuters by a penny.

Revenue rose 2.4 percent to $31.1 billion. That was slightly short of analyst expectations at $31.3 billion.

Its shares fell 58 cents, or 2.2 percent, to $25.33 in late-morning trading.

AT&T added 2.1 million wireless subscribers, more than the 2 million added in the third quarter and ahead of expectations. It ended the quarter with 77 million subscribers.

The major draw for customers was Apple Inc.s iPhone, for which AT&T is the exclusive U.S. carrier. It added 1.9 million iPhone subscribers in the quarter, down from 2.4 million in the third quarter, when the latest iPhone model was released.

“The most important step that we took in 2008 was our iPhone 3G launch,” said Chief Executive Randall Stephenson.

AT&T pays hundreds of dollars in subsidies for each iPhone it sells. It aims to make that money back in service fees over the two-year contract attached to each phone. IPhone customers pay more than $100 per month for service, giving AT&T the highest revenue per wireless subscriber in the industry.

But AT&Ts upfront costs are steep: iPhone subsidies reduced earnings by $450 million, or 5 cents per share.

Hurricane repair costs further reduced earnings by $120 million, or 1 cent per share, and the rising dollar reduced the value of earnings brought home from overseas operations by $90 million, or 1 cent per share.

While wireless revenue grew 13 percent from a year ago to $12.9 billion, revenue at AT&Ts traditional wired phone company business declined 3.3 percent to $17.1 billion. Customers continued to defect to cable phone services or opted to get rid of their landlines to use only their cell phones.

Unlike Verizon Communications Inc., AT&T hasnt yet managed to stem declining revenue in the segment by selling broadband and TV services.

The company also announced that it would slow the buildout of U-Verse to conserve cash. The goal of making its TV and faster Internet service available to 30 million households, up from the 17 million it reaches now, will be reached in 2011 rather than 2010, said Chief Financial Officer Rick Lindner said.

“Between the homes that weve already passed and what we will hit in the next year or so, were hitting the markets that are the highest priority to us,” Lindner said.

Overall, the company expects to cut capital spending by 10 percent to 15 percent from the $19.7 billion it spent in 2008. Since AT&T accounts for about a third of spending by U.S. carriers on telecommunications equipment, this has implications for equipment vendors like Alcatel-Lucent and Ciena Corp. Analysts had been expecting an 11 percent reduction in capital expenditures.

In another move to conserve cash, the company said it wouldnt make significant share buybacks this year, focusing instead on maintaining its dividend to reward shareholders. It bought back $6.1 billion worth of stock last year, and paid out $9.5 billion in dividends. Due to the decline in AT&Ts stock price, its dividend yield is now 6.5 percent.

AT&T said it expects to stay on track this year, growing revenue by a low single-digit percentage and keeping its overall margins stable, excluding pension and retiree benefit costs. AT&T expects pension charges to cut its full-year earnings by 19 cents per share, as the declining stock market has reduced the value of its funds.

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