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NEW YORK - AT&T Inc.'s second-quarter financial results Wednesday indicated that the weak economy is catching up to the America's largest telecommunications company, but investors were largely satisfied with what they saw.

AT&T stock has been hammered in the last few months by the expectation that economy-conscious consumers would pressure profits. The latest results affirmed that, as the company slightly missed analysts' revenue expectations and reported an accelerating loss of landline subscribers.

However, investors were apparently expecting worse, and sent AT&T's shares up $1.08, or 3.4 per cent, to US$32.90 in morning trading.

AT&T said sales of Apple Inc.'s second-generation iPhone, for which it is the exclusive U.S. carrier, were nearly double those of the first iPhone model in the first 12 days the device was available.

The latest iPhone went on sale July 11, after the end of the second quarter on June 30, so those sales are not part of the financial results reported Wednesday. AT&T said 40 per cent of buyers were new to the company.

AT&T earned $3.77 billion, or 63 cents per share, in the quarter, up 30 per cent from $2.90 billion, or 47 cents per share, in the same period a year ago.

Excluding merger-related one-time charges, AT&T said it earned 76 cents a share. That matched the average estimate of analysts polled by Thomson Financial.

Revenue rose 4.7 per cent to $30.9 billion. Analysts expected $31.1 billion in revenue, according to Thomson.

The company, which recently moved its headquarters from San Antonio to Dallas, ended the quarter with 58.9 million phone lines in service, down 2.6 per cent from 60.4 million three months earlier. That's a faster decline that many analysts had expected.

AT&T's 22-state local-phone service area includes parts of the country where the drop in the real-estate market has hit the hardest, like the Midwest and Florida.

"In areas where housing is more stressed, where there are more foreclosures, less new construction, and less new home sales, that has an impact, obviously, on access lines and broadband net adds," chief financial officer Rick Lindner said on a conference call.

Analysts had been speculating that the weak overall economy would be speeding up line losses not just for AT&T but for phone companies in general in the second quarter. Subscribers were already disconnecting at a rapid pace, moving to wireless service and phone service from cable companies.

Phone companies have been offsetting the loss of revenue from phone service in part by selling broadband, but that trend is running out of steam as the market nears saturation. AT&T added just 46,000 broadband subscribers in the quarter, again lower than analyst estimates and far below the results of recent years.

Lindner indicated that the low broadband additions were more a matter of the economy than the competition. He said that in many cases, customers who are cancelling broadband are saying that they're not going to a competitor, just cancelling home Internet service to cut costs.

Lindner said areas where the company has rolled out its TV service, U-verse, are holding up better when it comes to retaining customers. AT&T added 170,000 U-verse subscribers in the quarter, for a total of 549,000.

Sanford Bernstein analyst Craig Moffett said AT&T had "cleared a low bar" of expectations thanks to good profit margins, which actually exceeded his forecast.

AT&T is the first major phone company to report its results for the second quarter, and its results are considered a bellwether for others, like Verizon Communications Inc. and Qwest Communications International Inc. Verizon shares were up 89 cents, or 2.6 per cent, at $35.57.

AT&T added 1.3 million wireless subscribers, fewer than the 1.5 million added by its largest rival, Verizon Wireless, in the same period. Potential customers may have been waiting for the new iPhone. AT&T remained the largest U.S. wireless company, with 72.8 million customers compared to Verizon Wireless' 68.7 million.