AT&T is investing big in mobile as smartphone sales and wireless subscribers continue to grow even as the company faces new scrutiny around its proposed merger with T-Mobile.

Smartphones are a big driver for AT&T, which sold 43 percent more smartphones in the second compared with the same period a year ago and now account for 70 percent of postpaid device sales for the company. Overall, 5.6 million smartphones were sold in the second quarter and 3.6 million iPhones were activated.

?Mobile is incredibly important to AT&T,? said Susan Rudd, director of service provider analysis at Strategy Analytics, Boston.

?A huge percentage of sales are being driven by the iPhone ? the goods news is this means they are signing up a lot of subscribers,? she said.

?AT&T also recently upgraded its whole network and is now rolling out LTE. They are making a major investment in this mobile network.?

The good news
Sales of smartphones and tablets gave a boost to the number of AT&T subscribers during the quarter, which ended on June 30.

AT&T posted a net gain in total wireless subscribers of 1.1million, to reach 98.6 million in service.

Branded computing subscribers, which include tablets, aircards, Mi-Fi devices and other data-only services, added 545,000 new subscribers, with tablet account for 377,000 new subscribers.

Total wireless revenues, which include equipment sales, were up 9.5 percent year over year and wireless service revenues increased 7.4 percent.

AT&T's consolidated revenues totaled $31.5 billion for the quarter, up more than 2.2 percent compared to last year?s first quarter.

The not so good news
During a conference call with analysts to discuss the results, AT&T executives pointed to the important role that mobile plays for the company and said the proposed merger with T-Mobile is on track to close in the first quarter of next year.

However, some developments in the regulatory space could affect how long it takes for the deal to go through.

The Federal Communications Commission said this week that it is stopping the clock on its 180-day review of the proposed merger so it can review new economic models recently submitted by AT&T on which it is basing its case for the deal.

?The news is not surprising and it not necessarily bad news,? Ms. Rudd said. ?However, I don?t think the FCC schedule is going to be the problem for AT&T.?

Around the same time that the FCC stopped the clock, Sen. Herb Kohl (D-WI) sent a letter to the FCC formally rejecting the deal.

?I think AT&T has a long road to haul with the individual state commissions,? Ms. Rudd said.

Once the state commissions weigh in, AT&T will likely have to trade properties at the micro level. For AT&T, this means having to go through the process in each state of figuring out what to divest.

?The bottom line is the deal will take longer than AT&T would like but they aren?t admitting it,? Ms. Rudd said. 

She expects the deal will get regulatory approval by September or October of next year.

?It will happen before the election and it will happen with a lot of divestitures from AT&T on spectrum, with AT&T having to divest some of the old legacy network,? she said.

Even so, AT&T is likely to end up with a lot of spectrum and the right spectrum for LTE, per Ms. Rudd.

If AT&T divests spectrum, this could be good news for Sprint and some of the smaller networks.

?It is not clear who is going to buy the spectrum,? Ms. Rudd said.

?Maybe Sprint could end up picking them up for a song,? she said. ?Or, some of the smaller networks will be able to expand.?

Final Take
Chantal Tode is associate editor on Mobile Marketer