For Telecom Firms, Smartphones Rule

The expanding influence of smartphones such as the iPhone will loom over AT&T Inc. (T) and Verizon Communications Inc. (VZ) when they report second-quarter results this week.

With fewer lucrative wireless customers up for grabs and higher stakes for cementing their position, the two big carriers have increasingly relied on flashy devices, including the recently released iPhone 4 and hard-to-find Droid Incredible, to win over new converts.

Wireless services generate the lion’s share of the telecom industry’s profits, and has kept the companies afloat as their traditional fixed-phone segments and business arms struggle. As a result, Wall Street expects mixed results for AT&T and Verizon.

Apple’s (AAPL) iPhone, for instance, continues to be AT&T’s primary engine for growth, although the latest version likely won’t have a major impact on results because it launched with a week left in the second quarter. Still, the marquee device’s strength is evident; more than a third of iPhone activations in the first quarter came from new customers.

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