Sales of iPhones led the overall increase in smartphones running on AT&T’s network to 41.2 million, up by nearly 10 million over the year-ago quarter. Wireless-data revenue increased to $6.1 billion in the quarter, up from $5.1 billion a year ago; the average revenue per user (ARPU), a key metric indicating how heavily smartphone owners use their devices, rose 15 percent.

De la Vega said AT&T is on track to report $24 billion in wireless revenue this year. “Strong smartphone sales drive strong data sales, and data drives this business,” he said.

It’s also a profitable business. De la Vega said that wireless margins, on an EBITDA basis, were 41.6 percent, up from 39 percent a year ago. Wireless operating income was $4.4 billion, up 11.3 percent year over year.

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Some argue that it is. BTIG Research analyst Walter Piecyk recently cut his rating on Apple, theorizing that U.S. carriers will soon rein in their iPhone subsidies in an effort to boost their own margins. And were that to happen, a significant contraction in iPhone sales would likely follow.

Question is: Will it happen? According to a new analysis from CLSA, the answer is probably no — at least not for the next 18 to 24 months.

Which is great news for Apple. CLSA figures iPhone subsidies accounted for $19 billion of Apple’s fiscal 2011 revenue. And about 46 percent of that came from North America. So if AT&T, Verizon and Sprint were to push to lower the subsidies they pay to sell the iPhone, Apple could take a revenue hit. Indeed, some observers have estimated that a $100 drop in the iPhone subsidy would trim $7.50 from Apple’s earnings-per-share for fiscal 2013.

But that’s an unlikely scenario.

Why? Because, CLSA argues, the structure of Apple’s carrier agreements will prevent it from occurring.

“We believe these are multiyear agreements which tend to stipulate subsidy policies up front,” CLSA analyst Avi Silver explains. “For the major carriers, we believe these agreements have most favored nation clauses so any offering from Apple to one carrier would have to be offered to the other. During the length of these multiyear agreements, we believe U.S. carriers would need permission from Apple to alter subsidy levels.”

And if that’s the case, they’re obviously going to have a difficult time getting it. More to the point, that hypothetical most-favored-nation clause — if it exists — is going to make it tough to trim iPhone subsidies for a while.

Says Silver, “For AT&T, we do not know when its multiyear agreement expires but Verizon and Sprint are likely locked in for some time. As a result, we think that an outright reduction in subsidies is an unlikely scenario in the U.S. market.”

Apple reports earnings after market close today.

Using an area normally home to its network security team, Ma Bell had a science fair of sorts on Thursday, showing off a number of the technologies that it has been cooking up in its labs. Many of the projects on display take advantage of different pieces of network data that AT&T now makes available to developers.

The various projects and booths paint an interesting future where doors can be opened by voice, a chip in the phone or even the electrical signals that travel through our hands, to name just a few of the gee-whiz technologies on display. But whether this future is bright or grim depends a bit on how one feels about being tracked.

Cellphones are indeed powerful devices these days — portable computers that know who we are, where we are and how we pay for things. Many of the projects on display Thursday aim to combine that knowledge in useful ways.

One application, for example would allow parents to keep tabs on their kids while they are driving — getting alerts if they text and drive or neglect to wear their seatbelts.

Another project nearby shows something akin to Caller ID on steroids. Today’s Caller ID shares only one’s phone number, but AT&T has the potential to share a lot more. One demo imagined what it would be like to share location and all manner of other information with a person you are dialing. Such uses could make it easy when, for instance, one is ordering a pizza.

Data combinations clearly have downsides, though. Imagine how hard it would be to cancel an outing with friends if they knew one was in Atlantic City, rather than sick in bed.

There are two questions that companies need to ask when releasing new services, says Edward Amoroso, senior VP and chief security officer for AT&T.

The first, Amoroso says, is about the art of the possible. “What sort of technology could you actually do?”

Then, he said, it is important to ask a second question. “What technology are people going to be comfortable with?”

Thursday’s science fair was more about the first question than the second.

Not all of the projects were as fraught with controversy. One of the more popular demos was one AT&T has been showing for a couple of years now called “Air Graffiti,” which allows users to tag physical locations with art, photos, sounds or other information — all without the risk of irking the property owner. AT&T has been working on the idea for a decade, but the technology needed to make it a reality has only recently become widely available.

Locations can be as specific as a single spot or as big as the earth and users can choose to share their graffiti publicly or with only a small collection of friends or family. Graffiti can also be timed to last for a short duration or set to live forever.

AT&T also used Thursday’s event to launch Watson, a new speech-recognition technology that it says is the result of a million hours of research and development and is the subject of 600 patents. The platform can recognize natural speech patterns and translate among six different languages.

Several of the technologies on display are also making their way into AT&T’s latest “Rethink Possible” campaign spots.

AT&T, like other carriers, have been increasingly opening up various features of their network — even core things like location and messaging and payment — so that developers can create more sophisticated programs.

Opening up their most valuable assets — the networks — is a clear risk for the carriers. At the same time, each is looking to avoid becoming just a “dumb pipe” for which they are paid a toll that barely covers the cost of each generation of network upgrades.

Things are indeed at a critical juncture, says Chief Technology Officer Krish Prabhu.

“There’s a cultural transformation and we are right in the middle of it,” Prabhu told AllThingsD. In a couple of years, the result will be clear, he said. “Either we changed the company for the good or we missed the boat.”

One of the capabilities that AT&T is studying is whether to allow, for example, the ability for applications to send text messages on behalf of users, much the way that the iPhone or Android sends notifications. Striking the right balance between usefulness and spam will be key.

Also front of mind for AT&T is making sure that nothing it does compromises the overall security of its network, something Amoroso said remains his top priority.

Figuring out how to make money will be another key. Prabhu said that AT&T has some goals in terms of getting a certain percentage of new revenue by opening up its network. However, he declined to reveal any of the specific numbers.

“I think the network has a lot of capability other than just connectivity,” he said. “It is a business objective and there is clearly an understanding that at some level a certain percentage of our revenue will come from this.”

And, depending on which of two studies you believe, both can lay claim to having the fastest network.

AT&T is pushing a PCWorld study that found its network to be the faster of the two.

“In our tests, AT&T’s new LTE network pumped out the fastest speeds of any 4G provider,” PCWorld senior editor Mark Sullivan said in a statement.

Verizon, meanwhile, calls attention to a RootMetrics study that finds that it has the better-performing of the LTE networks.

“While AT&T outperformed Verizon in pure LTE download speeds, Verizon had the clear upper hand in the more meaningful real-world experience of average download and upload speeds,” RootMetrics president Bill Moore said in a post on GigaOM. “AT&T’s LTE might be faster, but our overall experience with AT&T was still slower than what we found with Verizon.”

One thing is clear: Verizon’s network covers more ground. The company is launching more cities this week and with those will have two-thirds of the U.S. population covered. AT&T’s network is still smaller, but it is rapidly adding cities as well.

Sprint, meanwhile, is just gearing up to launch LTE, while T-Mobile is aiming to launch an LTE network next year.

Looks like the software glitch that plagued early versions of the handset — and prompted Nokia to offer replacement devices to consumers affected by it — hasn’t had much of an effect on inventory. The company says that far more consumers have opted to patch their Lumias with the software Nokia has provided than have swapped them for new ones at a local AT&T store.

In other words, if the cyan version of the Lumia 900 is out of stock at AT&T’s online store (as it currently is), it’s because it’s sold out for the time being, not because Nokia is scrambling to update and recertify returned handsets.

“The inventory situation is primarily a function of demand because we are seeing that most customers are opting to keep their units and simply update via Zune,” Nokia spokeswoman Karen Lachtanski told AllThingsD. “So the impact of customer swaps is insignificant. We are producing more devices to satisfy demand as quickly as possible.”

That’s a good sign, indeed. And further evidence that sales are exceeding expectations, as Paul Roth, AT&T’s president of retail sales and service, recently claimed.

Indeed, it appears that the device is selling so well that it’s tough to even find one right now. AT&T’s online store lists both versions of the device — cyan and black — as temporarily out of stock. At Amazon Wireless, the cyan version is back-ordered. And four of the five AT&T stores I called told me they had run out of stock.

Which is good news and bad for the Nokia, AT&T and Microsoft triumvirate — if the stock-outs are demand-related.

Good news in that the Lumia 900, the most eagerly anticipated Windows Phone device to date, is off to a good start, despite an unfortunate software glitch that prevented Internet access for some early customers. Bad news in that Nokia and AT&T don’t seem to have a supply sufficient enough to put a 900 in the hands of everyone who would like one.

There are a few caveats to this, however. It’s possible that these stock-outs may not be demand-related. They could, for example, be caused by Nokia’s offer of replacement handsets to consumers whose Lumia 900s were affected by that software glitch I mentioned earlier. While it’s likely that most of those consumers opted for a downloadable fix for the issue, it’s also conceivable that a number of them might have swapped their devices for new ones at a local AT&T store. And that clearly would have an effect on inventory.

Another possible reason for these inventory issues: AT&T’s Lumia 900 stock might have been depleted if it returned handsets potentially affected by the software glitch to Nokia for updating and recertification. Though I have no insight into it, I imagine that process would take some time. And it would likely have inventory implications for AT&T’s online store, and its local outlets as well.

AT&T and Nokia both declined comment on the issue.

The Finnish phone maker reiterated that customers can either download and install the patch or exchange their phone at an AT&T store. Nokia had originally said to expect the software update to be ready by Monday.

“Consumers now have the opportunity to update their AT&T version Nokia Lumia 900 software through Zune and Windows Phone 7 Connector for Mac earlier than anticipated,” Nokia said in a statement.

All Lumia 900 customers, regardless of whether they have had problems, will get a $100 credit, Nokia U.S. head Chris Weber told AllThingsD earlier this week. Customers that buy or order a Lumia 900 before midnight PT on April 21 will also get the credit.

That effectively makes the device free, for now, since AT&T had been selling it for $99 with a new two-year contract.

Nokia has gotten plaudits for its prompt and generous dealing with the issues. However, the glitches still threaten to diminish the launch of a product seen as key to the ambitions of Nokia and Microsoft to take on the top smartphones and re-establish themselves as serious players in the U.S. market.

The issue was particularly unfortunate given the teaser campaign that Nokia had run, touting that the arrival of the Lumia 900 meant that “the Smartphone Beta Test was over.”

Indeed, Jefferies & Co. said that the first quarter could mark the first time ever that the number of postpaid customers actually declined.

“A Jefferies proprietary handset survey suggests volume expectations for [the first quarter] are the weakest in years, in line with our view that net adds are significantly lower in the quarter after an iPhone launch,” analyst Thomas Seitz said in a research note.

Jefferies sees “modest” growth in traditional customers for AT&T and Verizon, but declines at both T-Mobile and Sprint, which saw a big jump last quarter — its first with an iPhone.

“We believe there is a distinct possibility that Q1 could be the first time that the postpaid market, as a whole, loses subscribers,” Seitz said. Seitz noted that sales tend to be weak in the quarter immediately preceding and immediately following the launch of a new iPhone model.

Sales of prepaid phones may have also seen slower growth in the quarter, Seitz said.

Nonetheless, the carriers should see some revenue growth, thanks in part to the continued growth of smartphones as well as recent price hikes.

But, with smartphones already making up a big chunk of the business and nearly everyone having a cellphone, Jefferies said the wireless providers will be challenged to continue to post gains.

“Voice revenues are already in decline,” Seitz said. “We believe a material drop off in the growth rate of data revenues from slowing smartphone adoption, particularly in (the second half of the year), is a growing risk.”

The party will feature the band Dale Earnhardt Jr. Jr. and presumably offer some more details on T-Mobile’s plans for the phone, which was announced along with a pair of siblings at February’s Mobile World Congress.

HTC said at the time that T-Mobile would be the launch partner for the slim HTC One S, while AT&T is getting the flagship HTC One X model. Sprint has since announced its new high-end HTC phone, which will be sold as the HTC Evo 4G LTE.

T-Mobile has yet to announce pricing and exact availability for its One S, though HTC has said that the product family is going on sale globally this month.

HTC is counting on the One lineup to help turn around a steep drop in sales, while still-iPhoneless T-Mobile is looking for alternatives to Apple.

T-Mobile could benefit from a massive marketing push HTC is planning for its One line.

And so you can feel like you’re at the party yourself, here’s a bit of Dale Earnhardt Jr. Jr.:

This morning Verizon Wireless said that beginning April 22 it will charge subscribers an extra $30 to upgrade to a new phone. The fee will apply to existing customers buying new hardware along with a two-year contract, and Verizon says proceeds from it will be used to “continue to provide customers with the level of service and support they have come to expect, which includes Wireless Workshops, online educational tools, and consultations with experts who provide advice and guidance on devices that are more sophisticated than ever.”

What? You’ve never attended a Verizon Wireless Workshop? Or used one of its online educational tools? Well, you’re going to have to pay up anyway. To be fair, Verizon isn’t the only carrier to charge an upgrade fee, and its charge is lower than some of its rivals. Sprint and AT&T both charge $36.

And to think, they used to give you a loyalty discount for upgrading …

So far, the launch hasn’t gone quite so well. First there was a lackluster review. Then, days after going on sale on Easter Sunday, the company has admitted to a software glitch and is offering people who bought one a $100 credit in addition to a software patch. The credit makes the phone free to buyers willing to take a two-year service contract.

Now the market research firm IHS iSuppli has taken a Lumia 900 apart and, in a report shared with AllThingsD that will be released later today, has determined that it costs Nokia about $209 to build. And, judging from the parts being used, it’s not exactly built like the most cutting-edge phone on the market.

In fact, it seems like Microsoft and wireless chipmaker Qualcomm are both making an effort to showcase how efficient Windows Phone 7 for mobile can be; at the same time, they seem to be aiming to entice other hardware manufacturers by demonstrating that a full-featured smartphone can be built using components that are about a generation behind the current high end, and therefore cheaper, says Andrew Rassweiler, the iSuppli analyst who supervised the teardown.

For example, the teardown found that the Lumia 900 uses a single-core Qualcomm chip that costs $17 as its main applications processor; a phone with similar features running Google’s Android OS, such as Samsung’s Galaxy SII Skyrocket, uses a higher-end dual-core processor that costs $22.

“It appears what Microsoft and Qualcomm and Nokia are trying to do here — and this is being driven by Microsoft more than anyone else — is streamline the OS so it can run on a lighter processing platform,” Rassweiler told me. “The point being is to undercut the higher end phones.”

The choices don’t end with the processor. The phone contains only 512 megabytes of DRAM memory, where most phones would use one gigabyte. And the trend is expected to continue, as the next generation of Microsoft’s mobile OS will require even less memory.

Another example: The Bluetooth chip. Nokia is using a slightly older chip from Broadcom, and not the latest, greatest Bluetooth part. The difference between them is only $2.50, but it serves as another example showing that Nokia is aiming to compete on price.

For Nokia, the strategy seems to be one of aiming to compete against other phones on price, while offering similar features. The Lumia is thought to sell for $450 at retail without a subsidy, or about $200 lower than Apple’s iPhone 4S, which starts at $649 without a contract, depending on model, and costs between $188 and $245 to build.

Microsoft is also thought to be helping Nokia out, says iSuppli’s Wayne Lam, who also participated in the teardown analysis. While software costs are not considered in a teardown analysis, he says Microsoft is thought to be making less than $5 per phone in licensing fees on the Windows Phone 7 operating system, far lower than the $15 per device it is said to want. That would be in line with the $3 per phone price that Nokia is thought to have paid in licensing fees for the Symbian OS it used previously, and of which it was a partial owner. “Nokia is getting a fantastic discount,” Lam told me.

One place where Nokia didn’t skimp? The gyroscope chip, which determines how the phone is being moved. It contains the same gyroscope chip from STMicroelectronics that goes into the iPhone 4S. There are, apparently, some things on which you simply can’t compromise.

Nokia U.S. chief Chris Weber told AllThingsD that the problem is a memory-management issue with the phone’s software, and is not tied to any hardware issues or to a flaw with AT&T’s network. The connection problem affects only a limited number of customers, Weber said.

Nokia has created a software fix, and all customers can swap their device at an AT&T store for an updated one or download a software update starting around April 16.

“We’re already manufacturing devices with the new software,” Weber said. “Those are being shipped to AT&T stores.”

The company is offering a $100 credit to all customers, regardless of whether they are encountering the problem. The $100 credit is also being offered to any customer who purchases a Lumia 900 before midnight PT April 21, effectively making the device free.

“The customer always comes first, and I think we’re showing it here,” Weber said in an interview.

Weber said the cost of the program depends on how many people purchase Lumia devices through April 21, and said that the expense was not the issue.

Nokia, he said, was focused on “how do we do something unprecedented for any inconvenience, (and) pleasantly surprise the customers.”

Nonetheless, the issue is clearly not the way the company hoped to launch what is designed to be a flagship product aimed at reestablishing the company as a major smartphone presence in the U.S.

“Obviously you don’t want these things to happen,” Weber said.

AllThingsD’s Walt Mossberg noted in his review that he experienced some other issues with the 900, including problems loading Internet Explorer pages over Wi-Fi.

Weber hopes the company will be remembered more for how it handled the problem than for the issues themselves. And, he said, visits to six Chicago-area stores on Monday affirmed for him that enthusiasm for the Lumia 900 is strong.

“We’re seeing incredible customer excitement and buzz,” Weber said. “I think we have a very compelling device that customers are excited about.”

Nokia, Microsoft and AT&T are all counting on big sales for the device and have said they are putting unprecedented marketing behind its launch.

Oddly, though, the product went on sale on Easter Sunday, a day when most of the Microsoft and AT&T stores that carry the device were closed.

As for how such a significant issue could have made it through the company’s testing processes, Weber said, “That’s something we are doing a current investigation on.”

It’s particularly unfortunate given that one of Nokia’s marketing pitches for the Lumia 900 was an online and TV ad campaign saying that the Smartphone Beta Test was over, and encouraging existing smartphone owners to trade in their “beta” Androids and iPhones for a real smartphone.

As flagship product launches go, the Lumia 900’s was more unusual than most. Certainly, the decision to launch the handset on Easter Sunday was perplexing. But more confounding still was the manner in which it was carried out, which really doesn’t speak well of Nokia or its carrier partner AT&T, which in late March was hyping the Lumia 900′s launch as its biggest ever — and that includes the iPhone’s debut.

“At all levels, this is a notch above anything we’ve ever done,” AT&T device head Jeff Bradley said at the time. “Before you walk in to the store, you know this is our hero phone.”

Sounded great in theory. But what did it mean in practice?

Well, in practice it meant that consumers missed out on that hero-phone messaging, because there weren’t too many AT&T stores for them to walk into. Most were closed for the holiday, a detail revealed on an outgoing voicemail message that included no mention whatsoever of the Lumia, but a nice little plug for one of its main rivals:

“Visit our store to see the exciting iPhone 4S, and how only AT&T’s network lets your iPhone 4S download three times faster.”

An unfortunate oversight. And I was far from the only person to notice. Barclays analyst Raimo Lenschow picked up on it as well, along with a few other details suggesting Nokia and AT&T’s execution left a lot to be desired.

“Our admittedly anecdotal check of 10-15 stores did not find a single one that was open — a significant barrier to sales,” Lenschow said. “We found promotional materials for the Lumia — banners, display cases, etc. — unevenly prepared during our window shopping. The promotional messages on the answering services for the stores was in fact for the iPhone.”

More disturbing still was the lack of coordination Lenschow found at AT&T’s national sales office. “Several of the national representatives were unaware of the launch,” the analyst said. “Several were in fact unaware of the device itself.”

And then there was that Nokia-sponsored Nicki Minaj concert in Times Square. That seems to have gone over well (see video embed below), but more for Minaj than Nokia. Can’t imagine that stunt sold many Lumia 900s.

So, as I said, a perplexing and at times poorly orchestrated launch. Though it doesn’t seem to have had any ill effect on sales. The Lumia 900 has already risen to the top of Amazon’s Best Sellers list for Cell Phones With Service Plans, and AT&T seems quite happy with sales so far.

“The Lumia has gotten great reviews and we have been taking preorders online and in our stores for a week,” AT&T spokesman Mark Siegel told AllThingsD. “We are well off to the races.”

(Image courtesy of Flickr/NokiaOfficial)

A shocker of a call, coming as it does when Apple shares are so ascendant that some analysts have slapped a staggering $1,001 price target on them. But Piecyk has his reasons, and they’re worth considering, even as AAPL shrugs them off in midday trading. Top among them: He believes Apple’s carrier partners are tired of offering such high subsidies on the iPhone, which eat into their own margins while delivering huge ones to Apple. And soon they’re going to begin reining them in.

“Subsidies by post-paid wireless operators have fueled the growth of Apple’s $600 iPhone since its inception,” says Piecyk. “Wireless operators have been happy to subsidize smartphones to new and existing customers in order to provide a lift to the average monthly bill (ARPU) of their customer base, a metric which had been falling for the past three decades.”

But now that the pace of the smartphone upgrade cycle has quickened, subsidizing iPhone upgrades only one year into a two-year contract is becoming a costly proposition. Case in point: AT&T’s wireless margins, which used to be more than 44 percent, are these days hovering around 30 percent (see slide at right). So, to raise margin levels back to where they once were, AT&T is implementing stricter upgrade policies.

“We expect post-paid wireless operators to remain firm in their plan to stunt the pace of phone upgrades in 2012 and we expect to see some initial evidence of their success in the current quarter,” Piecyk said.

And that could cause a significant contraction in iPhone sales; more so, if other carriers follow AT&T’s lead, as Piecyk believes they might.

How significant?

Says Piecyk, “We expect Apple’s iPhone sales to drop to 27.5 million units in Fiscal Q3, resulting in a revenue estimate that is $1 billion below consensus.”

Which would obviously make for a hell of a surprise.

So what do we think of Piecyk’s rationale? Does it hold water?