The company said that regulators are asking the types of questions it expected, and that AT&T is making the case for the kinds of public benefits and efficiencies it believes justify allowing the deal to proceed.

“We remain comfortable with the process so far,” AT&T general counsel Wayne Watts said on a conference call with analysts. “They are asking all the right questions.”

The company still faces opposition from Sprint and some politicians, and needs regulatory approval from both the Federal Communications Commission and the Department of Justice.

Earlier on Thursday, the company posted better-than-expected sales, boosted by a gain of 1.1 million wireless subscribers, among other factors. The company sold more than 3.6 million iPhones and saw total smartphone sales make up 70 percent of traditional postpaid phone sales. AT&T CFO John Stephens said on the conference call that the company expects strong smartphone sales for the remainder of the year.

“We had a solid quarter, which adds to our confidence as we head into the second half,” Stephens said.

Among other details, the company also slightly upped its estimate of how much it expects to spend on new capital equipment, forecasting $20 billion in such expenses, up from a previous forecast of somewhere in the low- to mid-$19 billion range.

The company also noted it had its strongest quarter of sales for computing-related devices such as tablets, wireless aircards and hotspots, as well as tethering plans. AT&T added 545,000 such devices in the quarter, with a total of four million devices in service — almost twice as many as it had a year ago. Tablet sales, it said, were particularly strong, with 377,000 added during the quarter. Interestingly, it said that 30 percent of tablet sales were postpaid (think Galaxy Tab and the like). The iPad is considered prepaid because it is sold without a contract, with users paying AT&T only when they want service.

AT&T’s “churn rate,” a number that refers to the percentage of customers lost during the quarter, was 1.43 percent, up slightly from both the prior and year-ago quarters. The company saw its average revenue per traditional subscriber increase two percent year over year to $63.87, with average data revenues up 16.6 percent from a year ago.

On the non-wireless side of things, the company said its U-verse TV service added 202,000 subscribers, with 3.4 million in service. The company added 439,000 subscribers for its U-verse-branded high-speed Internet service, partly offsetting a decline in DSL subscribers.

The Dallas telecommunications company said that customers who exceed a monthly limit of 150 gigabytes of data in three separate months will be charged $10 for every extra 50 gigabytes of data they consume. Customers on AT&T’s higher-end U-Verse Internet service have a limit of 250 gigabytes. AT&T will impose the new limits on May 2.

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Or, as one exec told me, “enough.”

Obviously, that’s tough to quantify. That said, the list of apps announced today is a good start, even if it does seem pretty short. On the mobile A/V front, there are Netflix (NFLX), IMDB, Slacker, I Heart Radio and MusixMatch. T-Mobile users will get T-Mobile TV, while AT&T (T) users will get U-verse. For the moment, WP7′s big social media app will be Twitter, though I imagine there’s a Facebook app on the way. For e-commerce, there’s eBay (EBAY), Fandango and Travelocity. And finally, there’s a growing list of games (60+ at last count) that includes Monopoly, Need for Speed Undercover, Tetris, The Sims 3, Star Wars, Bejeweled, Assassin’s Creed, Fast & Furious 7, Guitar Hero 5 and Halo Waypoint.

Add to that Microsoft’s (MSFT) Bing search engine and an Office Hub that provides mobile versions of Microsoft Word, Excel and PowerPoint, as well as SharePoint integration, and you’ve got the beginnings of a decent ecosystem. Remember, when Apple’s (AAPL) iTunes App Store first launched it had about 500 third-party applications. Today it boasts more than 250,000.

Which is not to say that the development of the WP7 app ecosystem will be as quick or tremendous. Clearly, there’s much ramping-up yet to be done. But there will be enough marquee apps available at launch that the device certainly won’t seem lacking, as some other mobile operating systems did when they debuted. Netflix, Twitter, eBay, a groaning board of games and a mobile office productivity suite is enough to get anyone started, particularly if they’ve only just decided to trade up from a feature phone to a smartphone.

FURTHER COVERAGE:

• “Delightful” Windows Phone 7 Coming November 8
• Windows Phone 7: It’s Now or Never

Steve Ballmer is delivering his annual state-of-Microsoft address at the Consumer Electronics Show in Las Vegas tonight–his second since assuming the duties of former CEO Bill Gates.

If anything like last year’s, Ballmer’s address will offer a broad overview of Microsoft’s (MSFT) consumer strategy for the year, touching on everything from the company’s hardware-software ecosystem to its home entertainment offerings.

Likely to figure prominently in tonight’s address: Windows 7 and the new touch-enabled PC form factors it has evidently inspired; Bing; and Natal, Microsoft’s controller-less game control system, which will launch in time for the 2010 holidays.

• The keynote begins with, what else, some introductory remarks from Consumer Electronics Association President Gary Shapiro: “Happy New Year and welcome to 2010 CES, the World Cup of innovation. The past year has been a challenge. The global recession has affected all companies. Fortunately, signs are pointing upward, and I believe CES will be remembered as a turning point.”

  Let’s hope so.

• Shapiro welcomes Steve Ballmer to the stage, and the Microsoft chief begins by noting that 2009, in case you hadn’t noticed, was a year of profound economic turbulence. But innovation persisted. And with that, he rolls a first video designed to demonstrate his point. It features “one random guy’s” experiences with technology this past year, namely Seth Meyers of “Saturday Night Live.” Seth talks to his grandmother on a Web cam. He plays videogames with a kid and loses. “Before texting existed, I never sent the wrong person a letter telling them they’re a jackass. Thanks, technology….Before Twitter, if I knew what someone’s cat was thinking, I would have had to be an idiot.”

• Ballmer: “We’re going to focus on three things tonight. The [first is the] increasing importance of the small screen, the ever-evolving PC and the future of TV. The second is the cloud. Third is natural user interface–NUI technology. The last few decades have been absolutely stunning in the changes they’ve brought.”

• And here’s the sound byte of the evening: “We Bing. And we Bing. And we Bing Bing Bing. At least in my world.” Ballmer says 2009 is a year in which the company has made incredible progress with Bing. “We added 11 million new users….We redefined what search should do for users–we work to understand user intent and anticipate what users are really looking for. We know we’re at the beginning of a long journey, but we think we’re off to a good start.”

  There’s some news about Bing today, a distribution deal that makes it the default search engine on HP PCs in 32 countries.

• Also figuring prominently in 2009: Xbox. Microsoft first launched it at CES in 2001. Today, there are over 39 million Xbox 360s around the world. And more than 500 million games. The console has generated $20 billion in total game revenue.

• Ballmer is moving on to the mobile space now. Windows Phone–technically Windows Mobile 6.5, a necessary stopgap on the path to 7.0–which debuted last fall in a nimbus of disappointment. Ballmer notes that Microsoft is announcing a new Windows Phone partnership today with T-Mobile, which is bringing HTC’s HD2 phone to the U.S. He says little about Windows Mobile 7, Microsoft’s “modern” mobile operating system, which at last check was scheduled to arrive at market sometime in late 2010.

• Ballmer is talking up Windows 7 now. PC sales jumped 50 percent the week the OS debuted, he says. And according to research outfit NPD, sales of Windows PCs grew 50 percent over the 2009 holidays and retailers sold 63 percent more PCs than they did this time last year. Gartner (IT) now sees three percent PC unit growth in 2009–nearly 300 million PCs shipped in 2009. For 2010, Gartner sees a jump of more than 12 percent.

  “Windows 7 is by far the fastest-selling OS in history,” says Ballmer. “Clearly, consumers are saying there’s never been a better time to be a Windows 7 PC….Windows 7 is a rising tide that’s lifting all boats in the PC business.”

• Ballmer calls Ryan Asdourian, senior product manager for Windows, to the stage. “We’re going to see some of Ryan’s favorite hardware and software,” he says. Among them the Sony (SNE) Vaio L–an all-in-one built for high-definition entertainment–and the Asus NX90, a slick-looking laptop designed with help from legendary audio firm Bang & Olufsen.

  “Being in Vegas, you’ve got to look sexy,” says Asdourian. Ballmer: “Good thing we brought some PCs.”

• Next, some software demos–Ray Kurzweil’s Blio Ereader App?, then a new Skydrive collaboration in Windows Live. Ballmer: “Developers baby! Developers! I love the people who’ve built this stuff.”

• Ballmer moves on to Windows Media Center and Mediaroom 2.0, which will now deliver live and on-demand TV through set-top boxes, PCs, and Windows Mobile devices like the HD2. It is coming to AT&T’s (T) U-verse. Streaming video on the HD2 looks pretty slick.

• “The world of entertainment and content will come in different forms and flavors. But no matter what the source, Windows PCs will offer the greatest entertainment experiences in the world,” says Ballmer. And with that, he shows offs some new slate PCs. Sadly, the Courier–the dual-screen multitouch device that many had been hoping to see–is not among them, as BoomTown reported earlier today. There are, however, some cool-looking offerings from Hewlett-Packard (HPQ) and Archos.

• Ballmer rolls another Seth Myers video, “Milestones in Technology.” Not funny. Yeah, I don’t really miss “Saturday Night Live” at all anymore.

• Robbie Bach, president of Microsoft’s Entertainment & Devices division, takes the stage. “Computer science is the only science bounded solely by our imaginations,” he says, referring to Xbox. “2010 is going to be a landmark year for Xbox customers. We’ll be offering the best line of Xbox 360 games.” Examples: Mass Effect 2 and Splinter Cell Conviction. Also an episodic “psychological action thriller” called Alan Wake. “Imagine ‘Lost’ written by Stephen King, filmed by David Lynch,” implores Bach.

• Bach: “What ‘Star Wars’ is to film, what Harry Potter is to fantasy books, Halo is to videogames.” And with that, he rolls some video of Halo Reach that I can’t see because I’m watching the event remotely. The game is coming in the fall of 2010, but will be available as a multiplayer beta on Xbox Live this spring.

• Bach announces Game Room for Xbox Live! More precisely, a vintage gaming service that offers 30 classics from Atari, Intellivision, etc. The company plans to add over 1,000 games to Game Room over the next three years.

• And here comes the pitch for Project Natal: “We’re at an exciting inflection point in tech, where we can create an experience that is more intuitive. With Natal we’re freeing you from the last barrier, the game controller.” Bach rolls a video of the folks behind the Xbox’s new natural user interface, or NUI, which is due out later this year. “Project Natal will be available this holiday 2010….It will work with your existing Xbox 360.”

• “When I said 2010 was going to be a big year for Xbox 360, I was lying: 2010 is going to be the biggest year in Xbox history!”

• Bach wraps things up with some big-picture remarks and–well, I guess that’s it. He leaves the stage and the house lights come back up.

What is it? A TV (and movie) portal that looks more or less like every other TV (and movie) portal on the Web: Hulu, TV.com, Sling.com, Fancast, etc.

The only reason for AT&T (T) to launch its own portal now would be as a placeholder until it launches its own “TV Everywhere” play, where subscribers to its  “U-Verse” TV service would get Web access to cable shows. That’s the same strategy that Comcast (CMCSA), Time Warner Cable (TWC), Verizon (VZ) and everyone else in the pay TV business is trying.

But while AT&T will likely be doing the same, this site isn’t for that. At least, not according to the note AT&T sent to NewTeeVee, which makes it sound like the company is creating…another free Web TV portal:

We have started a soft launch of a new site called AT&T Entertainment. This site will feature free online content available to any consumer. We’re finalizing a few final elements, and we’ll share more details on our official launch soon.

Allrighty, then. As AT&T says, it’s a soft launch, so maybe when it’s ready for primetime, things will make more sense. But for now it’s a head-scratcher.

One thing that distinguishes AT&T’s site from, say, Hulu: Hulu lets you embed clips from the site on your blog, while AT&T’s site, which relies on Hulu for much of its content, doesn’t. So here’s an awesome, upsetting clip you can see on AT&T’s site, but can only embed by heading to Hulu. Makes sense, right?

Randall Stephenson is just two years into his tenure as CEO of AT&T (T) but he faces challenges that have been decades in the making. Among them: remaking AT&T amid the steady decline of its landline business, future-proofing its business as our appetites for bandwidth grow, competing with the likes of Comcast (CMCSA) in the cable TV market and fending off the proponents of Net neutrality, who don’t care much for the idea of a two-tiered Internet.

Beyond this there is the issue of continuing to build out AT&T’s wireless business, which–if not iPhone-dependent–is certainly nursing a hell of a habit. In its fourth-quarter AT&T added 2.1 million wireless subscribers. 1.9 million of them were iPhone accounts. Astonishing. But AT&T’s exclusive deal to peddle the Apple iPhone in the U.S. expires next year. The company is obviously eager for an extension. But what is it willing to do to get it?

Incidentally, we had a fairly big announcement from AT&T this morning. The company said it is upgrading to High Speed Packet Access 7.2 technology. That means considerably faster mobile broadband speeds. The upgrade is slated to begin later this year, with completion expected in 2011.

Session Highlights