U. S. telecommunications giant AT&T Inc. enjoyed the best profitability ever in its wireless arm in the second quarter, even as it suffered a considerable decline in its smartphone sales.

AT&T revealed on Tuesday that it activated 5.1 million smartphones in its most recent quarter. The figure is down from 5.5 million in the corresponding period of 2011.

Nevertheless, the carrier reported its best profitability ever in its wireless arm because it saved on phone subsidies.

Much of the smartphone activation fall came as AT&T subscribers are holding on to their existing smartphones longer. The rate of upgrades to new smartphones was recorded at an all-time low.

The decline in the rate of upgrades benefited the company as it has to subsidize each phone by hundreds of dollars. For example, it sells iPhones for $199 (with a service contract), but Apple charges the carrier an average of nearly $650 for each smartphone.

AT&T's chief financial officer John Stephens said, "It appears our policy is working."

In March 2011, AT&T declared that subscribers had to stay on contract for at least 20 months to become eligible for a new handset at the fully subsidized price.