AT&T’s (T: 26.26, 1.01, 4%) earnings were down from a year ago, but the biggest U.S. telecom carrier still beat Wall Street’s estimates for the first quarter.

It’s shares were up over 3% in midday trading Wednesday.

AT&T reported profits of $3.1 billion, or 53 cents per share, in the first three months of 2009, down about 10% from $3.5 billion, or 57 cents per share, a year earlier.

The earnings were reduced by 5 cents per share for increases in noncash pension and retiree expenses, according to the company’s quarterly statement. Excluding that item, the earnings were 58 cents per share.

Analysts polled by Thomson Reuters had predicted earnings of 48 cents per share.

The recession took its toll on the company’s revenue and profits. But cost-cutting measures and a boost from AT&T’s relationship with Apple (AAPL: 123.5, 1.74, 1.43%) helped.

Despite strong wireless sales, AT&T said revenue slipped to $30.6 billion from $30.7 billion a year ago.

Revenue fell because the weak economy exacerbated the long-running decline of AT&T’s landline business, the company said. Sales of traditional fixed phone service fell 12.2% to $8.7 billion.

Even as revenue was down, AT&T improved its overall profit margin slightly, helped by the continuing process of integrating BellSouth Corp., which it bought in 2006. The company also reduced its work force by 8,000 since the beginning of the year.

AT&T added a net 875,000 customers in the first three months of the year, hundreds of thousands more than expected by analysts. Of the new customers, about three-quarters chose the iPhone, for which AT&T is the exclusive U.S. carrier.

The iPhone has been a drag on AT&T’s earnings since last summer, when the latest model, the “3G,” launched. AT&T has been subsidizing each phone by hundreds of dollars, with the aim of making its money back on service fees, since iPhone users pay 60 percent more per month than other customers.

That strategy has begun to pay off. Margins in the wireless business are now back almost to where they were before the launch of the iPhone 3G, despite the sale of 1.6 million iPhones in the quarter.