The second-largest U.S. mobile service provider AT&T Inc. ( T - Analyst Report ) is dominating the market for Apple Inc.’s ( AAPL - Analyst Report ) iPhone 5 sales. The company saw an astounding demand for the new iPhone, despite two of its rival carriers also offering the product.

According to the latest study from ComScore, AT&T leads the pre-orders for the hot iconic device with about 68% of total online sales in the first three days. This records the best order ever received by AT&T for the iPhones. The other two major rivals – Verizon Communications Inc. ( VZ - Analyst Report ) and Sprint Nextel Corp. ( S - Analyst Report ) – accounted for just 24% and 8% share of iPhone 5 sales, respectively.

AT&T had been the exclusive provider since 2007, when the first iPhone was launched. However, this uniqueness was lost to the wireless kingpin Verizon Wireless, a joint venture between Verizon Communications and Vodafone Plc ( VOD - Analyst Report ) , in February last year. Despite this loss, AT&T made a new record for the iPhone 4S in October last year and received more than 200,000 preorders within 12 hours of the start of booking.

When compared to the aforementioned 68% share of iPhone 5 sales, AT&T received merely 48% of pre-orders for iPhone 4S in the first three days and was followed by 35% for Verizon and 17% for Sprint. This suggests that though AT&T is behind Verizon in deploying 4G LTE services needed for iPhone 5, the existing customers, who are eligible for upgrades, are boosting demand for the new product.

Going by the iPhones’ track record, we expect AT&T to gain more subscribers from the new iPhone 5 and consequently will be raking in higher revenues. While iPhones are offering a strong growth momentum, the related high-marketing cost is hurting AT&T’s earnings. The company now has to pay $100 extra per phone to Apple, when compared to previous iPhone 4S, in the form of subsidy. Thereby, this lofty subsidy of $400 per iPhone 5 will be dilutive to the company’s earnings for the next several quarters.

According to several analysts, AT&T’s wireless EBITDA margin would decline from 45% in the second quarter to 40.8% in the third and then 35.7% in the fourth quarter. As a result, 3 out of 27 analysts have revised the third quarter estimates downward over the last week. The Zacks Consensus Estimate fell by a penny to 63 cents, representing only 4.01% year-over-year growth.

We are maintaining our long-term Neutral recommendation on AT&T. The company retains the Zacks # 3 (Hold) Rank for the short term (1–3 months).