AT&T consumer wireline revenue up 4.3% to $5.7B on strong U-verse video, broadband adds

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AT&T's (NYSE: T) consumer wireline segment continues to be driven by U-verse growth and the first quarter of 2014 was no exception, with revenues growing 28.3 percent year-over-year to $3.5 billion.

John Stephens, senior executive vice president and CFO for AT&T, said during the first-quarter earnings call that "we transformed our wireline business from legacy services, such as DSL to IP networks and IP services," adding that "this transformation helped drive our strongest consumer wireline growth in years." 

However, there were some losses. Overall wireline revenues declined 0.4 percent year-over-year to $14.6 billion, but wireline service revenues rose 0.1 percent year-over-year.

Due to U-verse content price increases, expected POTS voice revenue declines and success-based growth and costs incurred as part of Project VIP, AT&T's wireline operating margin was 10 percent versus 11.1 percent in the year-earlier quarter.

Here's a breakdown of AT&T's wireline metrics, which were dominated by gains in U-verse and strategic business services growth:

Consumer Revenues: Consumer wireline revenue was $5.7 billion, up 4.3 percent from the same period a year ago, representing what the company said was "the strongest consumer revenue growth since the introduction of U-verse eight years ago." Growth in consumer IP data service helped to offset lower legacy voice and data products.

U-verse now represents 60 percent of AT&T's wireline consumer revenues, up from 48 percent in the year-earlier quarter. Consumer U-verse revenues grew 28.3 percent year-over-year. 

Broadband and Video: AT&T saw U-verse subscriber adds drive broadband growth during the first quarter. During the quarter it added a total of 634,000 U-verse broadband and 201,000 U-verse TV subscribers, ending the quarter with a total of 11 million and 5.7 million subscribers, respectively. Total U-verse high speed Internet subscribers now represent more than two-thirds of all wireline broadband subscribers, compared with 51 percent in the year-earlier quarter. Overall total broadband subscribers rose by 78,000.

Interestingly, nearly 60 percent of U-verse broadband customers subscribe to a 12 Mbps or higher plan. Besides taking a higher speed broadband product, AT&T said that 90 percent of new U-verse TV customers also signed up for U-verse high speed Internet. Nearly two-thirds of AT&T U-verse TV subscribers purchases three or four services. These factors drove up wireline ARPU 9 percent year-over-year to more than $170 a month.

"We also see the transformation in our broadband results," Stephens said. "More than two-thirds of our total broadband base are about 11 million subscribers are now on U-verse broadband, highest speed and highest quality product."

Another potential key factor of future broadband and video growth will come from its GigaPower fiber to the home (FTTH) service. Following the success of its initial build in Austin, the telco announced on Monday that it is planning to expand its U-verse GigaPower service to up to 100 cities and municipalities, including 21 major metropolitan areas.

Stephens said that what made the process in Austin work was it was able "to get kind of right way, and permitting and pull rights and other rights to build in the same manner as other companies which we haven't had historically," adding that "we're able to focus our build on the customers that drove demand as a oppose to the ubiquitous coverage."

The next step for AT&T will be to begin discussions with community leaders to find ways to streamline the permitting process for rights of way and access to public infrastructure such as utility poles.

"We're very opportunistic, optimistic I should say about those markets and believe we're uniquely positioned in many of those markets because the existing backbone we have in many of those markets," Stephens said.

Business Services: While overall business services revenues declined 2.7 percent to $8.7 billion, declines in legacy products like ATM and Frame Relay were partially offset by continued double-digit growth in strategic business services. Next-gen IP services such as VPN, Ethernet, cloud, hosting and other advanced IP services grew 16.1 percent year-over-year. These services represent an annualized revenue stream of more than $9 billion and are more than 26 percent of wireline business revenues. U-verse broadband was once again a factor in the small to medium business segment. During the first quarter, the telco added 64,000 business U-verse broadband subscribers.

"Overall revenues were down year-over-year in line with the slow economy and recent trend, but there are positive signs," Stephens said. "In enterprise, our global business services we actually showed slight service revenue growth year-over-year, given recent headwinds that seemed as very positive."

Stephens added that wholesale had a large impact on the overall business service revenue decline, particularly "as wireless carriers aggressively decommissioned the legacy circuit" like copper-based T-1s and replaced them with fiber-based Ethernet services.

From an overall financial perspective, AT&T reported consolidated revenues of $32.5 billion, up 3.6 percent or more than $1 billion over the first quarter of 2013, which it said "was the strongest growth in more than two years."

The telco also reported 70 cents of diluted earnings per share (EPS), up from 67 cents diluted EPS in the year-ago quarter.

AT&T's shares closed at $36.29, up 23 cents, or 0.64 percent at the end of Tuesday trading on the New York Stock Exchange (NYSE).

For more:
- see the earnings release
- here's FierceCable's take
- and the earnings transcript (reg.req.)

Special report: Wireline telecom earnings in the first quarter of 2014

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