AT&T sees consumer services grow to $5.5 billion in Q4, driven by IP data

Strongest growth in consumer wireline in more than 4 years
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AT&T (NYSE: T) reported on Thursday wireline revenues of $14.9 billion, down 0.5 percent year-over-year, but up 0.7 percent sequentially due to strong consumer and strategic business services growth.

AT&T Q4 revenue mix

Click here to view selected slides from AT&T's investor presentation.

Wireline operating revenue was $1.8 billion, up 1.8 percent year-over-year from Q4 2011.

Once again, consumer services was the star performer in AT&T's Q4 2012 wireline results. During the quarter, consumer revenues rose 3 percent over the same period a year ago to $5.5 billion. AT&T said that this was the "strongest growth" it saw in the consumer wireline segment in over four years.

As seen in previous quarters, consumer services growth was driven by the uptick in IP data services, which AT&T said "more than offset lower revenues from voice and legacy products."

"We over delivered on wireline margins and consumer wireline growth, thanks to the increasing strength of our U-verse services," said John Stephens, Senior Executive Vice President and Chief Financial Officer, during the Q4 2012 earnings call.

The uptick in consumer revenue helped to partially offset business service revenue declines.

Here's a breakdown of AT&T's key wireline metrics:

Landline Losses: Following the industrywide trend of all of the major wireline telcos, AT&T's traditional landline voice lines declined 10.8 percent year-over-year from 39 million to 34.7 million.  

Broadband and Video: AT&T continued to see increases in new broadband and video service subscribers with U-verse revenues growing 36.3 percent during the quarter. At the end of the quarter, the telco had 8 million total U-verse subscribers (both TV and broadband data) in service. U-verse revenue growth was due to the net gain of 192,000 U-verse TV subscribers and 609,000 broadband Internet subscribers. The growth of U-verse helped AT&T offset ongoing DSL service losses, and now it has more U-verse broadband subscribers than DSL subscribers. While overall wireless broadband subscriber growth was flat, total broadband ARPU rose 10 percent year over year.

Similar to its ILEC brothers CenturyLink (NYSE: CTL) and Verizon (NYSE: VZ), AT&T continues to see a large portion (70 percent) of its U-verse TV subscribers taking three or four services. U-verse triple play ARPU was more than $170, up year over year. Meanwhile, U-verse TV penetration into customer locations was at 18.7 percent at the end of the quarter.

The consumer broadband and video results were largely in line with financial analyst forecasts. Morgan Stanley expected AT&T to report declines in overall wireline broadband of 56,000, with DSL losses of 700,000 outpacing the 644,000 growth of its higher speed Fiber to the Node (FTTN)-based U-verse service. The financial firm added that the company will report that it added U-verse video subscribers during the quarter.

Business Services:  Due to economic uncertainty and slow government and business sales, overall business revenues declined 2.1 percent to $9.1 billion year-over-year, but rose 0.6 sequentially from Q3 2012. Likewise, business service revenues declined 2.3 percent year over year but were up slightly sequentially. However, declines in legacy services like Frame Relay and ATM were partially offset by growth in strategic business services, including Ethernet and VPN. During the quarter, strategic IP-based business services grew 10.6 percent year over year and total business IP data revenues grew 2.4 percent year over year, illustrating the ongoing transition from legacy services to next-gen data services.

"We are seeing a little glimmer of hope on the enterprise side, but it's really hard to predict this segment right now when you have continuing resolutions; you have fiscal cliffs; you have debt ceilings; and you have sequesters," said Randall Stephenson, Chairman and CEO for AT&T. "People are a little bit stuck right now, and it's been this way for about six months."

Stephenson added that "when you look at the mid-level market and above, we actually saw positive growth" and "the pressure on the enterprise segment is coming from small business, particularly state and federal governments where spending cycles are slow and down considerably."

Morgan Stanley forecast in a pre-earnings report that AT&T's business revenues will be "sluggish" due to ongoing economic uncertainty in the United States and Europe.

From an overall financial perspective, AT&T reported consolidated Q4 revenues of $32.6 billion, up 0.2 year-over-year from Q4 2011. Excluding revenues primarily from the divested Advertising Solutions business unit as well as the impact of Superstorm Sandy, revenues would have rose 2.8 percent.

For the total year 2012, AT&T reported that consolidated revenues of $127.4 billion up from $126.7 billion in 2011. Taking out the divested Advertising Solutions business unit, revenues were up 2.4 percent for the year

AT&T's shares closed Thursday at $33.75 on the New York Stock Exchange.

For more:
- see the earnings release
- and FierceWireless' coverage
- here's the earnings webcast

Special report: Wireline telecom earnings in the fourth quarter of 2012

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AT&T Q3: Consumer, business IP drive up wireline revenues 2%
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