AT&T's Q4 consumer wireline revenues rise to $5.6 billion on strong U-verse gains
AT&T's (NYSE: T) wireline story in Q4 2013 was led by U-verse, where revenues grew 27.9 percent year-over-year and were up 7.0 percent sequentially over Q3 2013 as subscribers topped the 10.7 million mark.
During the quarter, the telco saw a continued uptick in both U-verse broadband and video subscribers.
"U-verse finished the year just as it started, with strong subscriber gains, increasing penetration and growing revenue," said John Stephens, CFO for AT&T, during the Q4 2013 earnings call. "In fact, U-verse helped drive consumer revenue growth of nearly 3 percent in the fourth quarter."
Overall wireline revenues were $14.7 billion, up 0.3 percent sequentially, but down 1.4 percent from Q4 2012 and 0.7 percent year-over-year.
Wireline operating income margin was 9.9 percent, down from 12 percent in Q4 2012, a factor it attributes to expected declines in voice revenues, success-based growth, U-verse content costs and costs incurred as part of Project VIP.
Here's a breakdown of AT&T's wireline metrics, which were dominated by gains in U-verse and strategic business services growth:
Consumer wireline: Residential wireline revenue was $5.6 billion, up 2.9 percent from Q4 2012 and 1.3 percent sequentially. Ongoing growth in IP data services in the fourth quarter more than offset lower revenues from voice and legacy business products.
U-verse, which includes TV, high speed Internet and voice over IP, now represents 57 percent of wireline consumer revenues, up from 46 percent in the year-earlier quarter. Consumer U-verse revenues grew 26.8 percent year-over-year and were up 6.8 percent vs. Q3 2013.
Broadband and video: AT&T saw strong gains in both U-verse broadband and U-verse TV. The telco added 630,000 new net U-verse broadband and 194,000 U-verse TV subscribers in the fourth quarter, ending the period with a total of 5.5 million and 10.4 million subscribers, respectively. However, wireline broadband subscribers were essentially flat in the quarter due to ongoing legacy DSL declines.
Besides gaining new subscribers, the company reported that Q4 2013 TV churn was the lowest it has ever seen. Stephens said the decline in churn "tells us that customers not only want U-verse but they stay with us once they get it."
Another key factor in the U-verse results was ARPU. Similar to earlier quarters, U-verse ARPU continues to grow as over 90 percent of new U-verse TV customers also signed up for U-verse high speed Internet during the quarter.
Due to gains in U-verse, total wireline broadband ARPU rose 7 percent year over year. Total U-verse high speed Internet subscribers now represent 63 percent of all wireline broadband subscribers compared with 47 percent in the year-earlier quarter.
In the fourth quarter, an estimated two-thirds of AT&T U-verse TV subscribers took three or four services from AT&T. ARPU for U-verse triple-play customers is more than $170.
Stephens said that U-verse "subscribers not only have a higher ARPU but churn is significantly lower as well."
Business services: Business revenues were $8.8 billion, down 3.4 percent from Q4 2012, and flat sequentially. Declines in legacy services such as ATM and Frame Relay were partially offset by what AT&T said was "double-digit" growth in strategic business services. Next-gen services such as VPN, Ethernet, cloud and hosting grew 17.4 percent over Q4 2012. These services now represent a $9 billion annualized revenue stream and are more than a quarter of business wireline revenues.
"Strategic business service continues to be a bigger part of business services," Stephens said. "Those service products such as VPN, Ethernet, cloud, hosting and other advanced IT services now make up more than 25 percent of business wireline and growth is accelerating up more than 17 percent year-over-year."
Interestingly, U-verse continued to have an influence in the business sector as the telco added 78,000 business U-verse high speed broadband subscribers. "We continue to see U-verse high-speed broadband growing in the business space. Increasing speeds and broader coverage open the door to new growth opportunities with small and medium-sized customers," he said.
Despite all of the gains it made with next-gen services, AT&T's business division continues to be challenged by the broader economic environment. Stephens said the outlook in the business market "is still uncertain" and "customers are still delaying buying decisions."
He added that "it's still a slow market, but we are hopeful that we will see an improving economy to get this part of the company growing again."
Looking forward, AT&T has forecast 2014 revenue to grow between 2 to 3 percent, including strength in wireless service and wireline consumer revenues.
Shares of AT&T were listed at $32.17, down $1.53, or 4.54 percent, in Wednesday morning trading on the New York Stock Exchange.
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