AT&T's strategic business revenues jump to $2.8B, but market softness has an impact

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AT&T (NYSE: T) is seeing more of its business customers migrate from TDM-based services to IP-based Ethernet and VPN, but the service provider continues to see softness in certain market segments like the oil and gas industry.

Speaking to investors during the fourth quarter 2015 earnings call, Randall Stephenson, CEO of AT&T, said these struggling segments are impacting its overall business revenues, a trend that no provider that serves business customers is immune to this year.

"We are seeing some softness on the enterprise business and if you look at anyone that touches the oil and gas industry all of those companies are a bit defensive," Stephenson said. "Also, the big exporters or anybody that's had exposure to foreign currencies we're seeing weakness there."

Despite the softness in these industry segments, Stephenson added the growing momentum around next-gen services like Ethernet and its SDN-enabled Netbond VPN capability are helping it win more business market share.

"We are taking share on the business side," Stephenson said. "With Netbond and network-on-demand, we're having a lot of success in the marketplace, but we are seeing some softness in those areas."

Business Solutions service revenues declined slightly year over year to $18.2 million, down slightly from $18.7 million as strategic business gains offset legacy declines. Total business wireline data revenue was $4.7 billion.

Strategic business services revenues were $2.8 billion, up 10.3 percent when adjusted for foreign exchange. The service provider said that strategic business services continue see double-digit revenue gains.

"Equipment sales were down year-over-year as we sold fewer handsets and less wireline CPE to our business customers," said John Stephens, CFO of AT&T. "Higher margin business services were essentially flat on a constant currency basis, growing strategic services and largely offset legacy wireline declines."  

Stephens added that "we continue to see stabilization in our wireline data revenues as total revenues now comprise 60 percent of wireline revenues and growth in our advanced data services is keeping pace with declines in legacy business services."

Over in the the consumer segment, broadband continued to be a star performer as AT&T added a total of 192,000 total IP broadband subscribers.

Stephens said AT&T is seeing "more of our satellite customers in our wireline footprint bundling broadband with their video services."

While it added 214,000 DirecTV customers, total video subscribers were down slightly.

AT&T reported that Entertainment Group revenues, which include DirecTV's assets, were $13 billion.

"This is our first full quarter reporting with DirecTV and the results reflect the growing profitability we expected to receive from combining these operations, but our U-verse revenue showed solid growth," said Stephens.

From an overall financial perspective, AT&T's consolidated fourth quarter revenues were $42.1 billion, up more than 22 percent versus the year-earlier period largely due to the acquisition of DirecTV. In comparison to results for the fourth quarter of 2014, operating expenses were $34.6 billion versus $39.9 billion; operating income was $7.5 billion versus $5.5 billion.

Analysts polled by Thomson Reuters forecast 63 cents in earnings per share (EPS) on $42.75 billion in revenue. 

Shares of AT&T closed at $35.40, up 40 cents, or 1.14 percent in Tuesday afternoon trading on the New York Stock Exchange.

For more:
- see the earnings release
- listen to the earnings webcast

Special report: From Adtran to Zayo: Tracking wireline earnings in Q4 2015

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