AT&T adds just 74K broadband subscribers in Q2, but expects year-end bounce back

AT&T (NYSE: T) may be one of the largest telco broadband players, but in the second quarter the service provider saw total broadband subscriber additions drop significantly -- a factor it says is related to seasonality.

John Stephens, CFO of AT&T, told investors during the second quarter 2016 earnings call that while the carrier saw gains in residential and business broadband customers, those numbers trailed earlier quarters.

"As we expected, IP broadband growth was below recent quarters with second quarter seasonality," Stephens said. "We expect IP broadband net adds to bounce back in the second half of the year."

During the quarter, AT&T added 74,000 IP broadband subscribers, a figure that included 20,000 new business broadband additions. AT&T ended the quarter with a total of 14.2 million broadband subscribers, down from 14.4 million as it lost 110,000 broadband customers.   

Adding broadband subscribers is a positive trend, but the 74,000 subscriber metric is significantly down from the 186,000 subscribers AT&T added in the first quarter. IP broadband revenues rose 15 percent, while total broadband revenues were up nearly 7 percent.

AT&T isn't the only telco that's seen broadband subscriber losses, a trend that was evident of all of the large telcos in 2015. According to Leichtman Research Group (LRG), AT&T, Verizon (NYSE: VZ), CenturyLink (NYSE: CTL) and other top telcos lost about 185,000 subscribers in 2015 while cable providers continued to see gains.

Fellow telco Verizon won't release its earnings until next week, but the wireline labor strike that took place in the second quarter has impacted its ability to activate new FiOS broadband subscribers. During the strike, Verizon had to refocus capital labor costs for new installs toward repair/maintenance, which is an operating expense.

Fran Shammo, CFO and EVP of Verizon, told investors in May that despite the near-term issue he said they are beginning to take new orders.

Likewise, Frontier Communications will report lower subscriber adds due to issues related to the integration to the properties it purchased from Verizon in California, Florida and Texas.  

Dan McCarthy, CEO of Frontier, told investors during a JP Morgan event in May that it had a large amount of customers who decided to go somewhere else for service.

But back to AT&T. On the video side, results were a mixed bag. The company added 342,000 satellite subscribers in the second quarter. U-verse TV subscribers declined by 391,000 as the company continued to focus on profitability and increasingly emphasized satellite sales from its DirecTV purchase.

Business service revenues, particularly strategic services such as Ethernet and wireless, were the growth engines. Strategic business services revenues rose $200 million, or 8 percent, year over year to $2.8 billion. They now make up 36 percent of business wireline revenues.

However, overall business revenues declined slightly to $17.6 million, down from $17.7 billion in the same period a year ago. AT&T attributes the decline to due to the sale of some of its hosting assets and foreign exchange.

Within the business segment, small business growth was driven by mobility. While next-gen IP Ethernet services are rising, legacy service revenues continue to decline as more businesses migrate off the older platforms. 

Interestingly, U-Verse broadband was also a factor in AT&T's business segment results. The service provider added 20,000 high-speed IP broadband business subscribers. However, AT&T lost 14,000 business broadband subscribers in the quarter.

In the wireline segment of AT&T's business unit, declines in legacy products were partially offset by what the telco said was "continued growth in strategic business services." Total business wireline revenues were $7.8 billion, down 3.4 percent year over year.

Fiber continued to be a rising star in the business segment. AT&T launched 1 Gbps speeds in more than 220 markets through its AT&T Business Fiber program.

From an overall financial perspective, AT&T reported consolidated revenue rose 22 percent year-over-year to $40.5 billion.

For more:
- see the earnings release
- listen to the earnings webcast (reg. req.)
- here's FierceCable's coverage

Special report: Tracking wireline telecom earnings in Q2 2016

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