AT&T saw a slight uptick in IP broadband subscribers in the third quarter, but ongoing legacy DSL declines continued to be a drag for the telco.
John Stephens, CFO of AT&T, told investors during the third quarter earnings call that IP broadband and video were key contributors to the Entertainment Group’s third quarter revenues.
AT&T’s Entertainment Group revenues grew 1 percent year-over-year to $12.7 billion.
“Entertainment Group revenues grew as IP and video revenue outpaced legacy declines and margins continued to expand at a healthy clip,” Stephens. “Our reported margins were up 130 basis points year-over-year driven by merger synergies and a full quarter of DirecTV.”
IP broadband revenues were up 12 percent year-over-year, while total broadband was up 5 percent. Specifically, AT&T added 156,000 net IP broadband customers. This was a big improvement over the second quarter where AT&T added only 74,000 IP broadband subscribers, a figure that included 20,000 new business broadband additions.
Stephens said that “overall TV and broadband subscribers were relatively stable during the quarter.”
Per the industrywide trend, AT&T continued to see legacy DSL subscriber declines. The telco reported that it lost 5,000 total broadband subscribers, lower than Wells Fargo’s 15,000 estimate. In all, AT&T’s IP broadband subscriber additions were offset by 161,000 DSL customer losses.
However, AT&T’s IP broadband additions were down on a year-over-year basis from the 192,000 the telco added in the third quarter of 2015.
AT&T also reported that while it added 323,000 new DirecTV customers, it lost 3,000 total video customers. The telco said the video losses were due to the company’s focus on attracting profitable customers and transitioning more customers to the DirecTV platform.
Over 1.2 million new satellite customers have been added since AT&T purchased DirecTV. AT&T said that it transitioned about 70 percent of its customers from its IPTV-based U-verse platform to DirecTV.
AT&T hopes to enhance its video product further with its just-announced $85 billion acquisition of Time Warner. By acquiring Time Warner, the telco will gain an even broader library of content including HBO, as well as Turner Networks, home to CNN, TNT and TBS. AT&T would also control the powerful Warner Bros. TV Studios operation, as well as Warner Bros. Pictures.
Unlike its ILEC peer Verizon, AT&T actually saw its business solutions revenues grow slightly during the quarter, rising 0.4 percent to $17.8 billion. The service provider noted that over 70 percent of revenues are wireless and strategic services.
“Business Solutions performed well in a challenging economy,” Stephens said. “Our flow share is good and we continue to see the benefits of an integrated wireless and wireline approach.”
Strategic business services revenues rose 9 percent year-over-year to $2.9 billion and now consist of 37 percent of business wireline revenues.
The revenue shift to wireless and strategic services were 70 percent of total business revenues. Strategic services revenues were up $240 million, or 9.1 percent, year-over-year.
Stephens said that “thanks to wireless we grew business revenues in the quarter and we grew revenues in all of our retail segments – enterprise, small business and public sector.”
Global business revenues were $9.37 billion, while small business and public sector were $3.18 and $1.5 billion, respectively.
Total wireline business revenue was $7.8 billion, slightly lower than the $7.9 billion estimate made by Wells Fargo. Strategic wireline business services revenue was $2.9 billion, up 9.1 percent year-over-year.
Similar to the Entertainment Group, strategic business services growth was offset by the decline in legacy services. Legacy data services declined 15.8 percent year-over-year to $1.8 billion, while legacy voice and other services declined 6.2 percent year-over-year to $3.2 billion.
From an overall financial perspective, AT&T’s consolidated revenues were $40.9 billion, up 4.6 percent due to growth in video and IP services. Earnings per share were 54 cents, up from 50 cents in the year-ago quarter.
Taking out takeover and currency effects, AT&T’s revenues were flat, as growth in video and IP-based services was offset by pressure in mobile and legacy services. Operating profit still rose to $6.4 billion versus $5.9 billion, and the adjusted operating margin was stable year-over-year at 20.3 percent.