AT&T banks on fiber build to fuel its OTT services

AT&T's fiber-based broadband service adds close to 200,000 subscribers in the fourth quarter. (Pixabay)

AT&T may have turned in dismal numbers for its fourth quarter video subscribers, but it's banking on fiber-based broadband to fuel its OTT services.

For the fourth quarter, AT&T lost 1.16 million video subscribers, which included 945,000 premium video subscribers from its DirecTV and U-verse businesses and an additional 219,000 OTT subscribers for its AT&T TV Now streaming video service. For the year, AT&T shed 3.43 million premium subscribers and 665,000 OTT subscribers.

RELATED: AT&T looks to fiber for revenue growth

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On the plus side, AT&T added 191,000 fiber-to-the home (FTTH) subscribers in the fourth quarter, which was down from the 318,000 in the previous quarter and from the 259,00 in the same quarter a year ago. AT&T finished out the year with 3.88 million fiber broadband customers after closing out 2018 with 2.76 million.

During a Wednesday morning earnings call, AT&T's John Stankey, the COO of AT&T and CEO of WarnerMedia, said the telco expects its fiber-to-the-home subscribers will grow to seven million by 2022, which could include one or two million more FTTH capable locations. Last year, AT&T largely halted its fiber built out after meeting the FCC's 2015 conditions to add fiber as part of its deal to buy DirecTV.

"We have four million fiber customers today and our recent fiber expansion gives us 14 million locations to sell into," said Stankey, according to a Seeking Alpha transcript. "Based on our fiber sales experience we expect to exit 2022 with about three million more fiber customers than we have today or a total of about seven million. This will be a significant lift in market share compared to our traditional performance in our legacy hybrid fiber copper-based footprint."

Stankey said fiber-based broadband services would increase the penetration of its HBO Max service, which is set to launch in May, and its AT&T TV OTT service. After an initial launch, AT&T TV is slated to be available across the nation next month.

"When you're able to put AT&T TV, a software-based product with fiber, it's a much more natural combination than a satellite dish and fiber," Stankey said. "And so, as we start to roll out AT&T TV now in markets and we move in, we're going to see much stronger performance on the fiber side."

AT&T's fiber business is part of its Entertainment Group, which includes its video business. Using its broadband fiber, Stankey said AT&T is able to offer software-based video products with low acquisition costs, which will in turn lower its video churn going forward. With its fiber assets in hand, Stankey said that AT&T will "lean into video acquisition given the better economics of our improved product portfolio including AT&T TV and HBO Max."

"As we exit the year, our premium video subscriber declines will be more in line with overall video industry trends," Stankey said. "Looking at our total premium video customer base, we expect year-over-year improvements in the subscriber losses."

While AT&T added fiber-based broadband subscribers in the fourth quarter, it lost 141,00 IP broadband customers, which included fiber and U-verse internet subscribers. On the DSL side of broadband, AT&T lost 41,000 customers in the fourth quarter. AT&T wrapped up the fourth quarter with 13.59 million IP internet subscribers and 521,000 DSL customers.

AT&T's total number of broadband subscribers came in at 14.1 million, which was down slightly from the previous quarter's total of 14.3 million. Thanks in part to the additional fiber customers, broadband average revenue per user (ARPU) came in at $51.35 in the fourth quarter, compared to $51.25 in the third quarter and $48.83 in the same quarter a year ago.

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