AT&T battles legacy losses with U-verse gains, but sets focus on profitable customers

AT&T (NYSE: T) reported that U-verse was the star performer in the wireline portfolio, rising 21.9 percent year-over-year in the fourth quarter of 2014, driving up residential wireline revenues slightly 0.1 percent to $5.6 billion.

Although AT&T added 73,000 U-verse TV customers, this was down from the 194,000 added in the same period of 2013.

John Stephens, senior executive vice president and CFO for AT&T, said during the earnings call that U-verse TV subscriber additions were impacted by a move by AT&T to pursue more profitable customers or those with low-churn rates.

"U-verse adds were impacted by a strategic move to improve the profitability of our wireline consumer business," Stephens said. "With our high content costs, we targeted profitable, long-term value subscribers with lower churn rates while still taking market share."

By adjusting the results to reflect the sale of the Connecticut wireline assets to Frontier Communications, wireline revenue growth was 2.4 percent.

Ongoing growth in consumer IP data services helped to offset ongoing declines in legacy voice and data products. U-verse, which includes Internet, TV and VoIP services, represent 67 percent of wireline consumer revenues, up from 57 percent in the same quarter a year ago. Adjusted consumer U-verse revenues grew 21.1 percent year-over-year. 

Despite the gains it made with IP-based U-verse consumer services and strategic business services, wireline revenues still declined 1.0 percent to $14.6 billion year-over-year and slightly down sequentially from the third quarter of 2014. When adjusting for the fourth-quarter 2014 sale of its Connecticut operations, wireline revenues were up 0.4 percent year-over-year.

Meanwhile, fourth-quarter wireline operating expenses were $13.1 billion, down 1.2 percent versus the fourth quarter of 2013. AT&T's wireline operating income totaled $1.5 billion, up 0.8 percent versus the fourth quarter of 2013.

Here's a breakdown of AT&T's key wireline metrics:

Broadband: U-verse broadband service continued to be a star performer in its portfolio as the telco added new 405,000 new U-verse subscribers, reaching a total of 12.2 million. The telco's overall total wireline broadband subscriber base declined by 51,000 during the quarter, but rose slightly for the full year 2014.

Likewise, total wireline broadband average revenue per user (ARPU) rose over 7 percent year-over-year. Total U-verse high speed Internet subscribers now represent 76 percent of all wireline broadband subscribers, compared with 63 percent in the year-earlier quarter.

Another big element of the quarter was the ongoing movement of broadband subscribers onto the IP-based platforms driven by its Project VIP initiative.

"The transformation to IP broadband is a remarkable accomplishment for our entire wireline team," said 

Video Services: The telco also continued to see the number of U-verse TV subscribers increase, ending the quarter with nearly 6 million in service, which was slightly down sequentially from the 6.1 million customers it had in the third quarter of 2014. This decline also reflects the sale of the Connecticut operations. AT&T's Connecticut wireline properties had about 197,000 U-verse TV subscribers. 

Service bundling continued to be a positive trend for AT&T during the fourth quarter. Over 97 percent of AT&T's video customers subscribe to bundled services, while two-thirds of U-verse TV subscribers take three or four services from AT&T. ARPU for U-verse triple-play customers continues to be more than $170. At the end of the quarter, U-verse TV penetration was about 22 percent and U-verse broadband penetration was about 21 percent.   

Business and wholesale:  AT&T's strategic business services such as cloud, Ethernet and VPN grew 13.8 percent year-over-year and now account for 30 percent of wireline business revenues. AT&T said that these services represent an annualized revenue stream of over $10 billion and was nearly 30 percent of wireline business revenues in the fourth quarter. Similar to earlier quarters, AT&T reported that it also saw gains in U-verse broadband sales to businesses, adding 31,000 U-verse subscribers during the quarter.

Despite the gains in next-gen services, total business revenues were $8.6 billion, down 2.8 percent year-over-year. When adjusting for the sale of its Connecticut wireline assets, total business services revenues declined 1.8 percent year-over-year. AT&T said that declines in legacy business products like Frame Relay and ATM were "partially offset by continued double-digit growth in strategic business services."

"Adjusted wireline business revenues were down 1.8 percent," Stephens said. "However, if you adjust for the discontinued global hub business and foreign exchange, that decline would have been just about a half of a percent."

Stephens added that it's "still dealing with the impacts of an uneven economy, but the lack of new business formations continues to pressure small businesses."

Wholesale & GEM Solutions revenues also declined slightly to $3.55 billion, down from $3.56 billion in the third quarter of 2014.

From an overall financial perspective, the service provider reported fourth-quarter revenues of $34.4 billion, up 3.8 percent from the same period a year ago. Taking out the Connecticut wireline properties it sold to Frontier, revenues were up 4.5 percent.

Analysts polled by Thomson Reuters forecast overall revenues of 55 cents in earnings per share and $34.3 billion in revenue.

Shares of AT&T closed at $32.81, down 37 cents or 1.12 percent, at the end of Tuesday trading on the New York Stock Exchange.

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

Special report: Wireline telecom earnings in the fourth quarter of 2014

Related articles:
AT&T's U-verse gains help to ease legacy losses in Q3
AT&T plans to shut down 'certain' copper network assets
AT&T: FCC's CAF-II should just support broadband services

Suggested Articles

In the face of mostly flat revenues and competition from new startups, Cisco hasn't been sitting on its hands the past five years

New SRG data shows hyperscale operators accounted for 33% of all spending on data center hardware and software in the first three quarters of 2019.

Automating your network’s operational processes is the goal, but you can’t automate what you can’t see.