AT&T converts nearly 80% of broadband subscribers to its IP platform

AT&T (NYSE: T) continues to drive more of its legacy DSL broadband customers onto its IP platform, converting around 80 percent of its subscribers to IP in the first quarter.

John Stephens, senior executive vice president and CFO for AT&T, said during the carrier's first-quarter earnings call that AT&T is nearly done with its IP broadband build out.

"We're nearing the completion of our broadband conversion to IP," Stephens said. "About 80 percent of our broadband base is now on IP and that's 90 percent of our IP-eligible customers, so we expect the number of migrations to ease throughout the year as well as the costs associated with those conversions."

At the same time, AT&T is enhancing broadband speeds. For example, it increased its 75 Mbps U-verse product to almost 90 markets, and also delivered 1 Gbps service to 10 markets, including most recently the Chicago metro and Cupertino, Calif.

In addition to broadband and video, AT&T reported a gain in VoIP services to end the quarter with over 5 million subscribers.

Stephens said "all of this helped drive an increase in adjusted U-verse revenues by almost 20 percent."

Despite the gains in the IP-based broadband conversions, AT&T continues to struggle through growing pains in its wireline business revenues as first-quarter gains in its next-gen consumer and residential products are still being affected by legacy product declines.

In the residential wireline segment, AT&T reported that U-verse helped drive revenues to $5.7 billion. Growth in consumer IP data services in the first quarter offset declining revenues from legacy voice and data services. U-verse voice, video and data services now represent 69 percent of wireline consumer revenues, up from 59 percent in the year-earlier quarter.

Despite the gains in U-verse, the telco's first-quarter wireline revenues were $14.1 billion, down 3.1 percent versus the year-earlier quarter. However, when adjusting for its sale of the company's Connecticut wireline operations, revenues were down 1.2 percent year over year.

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

Broadband: Broadband continued to be a growth factor in AT&T's wireline mix in the first-quarter as the telco added 440,000 subscribers, ending the period with a total of 12.6 million customers. However, U-verse broadband adds were down from the 634,000 it added in Q1 2014. Overall, AT&T added a total of 69,000 wireline broadband subscribers in the quarter. Total U-verse IP broadband subscribers now represent nearly 80 percent of all wireline broadband subscribers.

Video: AT&T added only 50,000 U-verse subscribers in the first quarter, down from the 201,000 U-verse TV subscribers it added in the same period a year ago. Interestingly, over 97 percent of AT&T's video customers subscribe to a bundle service set. At the end of the quarter, U-verse TV penetration was about 22 percent and U-verse broadband penetration was about 21 percent.

Business Services: Driven by sales of services such as Ethernet, VPN and cloud, strategic business services continued to be the star in AT&T's wireline business portfolio, growing 14.8 percent year-over-year to $2.6 billion. In addition, the company added 27,000 U-verse IP broadband business subscribers.

Stephens said that while there has been some slowdown in the small business space, AT&T is seeing some signs of life, particularly with businesses that reside in buildings it has equipped with fiber. To date, AT&T has passed over 800,000 buildings in its territory with fiber.

"There are some positive signs with new business starts and growing sales of our fiber build," Stephens said.

Despite these gains, total business service revenues were $8.3 billion, down 4.4 percent versus the year-earlier quarter. However, when adjusting for low-margin wholesale businesses like Global Hub and the impact of foreign exchange, total wireline business revenues would have declined 1.7 percent.

Shares of AT&T closed at $32.86, up 20 cents, or 0.61 percent in Wednesday afternoon trading on the New York Stock Exchange.

For more:
- see the earnings release
- here's FierceWireless' take

Special Report: Wireline telecom earnings in the first quarter of 2015

Related articles:
AT&T pre-empts Comcast 2 Gbps threat by launching 1-Gig service in Chicago suburbs
AT&T says it needs to invest in FTTP where it makes economic sense
Google Fiber's presence pressures AT&T to adjust 1 Gig pricing plans
AT&T to battle Comcast, Google Fiber with 1-Gig service in Atlanta

This article was updated on April 27 to correct the fact that the 75 Mbps U-verse service is available in 90 markets. 

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