AT&T's Stephens: We're encouraged by our 1 Gig progress

AT&T (NYSE: T) is confident that its 1 Gbps fiber-to-the-home service (FTTH) is on track and is happy with the subscriber take rates it is seeing thus far in the markets where it is delivering the service.

Speaking to investors during the second-quarter earnings call, John Stephens, CFO of AT&T said that it is sticking to its current buildout commitments and is encouraged by the results.

"We've announced an effort to go into 25 major markets to place fiber-to-the-premise in those and we have done it with some initial markets like Dallas and Austin," Stephens said. "Our initial results have been very encouraging and our sales have exceeded our expectations."

However, Stephens would not comment on any buildout commitments stemming from its DirecTV acquisition.

In tandem with its FTTH rollout, the telco is continuing to convert more of its legacy DSL customers to IP-based U-verse, driving over 90 percent of IP-eligible subscribers to U-verse IP Internet.

This is up from the 80 percent it reported in the first-quarter of 2015.

"We did add about 240,000 IP broadband customers in the quarter as we continue to reposition our DSL base to IP," Stephens said. "That work is nearing completion with less than 1 million eligible DSL subscribers left to transition."   

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

Consumer Wireline: Driven by strong growth in consumer IP-based data services like U-verse residential wireline revenues $5.8 billion. When adjusted for the sale of the Connecticut wireline operations to Frontier, revenue growth was 3.7 percent. Similar to earlier quarters, sales of IP-based services continued to offset declines in legacy voice and data products. U-verse, which includes broadband Internet, TV and VoIP, now represents more than 70 percent of AT&T's wireline consumer revenues, up from 62 percent in second-quarter 2014. Adjusted consumer U-verse revenues grew 19.2 percent year over year to $4.1 billion.

Broadband and Video: During the quarter, AT&T added 241,000 new U-verse broadband subscribers, ending the period with a total of 12.9 million subscribers. However, total broadband subscribers declined by 136,000 in the quarter. As the company continued to focus on luring profitable customers, the telco reported that it lost 22,000 video subscribers. Despite the losses, consumer ARPU for U-verse triple-play customers continues to be more than $170.

Business, Wholesale: AT&T's strategic business services revenues, which include MPLS and Ethernet, rose 13 percent to $2.7 billion and now make up one-third of total wireline business revenues. A big underlying driver of strategic wireline business growth was its ongoing fiber to the building (FTTB) build out. The service provider built out fiber-based Internet service to businesses in over 180 U.S. cities. The service provides up to 300 Mbps with plans to reach up to 1 Gbps.

"We see the impact of IP with our data revenues," Stephens said. "Total data revenues are nearly 60 percent of wireline business revenues and more than half of those revenues are from strategic services as we transition customers from legacy data services, which has helped drive total data year-over-year data revenue growth for the third consecutive quarter." 

One of the highlights of AT&T's Ethernet growth is the addition of 100 contracts for its Switched Ethernet Service via its software-based Network on Demand solution. The Fort Worth Independent School District signed a one-year deal to create a virtually connected network between 140 schools and administrative offices with near-time provisioning, for example.

Fiber was only one part of the business success story. It also saw growth on its copper-based platform as it added 23,000 U-verse IP broadband business subscribers.

From an overall financial perspective, AT&T reported second-quarter consolidated revenues of $33 billion, up 1.4 percent year-over-year from second-quarter 2014 reflecting its Mexican acquisitions and pressure from foreign exchange and global hubbing exit. Revenues were up 2.2 percent when adjusting for the sale of the Connecticut wireline operations to Frontier in the fourth-quarter of 2014.

Shares of AT&T closed at $33.93, down 34 cents, or 0.99 percent, in Thursday afternoon trading on the New York Stock Exchange.

For more:
- see the earnings release

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

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