AT&T posts 23% revenue growth but TV subscribers drop by 49k

AT&T has reported a year-on-year revenue hike of 23% to $40.5 billion, largely due to the integration of DirecTV, however there was a net-loss of 49,000 TV subscribers across the quarter.

The revenue boost, which was largely attributed to the successful integration of DirecTV into the AT&T business, compliments the second-ever lowest US wireless postpaid churn of 0.97% across the period. While 342,000 customers joined DirecTV, the U-verse was less successful, losing 391,000. AT&T has stated 80% of its 25.3 million television connections are now on the DirecTV offering, which for the most part is unsurprising as the team has prioritized DirecTV in the majority of its marketing efforts.

“One year after our acquisition of DirecTV, the success of the integration has exceeded our expectations,” said Randall Stephenson, AT&T CEO. “Cost synergies are ahead of target, we’ve added nearly 1 million DirecTV subscribers since the acquisition, and our new video streaming services are scheduled to roll out later this year. We plan to serve every segment of the video industry and offer customers their favourite content virtually wherever and whenever they want it.”

The $50 billion DirecTV acquisition was approved by the FCC last June under the condition AT&T would have to provide new service levels for its residential and consumer facing internet business. AT&T has had to expand its FTTP service to 12.5 million customer locations, to remove anti-competition fears in areas where AT&T and DirecTV were direct customers, as well as applying non-discriminatory usage-based practices to make sure the company doesn’t apply data caps unfairly.

In terms of the specific business units, the business solutions group declined slightly from $17.7 billion to $17.6 billion, US wireless dropped by roughly $400 million. The entertainment group grew year-on-year, though once the revenues are adjusted to include prior-period DirecTV revenues on a comparable basis, there is no notably difference over the course of the twelve months.

Within the entertainment group, ad revenues demonstrated double-digit revenue growth, IP Broadband revenues were up 15% and total broadband revenues up nearly 7%. There is healthy growth throughout the business unit, though this was largely offset by a 17% decline by AT&T’s legacy technologies.

In terms of the company’s network capabilities, Stephenson highlighted while the team has made a number of investments, these will continue over coming years to match the march of the smartphone. The 4G LTE network deployment strategy has been accelerated, with fibre backhauled, deployed, and around 70,000 cell sites built, as the team now claims to have 1 million business locations, as well as expanding its IP broadband footprint to more than 60 million customer locations.

The next stage will be GigaPower deployment, targeting 12.5 million customer locations for the gigabit broadband service in the next few years. AT&T currently has 2.2 million fibre-to-the-home customer locations, which it expects to increase to 2.6 million by the end of 2016.

On the software-defined networks (SDN) side, Stephenson believes the company is on-track to meet its ambitions. Last year, the team said it’s was target 75% of its network to be software-defined by 2020. Alongside, IoT and business collaboration, virtualization completes the three-pillar strategy outlined by the company to drive growth over the next five years.

“We ended last year with about 5% of our network functions virtualized and expect to reach 30% by the end of this year,” said Stephenson. “We are on path to achieve 75% network virtualization by 2020. SDN also provides cost savings, which supports our drive to an industry-leading cost structure.”

While the reported revenue growth of AT&T may indicate a happy home, this could be seen as a slightly misleading figure, as a substantial proportion has been linked back to revenues gained from the DirecTV acquisition. This does indicate a clever piece of business in acquiring one of the world’s largest subscriber bases, though it also covers up a lack of organic growth within the organization. Although it could be seen as a slightly worrying sign in the long-run, it is a moot point as there are unlikely to be many investors complaining. Growth is still growth, and profit is still profit.