AT&T Q2 Saw 1M New Postpaid Subs, Lowest-Ever Churn

While AT&T’s new business strategy may have been instigated by T-Mobile, it says the changes are proving good for business and for customers.

AT&T earnings

AT&T has faced an insistent, if possibly also irritating, competitor in T-Mobile, the CEO of which has made no secret of his intent to woo over AT&T subscribers and the "Un-carrier" strategies of which have forced AT&T to change the way it runs its business. But those new strategies, AT&T said during a July 23 earnings call, are working for it.

AT&T announced that during is fiscal 2014 second quarter, it saw its best-ever postpaid churn rate (the rate at which contract-based subscribers are leaving it), and a net addition of more than 1 million postpaid customers—its highest number of these valuable customers in nearly five years.

These customers have come at a cost, though, with AT&T offering new, lower service rates alongside unsubsidized devices.

Revenue for the quarter was $32.6 billion, up a modest 1.6 percent year-over-year. During the call, Chief Financial Officer John Stephens said the growth was "driven by continued wireless growth as we change our business model."

AT&T's profits during the quarter fell to $5.6 billion, from $6.1 billion a year ago, and AT&T pointed out that its expenses were up: $27 billion this year, versus $26 billion a year ago.

Combined smartphone sales during the quarter, to new customers and upgrading current subscribers, totaled 1.6 million.

AT&T repeatedly attributed its record-low churn and strong customer gains to its Next and Mobile Share Value plans—plans it introduced following similar offers by T-Mobile. Next lets users pay for unsubsidized devices in monthly installments and upgrade devices sooner than once every two years; Mobile Share Value are contract-free plans that let multiple subscribers pull from a shared bucket of data and start as low as 300MB per month.

"The customer transition to these plans is driving a major shift to the subsidy model," said Stephens, explaining the savings AT&T gets to enjoy when it's spared from having to subsidize smartphones. Doing so—offering a $600-plus device for $200 with the promise of two years of service—was a model that became the industry standard with the 2007 introduction of the Apple iPhone.

"The shift away from the subsidy model is very positive," Stephens said.

AT&T CEO Ralph de la Vega said that 14.6 million, or about 56 percent of postpaid customers, are now on Mobile Share plans, and that when they move, "they're moving to larger and larger data buckets."

Half of Mobile Share subscribers are now on plans with 10GB or more of data. Those gigabytes seem likely to keep rising, as the amount of data that smartphones are using increased "nearly 50 percent year over year," according to De la Vega.

In its wireline business, AT&T saw a 24.8 percent revenue increase from its U-verse business. It added 488,000 high-speed Internet subscribers and 190,000 U-verse TV subscribers, adding to what AT&T said is approaching a $15 annualized revenue stream.

During the quarter, AT&T announced its intention to buy pay-TV provider DirecTV for $48.5 billion. If approved, Stephens said during the call, the deal would take AT&T's ability to bundle broadband, video services and mobility "to a whole new level."

Headed into a quarter known for device sales, and the introduction of a new iPhone, AT&T gave third-quarter guidance for revenue growth of approximately 5 percent and said Next upgrades are expected to "ramp up substantially."

Summing up the success of Next and Mobile Share, Stephens insisted, "Best of all, customers like it. They like the clear and simple pricing."

It's a message the industry might swear it's heard somewhere before.

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