AT&T Sees Postpaid Consumer Smartphones Stall, DirecTV Revenue Gains

AT&T lost 4,000 consumer mobile customers but gained a healthy dose of business mobile users as its overall business continues to shift.

AT&T, smartphones, mobile carriers, Verizon, T-Mobile, revenue, profit, DirecTV, postpaid additions, prepaid additions

AT&T lost 4,000 mobile postpaid net customers in the first quarter of 2016, instead of adding to that profitable category of customers as it has in most past quarters, but it still saw a 24 percent revenue gain, largely due to its acquisition last year of DirecTV.

The company brought in revenue of $40.5 billion, up from $32.6 billion one year ago before it acquired DirecTV in July of 2015, and posted a net income of $3.8 billion, which is down slightly from the $3.3 billion it brought in, in the quarter one year ago. Earnings per share (EPS) were 61 cents, down from 63 cents per share in Q1 2015.

The $40.5 billion in revenue met the expectations of a survey of financial analysts, but the EPS was below the 69 cents they expected, according to figures reported by Thomson.

In the U.S. consumer mobile market, AT&T reported 54.7 million mobile connections, which is down slightly from the 54.8 million it had one year ago. The company lost 4,000 of its coveted postpaid mobile customers in the quarter, compared with a gain of 144,000 postpaid customers in the same quarter one year ago. It did add 500,000 prepaid mobile customers in Q1, which is higher than the 98,000 prepaid customers who joined the company in Q1 2015. AT&T reported a postpaid churn rate for the quarter of 1.24 percent, which is slightly higher than the 1.20 percent rate reported one year ago.

AT&T also reported 75.8 million mobile business connections, which is up from the 66.9 million logged in the same period last year. That figure includes 48.8 million postpaid business customers, which is up from 46 million a year ago. In Q1 alone, AT&T added 1.7 million new business customers, of which 133,000 were new postpaid mobile phone accounts. The other 1.6 million net additions are for new connected devices. The company's business churn rate for the quarter for postpaid connections was 1.02 percent, up slightly from the 0.90 percent recorded one year ago.

"It was a good start to the year," Randall Stephenson, AT&T's chairman and CEO, said in an April 26 statement when the company announced its Q1 results. "We had solid financial results and executed well on our strategy to be the premier integrated communications provider for businesses and consumers."

The company is "seeing good momentum with our initial integrated wireless, video and broadband offers," which were unveiled as bundles after the DirecTV acquisition, he said. More gains are hoped for in the fourth quarter, when AT&T is expected to launch new video streaming services, he said.

The DirecTV purchase continues to be a key part of AT&T's plans to diversify its business as it faces continuing business pressures in the very competitive wireless market.

Several IT analysts told eWEEK that that competition is certainly behind the changes AT&T saw in its wireless customer totals in the quarter.

"AT&T still is finding the postpaid phone market challenging, with the overwhelming majority of its overall net adds coming from connected devices such as cellular-enabled tablets and connected cars," wrote Bill Menezes, a Gartner analyst, in response to an email inquiry. "Clearly AT&T is feeling the effects of competition from the likes of T-Mobile and Verizon, which are winning much greater chunks of the postpaid phone subscribers that are up for grabs each quarter."

A positive for the company, however, is that "its wireless growth is taking place in the business segment, which counts corporate subscribers and individuals who sign up for service under their employer's contract," wrote Menezes. "Those types of customers churn at a much lower rate."

Another analyst, Chris Antlitz, of Technology Business Research, told eWEEK that AT&T's apparent rise in revenue has to be looked at critically. "Despite reporting 24 percent year-to-year revenue growth and strong earnings, AT&T is not immune from the growth challenges facing the telecom industry," wrote Antlitz. "Stripping out DirecTV's results, AT&T's core business is also starting to shrink, much like Verizon's."

To counter this, AT&T "is focused on leveraging mobility-centric integrated communications solutions to take market share and reduce churn and this strategy will ultimately pay off, but it will take some time for the company's vision to be realized," which is apparent due to the mobile subscriber losses that were reported. "AT&T will likely bolster its promotional activity to blunt T-Mobile's success, evident by that operator's strong results in 1Q16."

Jan Dawson, chief analyst at Jackdaw Research, said that AT&T's wireless revenue is "still growing at a healthy clip, but it continues to be all about everything but traditional postpaid phones, which declined yet again," while prepaid phones, connected devices and tablets are driving most of the company's growth. "Their strategy for combining DirecTV and AT&T and using that to drive growth in both businesses seems to be working, as does their strategy for growing in new opportunities like connected cars."

AT&T's problem, he wrote, is that its "core phone business continues to be pressured, and that's a bit of a worry over the long term. The market may not be growing much, but it isn't shrinking, but AT&T keeps losing subscribers there and doesn't show signs of stopping the slide."