AT&T Posted Strong Q4 Profits, but Subscriber Growth Slowed

During AT&T’s earnings call, CEO Randall Stephenson said government needs a light touch, and 2014 will be the year that really moves the needle.

AT&T shared the earnings results of its 2013 fourth quarter Jan. 28, announcing revenue of $33.2 billion, up 1.8 percent from a year ago, and income of $12.2 billion, compared to a loss of $6 billion a year ago. (The loss was largely related to issues around AT&T’s employee pension program and costs associated with Superstorm Sandy.)

The carrier added 566,000 postpaid wireless subscribers, which was down 27 percent, or from 780,000 a year ago. But it added a total of 1.2 million new postpaid smartphones, and 93 percent of the postpaid phones it sold during the quarter were smartphones.

AT&T has been facing intensifying competition from T-Mobile—in January, after the close of AT&T’s fourth quarter, T-Mobile announced that it will pay the early termination fees faced by any wireless subscriber who wants to switch from AT&T, Verizon Wireless or Sprint to T-Mobile—and was clearly pleased to report that its Mobile Share plans are gaining in popularity. More than 21 million connections, or more than 29 percent of postpaid subscribers, are now on Mobile Share Plans. (That will be a figure to watch, come AT&T’s next earnings announcement.)

AT&T’s Next plan—a response to T-Mobile’s Jump and other strategies—has also had a strong response. (With Next, subscribers can acquire a smartphone for no money down, make monthly payments on the device and upgrade every 12 or 18 months.) More than 15 percent of smartphone sales during the quarter were Next sales.

“Next did impact our cash flows, since we’re financing the handset, but that’s all right,” said CEO Randall Stephenson (according to a transcript from Seeking Alpha). “We know these customers and we know their credit profiles. Overall this program is a great value for both our customers and us.”

Stephenson called 2013 an “interesting” and “formative” year for the wireless industry and 2014 the year that will “move the needle” on numerous investments AT&T has been making. These include its LTE rollout—its commitment to cover 300 million people by year’s end is expected to be completed by the summer—the connected car space, mobile video, the connected home and an overhaul of its enterprise customer experience.

AT&T has begun rolling out Project Agile, said CFO John Stephens, an initiative to transform the carrier into an “all-IP, all-mobile and all-cloud-services company.”

But the “most important” development taking place, Stephens said, is the aggressive investment happening across the U.S. telecom industry.

“Today in the U.S., four national carriers and dozens of regional providers are building out LTE, and you just don’t see that happening anywhere else in the world. The industry is now competing on price, customer service, technological innovation, and most importantly, network coverage and quality. And we think this speaks volumes about where the country’s public policy has landed concerning spectrum and the importance of light-touch regulation,” said Stephenson, alluding to the spectrum auctions that will take place in 2015.

AT&T, with Verizon, has lobbied the FCC to stay out of the process and let the carriers compete, while Sprint, T-Mobile and others have argued that more telecoms will be able to participate and better compete if limits are put in place, regarding how much spectrum any one carrier can purchase.

When asked about how AT&T intends to keep evolving in 2014, to keep competing against T-Mobile and others, Stephenson said the topic is constantly top of mind.

“We study this nine ways to Sunday and we have made a lot of moves in the marketplace ourselves, and fourth quarter churn was the lowest fourth-quarter churn we have ever experienced, which just continues to reinforce that you have to be aggressive in the marketplace,” he said. “You’ve got to constantly have your ears to the ground and be attuned to what the customer expects, and you’d better have a high-quality network experience in both data and voice—and we really, really feel good about what was accomplished in 2013 in terms of network quality.”

AT&T also expects its acquisition of Leap Wireless, and Leap’s Cricket brand, to help it make significant strides in the prepaid space.

“Competitor intensity is going to remain strong, I’ve no doubt that you will see that continue,” said Stephens. “I have no doubt that you will see us all continue to modify our value propositions.”

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