Service Bundles Help AT&T Boost Its Profit -- WSJ

By Drew FitzGerald and Maria Armental Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 26, 2017).

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AT&T Inc. kept losing phone and TV subscribers in its core U.S. market but enjoyed a more profitable second quarter, thanks to customers with bundled services.

"Our competitors tried just about every promotion in the marketing book, " finance chief John Stephens said on a conference call with analysts, citing discounts from rivals that have pressured industry revenues and profits.

For many consumers, the cost of cellular services is plunging this year after AT&T and Verizon Communications Inc. brought back unlimited data plans. Sprint Corp. last month launched an offer that promised a year of free wireless service.

AT&T countered those deals with bundle offers designed to keep customers satisfied with savings from combined phone, TV and internet service. The company lost another 199,000 video customers in the U.S., though its new DirecTV Now streaming service gained 152,000 subscribers to end the quarter with 491,000 accounts.

Mr. Stephens said "the vast majority" of DirecTV Now customers were bundling the online TV package with wireless service. About half of them had no traditional pay-TV at all before signing up for the streaming service, he added. The gains weren't enough to grow AT&T's total video customer base, which stayed flat at 25.2 million.

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AT&T is counting on bundled-service offers to stanch customer losses that have sapped its top line for two years.

The company, already the biggest pay-television operator in the U.S. since it acquired satellite provider DirecTV, is now looking to add Time Warner Inc. to the fold, which would give the Dallas company high-profile media brands including CNN, HBO and the Warner Bros. film and TV studio.

The company is still waiting for government authorities to approve the deal, worth $85 billion when it was announced last year. Executives offered few details Tuesday about the review's progress but said they still expect it to close by the end of this year.

The country's No. 2 wireless company still posted a net loss of 89,000 postpaid phone subscribers, the type of customers who get billed for past service and tend to be more profitable. The company ended the quarter with 136.5 million U.S. wireless subscribers.

The results followed last week's quarterly report from T-Mobile US Inc., which showed the No. 3 domestic carrier had added 786,000 postpaid phone subscribers in the latest period. The No. 1 U.S. carrier by subscribers, Verizon Communications Inc., will report its results on Thursday.

AT&T's overall second-quarter profit rose 15% to $3.92 billion, or 63 cents a share. Excluding merger and integration costs and other items, profit rose to 79 cents a share, from 72 cents a year earlier. Revenue fell 1.7% to $39.84 billion, its third consecutive quarterly decline.

The company's Latin American operations helped improve those results. Revenue in the international segment increased 11% to $2 billion, fueled by growth in the Mexican wireless business.

Shares rose 2.5% to $37.15 in after hours trade. The stock has slipped 15% this year.

Corrections & Amplifications AT&T had $130 billion in debt at the end of June. An earlier version of this article incorrectly stated the debt level as $130 million.

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com and Maria Armental at maria.armental@wsj.com

(END) Dow Jones Newswires

July 26, 2017 02:47 ET (06:47 GMT)