AT&T Profit Falls 9% on Shrinking TV Subscription, Wireless Phone Businesses -- Update

By Drew FitzGerald and Maria Armental Features Dow Jones Newswires

AT&T Inc. continued to lose its most profitable pay-TV viewers and wireless phone subscribers in the latest quarter as the company's aggressive bundle offers failed to stanch the flow of customers ditching legacy services.

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The country's No. 2 wireless company lost a net 97,000 postpaid phone subscribers, those who are billed monthly and tend to be more profitable for carriers. AT&T has leaked that type of customer for years, though its losses have eased in recent months.

Executives said much of the latest decline didn't involve smartphones, and that the company was having success bundling its wireless service with its DirecTV video service. "The bundling strategy... is working and we will continue to use good judgment in providing customers what they want," finance chief John Stephens said on a conference call on Tuesday.

On the satellite side, DirecTV shed 251,000 customers in the third quarter while AT&T's U-verse business lost 134,000 pay-TV accounts. The company earlier this month warned that its video business kept shrinking during the period despite nearly 300,000 new signups for its DirecTV Now streaming service. AT&T executives blamed hurricane damage for some of the video losses.

Comcast Corp. said earlier this year that its subscriber base was shrinking as viewers opted for cheaper online channel bundles or dropped their TV plans altogether, a sign of weakening demand for the whole sector.

On Tuesday, Mr. Stephens said some of the pay-TV declines also came from the company's decision to tighten its credit standards. He predicted the video business would to return to customer growth in the current quarter.

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AT&T aims to head off the forces buffeting its telecom operations by owning more media outright. Its bid for Time Warner Inc., the owner of CNN, Warner Bros. studios and Turner's cable networks, was designed to protect its core business in the same way Comcast has guarded its cable operations by owning the film and TV assets of NBCUniversal.

AT&T is still waiting on the U.S. Justice Department to approve its takeover of Time Warner, a deal worth $85 billion when it was struck more than a year ago. The company said in a regulatory filing Monday that the two sides had agreed to extend an October deadline "for a short period of time to facilitate obtaining final regulatory approval required to close the merger."

"The financing is set and we're ready to close," Mr. Stephens said. "In the meantime, Time Warner continues to perform well, even better than our expectations."

On Tuesday, AT&T said it had spent $152 million on costs related to the planned merger through Sept. 30. Mr. Stephens reiterated that the company expects the transaction to close by year's end.

Overall, AT&T's third-quarter profit fell 9% to $3.03 billion, or 49 cents a share, as revenue slid 3% to $39.67 billion. Excluding lost business due to hurricanes and earthquakes, the company said revenue would have been $39.8 billion.

Monthly churn, a measure of how many customers dropped wireless service, edged up to 1.07%, from 1.05%, driven by cancellations among tablet users. Looking at postpaid phone contracts alone, the cancellation rate was 0.84%, compared with 0.90% in the year-ago quarter.

The company ended the quarter with 138.8 million U.S. wireless subscribers. Including tablets and other devices, AT&T added 117,000 postpaid wireless customers in the quarter.

Verizon Communications Inc., the largest U.S. carrier by subscribers, last week said it had added 603,000 postpaid wireless connections in the quarter. T-Mobile US Inc. added 817,000 postpaid subscribers.

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

(END) Dow Jones Newswires

October 24, 2017 18:58 ET (22:58 GMT)