5 Things AT&T's Management Wants Investors to Know

AT&T reported its first-quarter earnings results April 22, beating analysts' estimates on the bottom line but missing on the top line. During the quarter, the wireless carrier earned $0.63 per share on sales of $32.6 billion. Analysts were expecting $0.62 per share on $32.84 billion of revenue.

Postpaid net adds declined to 441,000 from 625,000 in the year-ago period. However, AT&T continued to show strength in tablets, connected devices, and its prepaid business.

After the report, AT&T CFO John Stephens spoke with analysts. Here are some of his more notable comments and insights.

Mobile Share customers increased data billings

Despite pressure from T-Mobile and Sprint, AT&T continues to increase its data billings. That's particularly impressive in light of offers from T-Mobile to roll over data for up to 12 months for a large portion of its customers. AT&T responded by offering rollover data for one month, but it's had only a small impact on customers' data-plan choices.

As more customers switch to Mobile Share plans, AT&T believes it will benefit from increased service billings and lower churn rates. Mobile Share plans also increase AT&T's ability to add devices to accounts, which it has done successfully with tablets. Last quarter, AT&T added 711,000 postpaid tablet connections. Additional devices, in turn, increase data billings and customer stickiness.

BYOD customers are very valuable

Even though bring-your-own-device customers don't add any equipment revenue to AT&T's top line, it saves AT&T the cost of financing the equipment (at 0% interest) through its Next plan or taking on the upfront cost of subsidizing new equipment. As a result, these customers can often be more valuable to AT&T despite lower monthly cash flow.

Customers of Next pay monthly installments for their equipment, but AT&T accounts for a large percentage of a device's price in its revenue at the time of activation. Doing so leads to lower cash flow compared with revenue increases.

The big opportunity with DirecTV

AT&T expects to close its acquisition of DirecTV this quarter and sees significant synergies. It raised its expectations to $2.5 billion in cost savings within three years of the acquisition, where it had originally estimated $1.6 billion. Those cost savings come largely from content costs, but the company also sees savings in installment costs, billing, customer care, and supply chain for consumer premise equipment.

Moreover, AT&T sees an opportunity to add video customers through offering bundled video to those 30 million or so customer locations it passes with its broadband Internet service but doesn't offer video service.

Building out Mexico

AT&T's acquisitions in Mexico will increase its addressable market by about 30%. What's more, it has an excellent opportunity to penetrate the nascent mobile broadband market. Wireless carriers in Mexico connect just 39.9 devices to mobile broadband per 100 people, according to the Organisation for Economic Co-operation and Development. Comparatively, the U.S. connects 101.4 devices per 100 people.

Establishing a cross-border presence increases the value of AT&T's wireless service and differentiates it from the competition at a time when the smaller carriers are reaching parity with AT&T with their networks.

The future of streaming video

Verizon is working on a wireless streaming service that it sees benefiting its wireless business. With the acquisition of DirecTV, AT&T will have even more leverage over content owners to obtain streaming rights to some of their content. A streaming service could add significant revenue through higher data consumption, premium subscription prices, and additional advertising opportunities. Additionally, it serves as a differentiator between AT&T and the competition.

If Stephens is correct in his assessment of the future of streaming video, AT&T is in a very strong position to take advantage of the shift.

The article 5 Things AT&T's Management Wants Investors to Know originally appeared on Fool.com.

Adam Levy owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), Google (C shares), Netflix, and Verizon Communications. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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