AT&T Inc. Earnings: Connected Devices Boost Postpaid Connections

Source: AT&T

AT&T reported its second-quarter earnings results on Thursday, beating analysts estimates on the bottom line, but missing on the top line. The company earned $0.69 per share on an adjusted basis on sales of $33 billion. Analysts were expecting $0.63 in EPS and revenue of $33.1 billion.

Here are the key takeaways from AT&T's second-quarter earnings report.

Feeling the pressureAT&T boasted 2.1 million net additions in its wireless segment, but over 1 million of those were connected cars. It added 410,000 postpaid connections, and phone subscription net additions returned to positive territory (although AT&T still didn't give details). Still, that's down sharply from the 1.03 million postpaid additions from the second quarter of last year.

The decline and reluctance to report an exact number for branded phone additions indicates AT&T continues to feel pressure from T-Mobile and Sprint. Both of the smaller carriers have been working to attract customers, with T-Mobile's CEO focusing specifically on attacking AT&T and winning its customers. Sprint, meanwhile, offers AT&T (and Verizon) customers the option to cut their bill in half if they switch providers.

The efforts show, with AT&T posting seemingly modest net branded phone additions and significantly lower postpaid connections. Verizon has weathered the competition a bit better, adding 322,000 phone subscribers in the second quarter. Both lost phone subscribers during the first quarter.

The vast majority of postpaid additions are tablets, which carry lower average revenue than smartphones. However, they often help retain customers. AT&T's churn rate came in at 1.01% for the quarter, an increase from 0.86% during the year-ago period. Still that rate is relatively low even as competitors offer to pay early termination fees for subscribers to switch carriers.

U-Verse not enough to lift wireline segmentWireline revenue declined 2.9% year over year. Adjusted for the sale of some of its property in Connecticut at the end of last year, sales still declined 1%. One bright spot was the growth in U-Verse -- which lets you bundle high-speed Internet, TV, and digital home phone -- which saw revenue increase 20.7% year over year.

The company added 241,000 U-Verse Internet service subscribers, but lost 377,000 broadband subscribers from its legacy DSL service. U-Verse TV lost 22,000 subscribers in the second quarter. AT&T says the company is focusing on profitability with its U-Verse customers, which led to the decline in video subscribers. That decline comes after consistent growth in the segment as it expanded into new territory.

Another bright spot was the growth in AT&T's business services. The company saw a 13.6% year-over-year increase in sales for the segment in the second quarter. The company reported 26,000 net new business Internet subscribers. Part of those additions may be its efforts to roll out high-speed fiber connections, which AT&T now has available in nearly 900,000 business locations.

Mixed resultsIt's clear that AT&T is feeling pressure from T-Mobile and Sprint, as it relies on Internet of Things devices and tablets to continue increasing its connections, while its total phone subscriptions stagnate. Nonetheless, it seems the company has been able to focus on profitability, posting better-than-expected earnings despite a miss on revenue.

In the wireline segment, the slowing growth has started to turn into customer losses. The significant decrease in overall broadband subscribers and the loss of video customers is a sign that it's finally succumbing to competitive pressures from cable providers working to win back customers AT&T took from them over the past few years. The upcoming acquisition of DirecTV ought to help strengthen its wireline segment, potentially improving its profitability as it exercises leverage over media companies.

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