The AT&T Frankenstein Is Doing Fine, Thanks
AT&T reported increased revenue in its third quarter and increased subscriber counts for DirecTV, IP broadband and wireless services. The question is how to evaluate this experimental mish-mash of wireless, wireline and DBS.
Bolt on a pre-paid wireless specialist here, stitch on a satellite TV provider there, graft on a couple of Mexican phone companies, and what have you got? AT&T Inc. (NYSE: T) is now a company constructed of disparate parts, some of which, like the post-paid wireless phone operation and the DSL business, range from worrisomely livid to outright putrefying, respectively.
AT&T CFO John Stephens insisted the creature is healthy and showing signs it will thrive. DirecTV and Cricket are helping, and the upgrade to 4G LTE in Mexico is ongoing. The SDN strategy is succeeding, and the company is reaping the cost savings it had been expecting from much of that activity. Overall revenue is up, cash flow is increasing and dividends remain fat. All the numbers are here.
AT&T is not only transforming its own network to an SDN architecture, but, as it does so, it is turning around and commercializing SDN-based services. Stephens said that approach "is not only allowing us to add compelling new services such as NetBond and Network on Demand, but it's also helping us reduce cycle times and move to a lower-cost capital and operations structure."
He said Network on Demand, which allows customers to adjust network bandwidth as needed in real time, is now available in more than 170 cities, and that the company has already signed more than 275 customer deals.
Over the last three years, the company has extended new fiber past 950,000 businesses. When it gets to 1 million, that will close the books on Project VIP, AT&T's $14 billion upgrade and expansion of wireless and wireline networks announced in 2012.
Simply adding DirecTV's revenue gave AT&T a huge income boost (AT&T would have increased revenue even if DirecTV's contributions were excluded), but Stephens said the satellite broadcaster has already helped to improve EBITDA margins. Stephens also noted that AT&T recently negotiated a new contract with Viacom that covered both DirecTV and U-verse, and he implied it was a better deal than either alone had with the programmer.
DirecTV recorded a net addition of 26,000 subscribers, growth attributed in part to AT&T retail outlets pushing the product.
Stephens said employees at AT&T call centers and installation operations are still being trained to sell, handle and install DirecTV. That's in preparation for a new marketing push, complete with cross-selling of products, which the company expects will lead to better subscriber performance. AT&T expects a bundle of broadband and DirecT to prove popular.
The company did lose U-verse subscribers, however. Stephens explained these losses as cost-sensitive subscribers churning away.
The wireless operations were flat, in part because fewer customers upgraded their smartphones, but Stephens thinks that trend will reverse, partly because of the performance at its Cricket prepaid business. AT&T reported 2.6 million wireless net adds, including a record 1.6 million connected device net adds. Of those 1.6 million, 1 million were connected cars.
"We are seeing Cricket deliver great ARPUs," Stephens said. "In fact, the ARPU from Cricket smartphones net adds is nearly $10 more than our postpaid feature phone ARPU losses."
— Brian Santo, Senior Editor, Components, T&M, Light Reading