AT&T U-verse TV Hits the Skids

Like its prime cable rivals, AT&T is now in the uncomfortable position of losing video subscribers rather than gaining them.

AT&T Inc. (NYSE: T) reported late Thursday that it shed 22,000 U-verse TV subscribers in the second quarter, a far cry from the 190,000 video customers that it gained a year earlier. It also represents a marked reversal from even the more modest gain of 50,000 video customers that it realized in the first quarter.

As a result, AT&T ended the spring quarter with just under 6 million U-verse TV subscribers. That's still enough to make it the fifth-biggest pay-TV provider in the US, right behind such heavyweights as Comcast Corp. (Nasdaq: CMCSA, CMCSK), DirecTV Group Inc. (NYSE: DTV), Dish Network LLC (Nasdaq: DISH) and Time Warner Cable Inc. (NYSE: TWC). But it lost some ground to fellow telco Verizon Communications Inc. (NYSE: VZ), whose similar FiOS TV operation netted 26,000 video subscribers in the second quarter to close out June with nearly 5.8 million TV customers. (See FiOS Growth Slows, Verizon 'Custom TV' Soars.)

Despite the unprecedented loss of video subscribers, AT&T executives barely mentioned it and shrugged it off as no big deal on their earnings call with analysts. They attributed the video sub loss to several factors, including end-of-spring moves by students and other customers, deliberate cutbacks in price-related promotions and a heightened focus on higher-end customers and greater profitability.

"The second quarter is always seasonally a challenge," said AT&T CFO John Stephens. "With our current limited footprint and video capabilities, it's always a challenge for us."

AT&T fared much better with its fiber-rich U-verse network on the broadband side, picking up 241,000 high-speed data subscribers to boost its subs total close to 13 million. But it still lost 136,000 broadband customers overall as its once-massive DSL subscriber base continued to shrivel at an even faster pace. The company, which once had as many as 14 million DSL customers, now has just 1 million left to try to convert over to the newer IP platform.

"We only have 1 million left," Stephens said. "It's a very different pool to draw from."

Even with such mixed customer metrics, AT&T enjoyed a healthy surge in both U-verse consumer revenues and overall wireline consumer revenues for the quarter. Adjusted U-verse consumer revenues climbed to $4.1 billion, up 19.2% on a year-over-year basis; while adjusted wireline consumer revenues rose a more modest 3.7% from the year-ago period. Stephens credited these gains to AT&T's "very disciplined" pricing strategy and "very limited" sales discounts and promotions.

Taking note of AT&T's pending $48.5 billion purchase of DirecTV, which is now heading for almost certain approval by the Federal Communications Commission (FCC) , Stephens said AT&T officials are eager to close the deal and start the company "transformation" that the merger will bring. Despite the various merger conditions that FCC Chairman Tom Wheeler intends to impose on the new AT&T. Stephens said company executives "still fully expect to achieve" the $2.7 billion in cost synergies they have promised to investors. (See Wheeler Blesses AT&T-DirecTV Deal .)

— Alan Breznick, Cable/Video Practice Leader, Light Reading