April 24, 2019
AT&T's renewed focus on more profitable "high-value" video customers continues to deliver a near-term hit on its overall subscriber base.
AT&T lost a whopping 627,000 video subscribers in Q1, including the loss of 544,000 million legacy "premium" TV subs (satellite TV and U-verse TV) and a loss of 83,000 OTT video subs (DirecTV Now). The company ended the period with 23.86 million US TV subs -- 22.35 million among the premium satellite TV/IPTV group and 1.5 million on the OTT side.
In a research note, MoffettNathanson said the 544,000 legacy losses were far worse than the expected loss of 385,000 and well off a year-ago loss of 187,000 in the category. AT&T's DirecTV/U-verse base is now shrinking by 6.5%, MoffettNathanson said, adding that it's hard to imagine that AT&T will achieve guidance that its video subscriber base would flatten out in 2019.
AT&T's spin on this is that losses on the legacy side will moderate further out into the year and that the OTT product is poised to bring in gains later this year following recent price adjustments and as the worst of the OTT-related losses among customers who were on cheap, promotional pricing packages are behind it.
For DirecTV Now, the sub base "should be pretty stable for the rest of the year" and the results for that product "should be decent" by in the second half of 2019, AT&T CEO Randall Stephenson said on today's Q1 call.
AT&T said ARPU on DirecTV Now is up more than $10 year-over-year, aided by price increases and the end of introductory promotional pricing.
Following price adjustments, DirecTV Now is in a "sustainable place" if advertising revenues also continue to ramp up, Stephenson said, noting that OTT-TV is "highly price-sensitive" sector that is made up of a group of consumers who dumped traditional linear TV services because of higher prices.
Overall the company's TV subs will continue to decline, but AT&T hopes that losses on the premium side of the ledger will be cut down in the second half of 2019 when the company introduces a lower-cost "thin-client," OTT-delivered product. That offering, billed as a "satellite replacement," is designed to help DirecTV better serve a lower end of the market that is more apt to churn.
That thin-client DirecTV product, based on an Android TV-powered box, will be offered at a lower price, though AT&T has not shared specific pricing details.
"This thin-client gives us the opportunity to meet that low-end with a better price point," Stephenson said. "That should start to moderate the subscriber losses, particularly as we get into 2020."
SVoD details to be revealed this fall
AT&T said its WarnerMedia unit is making progress with a set of direct-to-consumer subscription VoD products that will debut this year and be centered on HBO and underpinned by the Warner Bros. content library.
WarnerMedia hasn't announced pricing, but more details will be shared in late September or early October during the unit's media day, Stephenson said.
He said AT&T was likewise encouraged by the market reaction to recently announced details on Disney+, which will launch on November 12 and sell for $6.99 per month.
"I was impressed by what Disney did," Stephenson said. "It gave the market an appreciation that this is a viable direct-to-consumer product that will have good appeal for a broad number of customers -- not just in the US but around the world. I thought it was very instructive from that standpoint."
Broadband bright spot
Wireline broadband was a positive for AT&T in Q1, as the company signed on 45,000 net adds -- 93,000 IP broadband adds against 48,000 DSL losses. AT&T ended the period with 14.45 million total broadband connections, including 13.82 million IP and just 532,000 DSL.
MoffettNathanson said IP broadband adds were ahead of an expected 58,000, but below the 154,000 gains from a year earlier. DSL losses were about what analysts were expecting.
AT&T added 297,000 fiber-only broadband subs in Q1, giving it 3.06 million. AT&T Fiber now passes 12 million "locations" and expects to get near 14 million by this summer.
Stephenson said AT&T Fiber has been able to quickly get to 25% penetration in those markets, putting it in position to convert customers and grab share from competitive providers. The 25% penetration rate is "almost mechanical" in AT&T Fiber markets, and 50% penetration is "eminently achievable," he said.
— Jeff Baumgartner, Senior Editor, Light Reading
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