With its proposed $85.4 billion purchase of Time Warner, AT&T is seeking to turn itself into a video, broadband and mobile juggernaut that keeps extending its reach on every distribution platform. But, if last year's $48.5 billion acquisition of DirecTV is any guide, that task may be even harder than expected.
Nearly a year and a half after it consummated its takeover of DirecTV, AT&T Inc. (NYSE: T) is still losing video subscribers. In its latest earnings report released over the weekend, the US telecom giant said it shed 3,000 video customers in the third quarter despite adding 323,000 DirecTV subscribers. That's because it lost 326,000 U-verse TV customers, more than offsetting the latest satellite TV gains.
Over the past 12 months, AT&T has now lost 132,000 video customers despite strong gains at DirecTV. What's more, since closing on the DircTV purchase in May 2015, the company has lost nearly 200,000 overall video subscribers despite adding 1.2 million subs to DirecTV's total as U-verse TV continues to bleed customers.
What this means is that AT&T has left U-verse, once its technological pride and joy, to atrophy since taking over DirecTV, even while market forces are pushing pay-TV providers toward IP delivery. Although AT&T was really the first major provider in the US to deliver IPTV, it is now letting that asset fester while investing huge sums in satellite TV, mobile video and other areas that it sees as more promising. In one more telling stat from its latest earnings release, the company reported that 70% of its new DirecTV subs in the quarter came from U-verse, meaning that it's essentially robbing Peter to pay Paul.
On the bright side, AT&T also reported that it had 100,000 pending video customers signed up for its TV Everywhere service at the end of September. But these customers were not counted in its total because the video service had not been installed in their homes yet. The company has said that it expects overall video customers to start growing by the end of the year, thanks in large part to increased subscribers for DirecTV's NFL Sunday Ticket package.
Even with these continuing struggles, AT&T easily remains the largest pay-TV provider in the US with more than 25 million subscribers, comfortably ahead of Comcast Corp. (Nasdaq: CMCSA, CMCSK). But it has not managed to expand its lead since taking over DirecTV.
AT&T is struggling on the broadband end as well as it continues to watch its once-mighty DSL business fade away. In the third quarter, the company lost 5,000 overall data customers despite netting 156,000 new U-verse Internet and AT&T Fiber subscribers. That's because it shed 161,000 DSL customers.
Even with the latest dip, AT&T remains the second biggest broadband provider in the US with about 16 million subscribers. But it's falling further behind market leader Comcast, which continues to enjoy robust sub increases.
Finally, on the mobile front, AT&T reported an overall gain of 50,000 customers, thanks in part to a healthy increase in tablet and other connected device subscriptions. But it actually lost more than 200,000 mainstream wireless subscribers, mainly smartphone users, prompting both its mobile revenues and operating income to slide on a year-over-year basis.
Despite the sluggish wireless numbers, AT&T Chairman and CEO Randall Stephenson said he remains bullish about the maturing mobile business, especially with 5G technology in the company's sights. "We think 'what is next' is really significant," he said on the company's third-quarter earnings call with analysts Monday morning. "We just think there's a lot of opportunity left."
— Alan Breznick, Cable/Video Practice Leader, Light Reading