AT&T Sales Grow, but Video Effort Lags -- 2nd Update

By Thomas Gryta 

AT&T Inc.'s quarterly profit and revenue got a lift from its acquisition of DirecTV but the company reported declining numbers of core wireless phone and pay television connections.

A year after closing its $49 billion acquisition of DirecTV, forming the biggest U.S. pay television operator, the company said cost savings from the deal are ahead of its plans. It lost 49,000 U.S. television subscribers in the second quarter but an executive said the company still expects to end the year with a net gain.

AT&T has been pushing its nationwide DirecTV satellite service and de-emphasizing its old U-verse service that operates in a 21-state footprint. In the second quarter, 391,000 households left U-verse, compared with the 342,000 that joined DirecTV. The company said about 80% of its 25.3 million television connections are now on the DirecTV service.

"We would expect to see some improvement on both sides," Chief Financial Officer John Stephens said on a conference call Thursday. He said the second quarter is traditionally slow for the pay-TV business.

Mr. Stephens expects to benefit from National Football League-related subscriptions and other offers in the second half.

The company said it is on track by year-end to cut $1.5 billion or more in annual expenses from the combined business.

The DirecTV deal diversified the telecom giant away the competitive consumer wireless market, where AT&T has been focused on retaining its most profitable customers and shying away from promotional offers to grab market share. The wireless business lost 180,000 mainstream phone connections in the second quarter while wireless service profit margins improved to 49.8% from 48.5% a year ago.

Phone additions are considered important because they provide more service revenue than tablets, and customers with postpaid phone accounts tend to stay longer. Overall, mainstream connections, including tablets, rose 256,000 in the quarter, ending the period at 77.3 million.

Mr. Stephens said most of the lost phone connections were from so-called feature phones -- as contrasted with smartphones -- with an average revenue per user of about $35 a month. Overall, its mainstream wireless customers bring in about $55 a month.

Churn, the monthly cancellation rate, for mainstream customers dropped to just 0.97% from 1.01%.

AT&T's quarterly financial results have made for difficult comparisons to prior periods because the company reorganized reporting structures after the DirecTV deal. Total wireless revenue on a comparable basis dropped 2% in the quarter to $17.93 billion.

Overall, AT&T reported a profit of $3.41 billion, or 55 cents a share, up from $3.08 billion, or 59 cents a share, a year earlier. Excluding items, profit per share rose to 72 cents from 70 cents. Revenue was $40.52 billion, up 23% from a year-ago period that didn't include DirecTV.

Shares of AT&T, which have rallied 24% so far this year to levels not seen in more than a decade, were 0.4% lower in after-hours trading to $42.33.

Lisa Beilfuss contributed to this article.

Write to Thomas Gryta at [e-mail]

(END) Dow Jones Newswires

July 21, 2016 19:00 ET (23:00 GMT)

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