Key Takeaways From AT&T’s Q3 Results

AT&T (NYSE:T) released its Q3 2016 earnings on Saturday, three days ahead of schedule, coinciding with the announcement that it would acquire media behemoth Time Warner in a cash and stock deal valued at $85.4 billion. The results remained a mixed bag, with the firm missing revenue expectations, as it continued to lose lucrative postpaid wireless phone and pay TV subscribers. Below, we highlight some of the key takeaways from the earnings release.

• AT&T’s mobility revenues contracted by approximately 1% year over year, as service revenues trended slightly lower amid the uptake of subsidy-free plans (which have lower service billings), while the carrier’s recent postpaid phone subscriber losses (down 2% year over year) also weighed on revenues. Equipment sales also remained almost flat year over year, potentially hampered by the under-supply of the new iPhone 7 and the recall and discontinuation of the Samsung Note 7.

• While AT&T’s total postpaid subscriber base grew, driven by the addition of non-phone devices, it continued to lose postpaid phone subscribers, on account of the attrition of less valuable feature phone users (ARPU typically $35 or less). Its smartphone mix, on the other hand, has expanded to about 90% of its overall postpaid phone base.

• Wireless EBITDA margins expanded by 50 bps year over year, likely driven by the uptake of equipment installment plans, lower handset upgrade rates, operating cost reductions and a higher mix of smartphone users.

• The carrier continued to do well on the prepaid front, adding a total of 304k net subscribers, with its prepaid subscriber base up by about 19% year over year. However, the rate of net additions has slowed down.

• Entertainment revenues grew by 17% year over year, on account of the DirecTV acquisition, which closed in July 2015. AT&T has been promoting its DirecTV satellite TV package over its U-Verse TV offering, since DTV has a slightly higher ARPU, in addition to seeing lower content costs. While U-Verse losses (-326k) continued to eclipse satellite gains (+323k) this quarter, the net subscriber loss stood at the lowest levels we’ve seen in the last six quarters.

• AT&T’s total wireline broadband subscriber base declined by about 1% year over year, amid DSL subscriber attrition and potentially from competition from cable-based providers such as Comcast. However, the IP broadband segment fared reasonably well, adding a total of 156k subscribers during the quarter. IP broadband ARPUs have also been on the uptick, rising by about 7% year over year.

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