Are AT&T’s Acquisitions Weighing On Its Wireless Business?

Telecom and media behemoth AT&T (NYSE:T) published its Q4 2018 results on Wednesday, reporting earnings that largely met expectations although revenues came in slightly below Street estimates. In this note we examine the performance and outlook for the company’s wireless business and the recently acquired WarnerMedia operations.

WarnerMedia Business Updates

Revenues from the WarnerMedia business stood at $9.2 billion, marking an increase of about 6% year-over-year, driven by higher revenues from Warner Bros – which benefited from strong theatrical performances over the holidays – and also due to higher affiliate subscription revenues at Turner. Overall operating margins for the business expanded to 28.4%, driven by lower programming expenses at Turner and HBO, while operating income for the segment came in at $2.6 billion, up from $2.0 billion in the same period last year. The acquisition could add more value to AT&T going forward, as it could allow the company to keep content costs in check for its distribution operations  (pay TV, wireless and streaming businesses) while potentially giving it some bargaining leverage in acquiring content from other companies for distribution.

Wireless Business Continues To Grow But Lags Rivals

Over the quarter, AT&T added a total of 134k postpaid phones. While this marks a sequential improvement, it represents a decline of about 55% compared to last year. Moreover, the metric is well below AT&T’s key rivals Verizon and T-Mobile, which both posted stronger-than-expected postpaid phone net additions over the holiday quarter (650k and 1 million respectively). The could stoke concerns that the company’s recent deal-making activity and integration process could be distracting it from its core wireless operations, giving its rivals – who have focused on network improvements and customer acquisitions – room to gain market share. The company’s postpaid phone churn also inched higher by 11 bps year-over-year to 1.00%, driven by higher competition and limited promotional activity.  While reported postpaid phone ARPU saw a 4% decline on a year-over-year basis to about $55, due to an accounting change, the metric rose by about 3% on a comparable basis, likely driven by the higher priced unlimited plans.

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