AT&T suffered subscriber and revenue losses across the board in the spring quarter as the novel coronavirus infected every aspect of its business. Overall revenues sank to $41 billion, down 9% from $45 billion a year earlier, with the COVID-19 pandemic accounting for about $2.8 billion of that $4 billion hit.

On the wireless side of the business, which makes up more than half of revenues, AT&T shed 151,000 postpaid customers in Q2-2020, much worse than Wall Street’s consensus estimates of a 4,000-subscriber gain. That loss included 338,000 customers who stopped paying their bills but the company kept on the network to comply with the FCC’s Keep America Connected program. AT&T added 72,000 wireless postpaid subscribers in the year-ago period.

As a result, wireless revenues slipped to $17.1 billion in the quarter, down from $17.3 billion a year ago. But the company’s earnings before interest, taxes, depreciation and amortization (EBITDA) margin did edge up to 45.6% from 44.9% the year before.

AT&T’s shrinking traditional-TV business showed why the company needs its new online service to succeed. The division holding its DirecTV satellite unit lost 886,000 U.S. premium-TV subscribers and another 68,000 online-only channel bundles. That figure included 91,000 past-due accounts kept connected under the Keep Americans Connected pledge.

The U.S. TV unit ended June with 18.4 million accounts, down from more than 25 million two years ago. AT&T reported its traditional pay TV services, including DIRECTV and its newer streaming option AT&T TV, saw a combined net loss of 897,000 subscribers in the quarter. Meanwhile, its over-the-top streaming service, AT&T TV Now, also lost 138,000 subscribers, following a number of price hikes.  In addition, AT&T lost 68,000 streaming video subscribers. Due to that loss, its AT&T Now “skinny” bundle service closed the quarter with 720,000 subs, down 46% from a year earlier.

The company’s newer pay TV service, AT&T TV, only just became available nationwide in March. But despite its “streaming” nature — it ships with an Android TV-powered box to deliver TV over the internet — consumers may now have the opinion that it’s the worst of pay TV wrapped up in a new delivery mechanism. The streaming service is expensive compared with today’s over-the-top and video-on-demand options. It’s also laden with fees for things like activation, early termination and additional set-top boxes. And its bundle with AT&T Internet offers each service for $39.99/month for the first 12 months, but ties subscribers into two-year contracts where prices climb in the second year.

AT&T’s Q1 TV subscriber numbers indicate how quickly the pay TV market is imploding. And perhaps it will decline even more rapidly now that people no longer want to risk coronavirus exposure by having service techs install equipment in their homes. While AT&T TV’s DIY installation may help in that area, it’s unclear if the new service will ever broadly appeal to consumers in the streaming era.  AT&T ended the quarter with 18.6 million pay TV subscribers, down from 19.5 million in Q4 when it lost 945,000 subscribers. As a result, AT&T has now lost 3.9 million premium TV subs over the past 12 months, shrinking its customer base by 18%.

Speaking on their earnings call Thursday morning, AT&T executives said they expect those numbers to improve in the third quarter as their retail stores gradually reopen throughout the U.S.  However, they also said some stores may not reopen or may close as they consolidate and streamline their retail outlets.

CapEx was $4.5 billion, with gross capital investment at around $5 billion, a difference primarily attributable to the timing of underpayments. AT&T invested an additional $1 billion in new 5G spectrum in the quarter, and invested nearly $400 million in HBO Max, in line with our full year estimate of $2 billion.

Even with the launch of HBO Max this spring, AT&T took its biggest financial hit on the media side of its business. Revenues at its WarnerMedia unit fell to $6.8 billion, down 23% from $8.8 billion last year, because of the absence of theatrical releases, lower TV ad sales and the lack of live sports. Company officials estimated that COVID-19 accounted for $1.5 billion of that decline.

Following what new AT&T CEO John Stankey termed “a flawless launch” of HBO Max, the supersized streaming video service that the company rolled out nationally in late May, the company reported that it closed out June with 36.3 million U.S. subscribers to HBO Max and HBO, up from 34.6 million subs at the end of last year. Citing “strong customer engagement” with HBO Max, Stankey said about 4.1 million customers have signed up so far, including about 1 million wholesale subscribers to AT&T.

AT&T reported an overall loss of 102,000 home broadband subscribers in the quarter, which included about 159,000 past-due accounts. The unit ended the quarter with 13.9 million connections, including DSL.   That broadband customer shrinkage came despite 225,000 AT&T Fiber net adds.   The latest AT&T broadband decrease marks the company’s fourth consecutive quarterly net loss of advanced broadband subscribers as it continues to fall further behind such big cable rivals as Comcast and Charter in the U.S. broadband market.

The telecom giant posted the overall broadband sub losses because it dropped 304,000 U-verse and other “advanced” broadband subscribers, according to the company’s latest earnings report. It also shed another 23,000 DSL subscribers as that business continues to wind down.

CFO John Stevens said on the earnings call:

Broadband customers continue to look for faster speeds. We added more than 220,000 AT&T Fiber subscribers, and a number of customers opting for gigabit speeds increased by more than 750,000 in the quarter. We now have 4.3 million AT&T Fiber customers, with nearly 2 million of them on 1 gigabit speeds.

On the broadband side, look, I have an appetite to get back to building footprint on fiber, and I think I’ve indicated that before. And I wouldn’t quite pigeon hole it in the way you asked the question relative to households. I have an appetite to build fiber that serves a combination of our needs in the consumer space, what we need to do to deploy 5G and what can help our business segment.

And really, the unique position we’re in as a business is we have lines of business in all those areas, and that should give us leverage in fiber deployment that I think others that are either only a fixed line provider and reselling wireless services or those that are only wireless providers and trying to deploy more fiber-intensive 5G networks don’t enjoy. And my investment thesis and my point of view on our company is that if we do our engineering correctly, and we think about our planning properly, we should be getting yields off of every millennial foot of fiber we put in that nobody else can achieve. And so as I think about this, and as we’re working them through from a planning perspective right now, it’s how we get the leverage across all 3 segments, not just the homes that we pass. Although, ideally, the net effect of that will be there will be communities that we build. I personally do not believe that 5G is a replacement in the near term for suburban, residential, single-family living units. It is an optimal strategy. I think it’s going to be a tough one to beat when there’s embedded gigabit-capable fixed line networks in place. And so I think there’s clearly going to be stuff on the margin that makes sense around that. But I don’t believe in the near term that 5G is the right fixed line replacement strategy in what I would call a typical single-family home infrastructure. And look, if it ultimately moves that way, and we start to see the technology stabilizing, we’re as well positioned as anybody to pivot to that. We certainly got the spectrum and the assets to make that happen; but I’m just not of the mindset right now that, that’s the optimal place to win in the market.

AT&T’s total broadband subscriber base is now shrinking by 3.3% on a year-over-year basis, according to the latest calculations by Craig Moffett, principal analyst at MoffettNathanson. In a report to investors today, he noted that this pace represents “another marked acceleration from the 2.8% decline” the company was experiencing just one quarter ago.Due to these accelerating subscriber losses, AT&T’s broadband financial metrics are clearly trending down as well.

“As with video, they had been pushing ARPU steadily higher, reflecting both mix as well as a clear intention to extract more cash from the business,” Moffett wrote in his report. But, he added: “Growth of just 1.6% YoY in premium broadband ARPU only (they don’t report DSL ARPU) wasn’t enough to offset the 2.5% YoY decline in subscribers; as with video, IP broadband revenue growth is now negative YoY.”

“HBO Max has gotten off to a rather inauspicious start,” Moffett added.

The company said it will continue investing in strategic growth areas like fiber, 5G, FirstNet, HBO Max.  Here are the company’s 2020 priorities:

Executing our plan with a market focus on:

• Wireless – Nationwide 5G and FirstNet
• Fiber-based connectivity – for wireless, consumer and business
• Software-based entertainment – HBO Max and AT&T TV
• Increased customer engagement – insights across all platforms’

AT&T withdrew its financial guidance due to the “lack of visibility related to COVID-19 pandemic and recovery,” the company said in a press release, which also stated:

“Our solid execution and focus in a challenging environment delivered significant progress in the quarter, most notably the successful launch of HBO Max, resilient free cash flow and a strengthened balance sheet,” said John Stankey, AT&T chief executive officer. “Our resilient cash from operations continues to support investments in growth areas, dividend payments and debt retirement. We are aggressively working opportunities to sharpen our focus, transform our operations and continue investing in growth areas, with the customer at the center of everything we do.”

“Our resilient cash from operations continues to support investments in growth areas, dividend payments and debt retirement. We are aggressively working opportunities to sharpen our focus, transform our operations and continue investing in growth areas, with the customer at the center of everything we do………I expect we’re going to be dealing with some of these economic challenges in a Covid environment” through the current quarter, Mr. Stankey said. “We’re operating accordingly,” he added.

……………………………………………………………………………………………………………………………………………………………………………

References:

https://investors.att.com/~/media/Files/A/ATT-IR/financial-reports/quarterly-earnings/2020/q2-2020/ATT%202Q20%20earnings%20release%20V2.pdf

https://investors.att.com/~/media/Files/A/ATT-IR/financial-reports/quarterly-earnings/2020/q2-2020/att-2q2020-earnings.pdf

https://www.lightreading.com/5g/covid-19-stings-atandt-despite-5g-hbo-max-rollouts/d/d-id/762618?

http://www.broadbandworldnews.com/author.asp?section_id=472&doc_id=762628&

AT&T Execs Talk up “Broadband Resiliency” and 5G with mixed impact from COVID-19

AT&T loses 897K more pay TV subscribers in Q1 2020, adding pressure to HBO Max launch