AT&T set a noteworthy bar for its rivals to meet for first quarter operational results, announcing strong customer growth and growing uptake of its Next device financing program.
AT&T reported that its wireless operations added more than one million net customer additions for the quarter, which was more than triple the 291,000 net customer additions posted during the first quarter of 2013. Growth was bolstered by strong postpaid net additions, which more than doubled year-over-year to 625,000 net customer additions, which it noted was its best first-quarter net additions result in five years, and was well ahead of forecasts. AT&T also posted improvements in “connected devices” and fewer losses in its prepaid and reseller channels.
(AT&T also added more than 4.5 million customers through its recently closed acquisition of Leap Wireless.)
Breaking down the numbers, AT&T explained that half of its net customer additions for the quarter were smartphones; that it sold a total of 1.1 million smartphones during the quarter including both new and upgrades; and that more than 40% of all smartphone gross additions and upgrades were on its Next device financing program. AT&T has aggressively marketed the Next program through recent changes to its Mobile Share rate plans, with the carrier now counting 11.1 million Mobile Share accounts.
AT&T Mobility’s robust customer growth came despite a slight uptick in churn, which increased to 1.39% during the quarter.
Financially, AT&T said its wireless service generated nearly $17.9 billion in revenues during the quarter, which was a 7% increase compared with the previous year. Operating expenses increased just 6.6% year-over-year, helping to increase segment income 8.1% to $5 billion.
While AT&T did not release traditional average revenue per user results, Macquarie Equities Research noted that ARPU per line decreased 2.5% sequentially to $64.68, which was also below expectations. The financial firm cited the strong growth in customers to AT&T’s Mobile Share plans as the reason for the dip. Analysts also noted concern about AT&T’s ability to maintain benefits of its Next plan into 2015 as many expect most of its customer base to have transitioned to that offering by the end of the year.
“While we view results positively we are cautious to give the company too much credit noting growth associated with Next appears unsustainable and considering [greater than] 25% of smartphone subscribers are already on no-device-subsidy plans should plateau this year,” explained Cowen & Co. in a research note. “As investor focus shifts to 2015 we expect this to be an increasing concern/topic for investors.”
On the wireline side, AT&T reported a slight drop in revenues to $14.6 billion that when combined with a modest increase in expenses resulted in a 10.5% drop in segment income to $1.46 billion. AT&T’s overall capital expenditures increased more than 34% year-over-year to $5.7 billion during the first quarter as the company continues to pour money into its Project VIP initiative. On a consolidated basis, AT&T reported a 1.3% drop in net income attributed to shareholders, though through its recent stock buyback plan managed to increase earnings per share three cents to 70 cents per share.
Through the rest of the year, AT&T said it expects to grow consolidate revenues by 4%, had adjusted earnings per share growth to the mid-single digit range due to the Leap deal, expects $21 billion in total capex and to post free cash flow in the range of $11 billion due to Next sales and costs associated with Leap.
Just how well AT&T performed during the first quarter will be highlighted later this week when rival Verizon Communications posts results.
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