AT&T reported muted Q2 wireless segment results, with slowing overall growth, flat income and record EBITA margins
AT&T reported a sharp year-over-year decline in mobile growth, with only its prepaid business managing to post improved numbers.
AT&T Mobility said it added nearly 1.4 million domestic net connections for the second quarter, which was a 35% drop from the nearly 2.1 million net adds reported last year and short of the 1.8 million net adds posted during the first three months of this year. AT&T Mobility ended the quarter with 131.8 million total domestic connections on its network.
The only market segment to show year-over-year growth was AT&T Mobility’s prepaid business, which surged more than 10% to 365,000 net additions for the latest quarter. The carrier’s prepaid business, which is led by its Cricket Wireless brand, continues to show a marked improvement despite growing competition in the space.
AT&T Mobility’s direct postpaid channels posted 257,000 net additions for the quarter, which was a 37% year-over-year drop. The results included a loss of 180,000 postpaid phone connections, continuing a trend for the carrier in losing high-value customers to rivals.
The carrier’s overall quarterly growth was dominated by “connected devices,” which while accounting for nearly 1.2 million net additions, was down from the more than 1.4 million net additions the segment counted last year. The carrier also continued to see net defections of its reseller business, which recorded 459,000 net connection losses for the latest quarter.
AT&T’s recently consolidated Mexico wireless operations continued to show progress with 1.4 million Q2 net additions, which was nearly double the consolidated growth posted by operations last year. The carrier ended the latest quarter with nearly 10 million wireless customers in Mexico.
Domestic postpaid churn slipped below 1% for the quarter, dipping from 1.01% last year to .97% this year. Overall domestic churn inched up from 1.31% in Q2 2015, to 1.35% this year.
Despite a larger overall customer base, AT&T Mobility revenue slid 2.1% year-over-year to $17.9 billion for the quarter, with both service and equipment revenue posting declines. A nearly identical drop in expenses left the carrier with basically flat year-over-year operating income at $5.3 billion, though it did manage to boost operating income margins nearly 1% to 29.8% in its latest quarter.
Wireless earnings before interest, taxes, depreciation and amortization margins came in at a record 41.4% for the latest quarter, while wireless EBITDA service margins also came in at a company record 49.8%.
AT&T also noted more than 5 million wireless customers had signed up for its unlimited data plan, which also is tied to customers signing up for a digital television package through either its DirectTV or U-verse platforms.
The company’s consolidated revenue surged nearly 23% compared to last year to $40.5 billion, boosted by strong service revenue growth. AT&T attributed the growth to its $48.5 billion acquisition of DirecTV, which closed last summer.
That revenue growth outpaced an increase in expenses, which resulted in a 10.6% increase in consolidated net income to $3.4 billion for the quarter. However, a larger shareholder base resulted in earnings per share dropping 4 cents to a return of 55 cents per share. Taking out merger-, amortization- and integration-related expenses resulted in an increase in diluted earnings per share from 70 cents last year to 72 cents this year.
Despite concerns over a slowdown in network spending, AT&T said it invested more than $5.2 billion in its network during the latest quarter, which was a 17% improvement over the previous year. Through the first half of 2016, AT&T reported $9.7 billion in equipment capital expenses, compared with just $8.3 billion at the same point in 2015, but noted it remained on track to hit previous guidance of $22 billion in full-year capex.
In terms of network expansion, AT&T said it plans to begin tapping into 40 megahertz of “readily available” spectrum in the 1.7/2.1 GHz and 2.3 GHz bands over the next several years, as well as continue to refarm 1.9 GHz and 850 MHz spectrum currently supporting its 2G and 3G networks.
In Mexico, AT&T reached 65 million potential customers covered with LTE services, with plans to hit 75 million pops covered by year-end.
AT&T also was housing more than 10% more employees this year, with the telecom operator claiming 277,200 workers at midyear.
While AT&T’s overall results were muted compared with the year-ago period, a fuller picture should emerge over the next week as its three domestic wireless rivals are set to announce quarterly results.
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