AT&T (T) Q3 2014 Results – Earnings Call Transcript

Next take rates continue to be strong in company-owned stores nearly all are more than 90% of our Mobile Share Value customers with pre Next pricing or choosing AT&T Next when they upgrade in company owned stores. They all come without a customer choice, customers can choose the plan that is best for them and that’s great for us, and right now most customers are choosing to go off the subsidy mile when they upgrade or add a new line.

Also in the quarter, we continue to see customer’s buy up larger data plans and more interested in device insurance. This is helping drive revenue. Now let’s look at postpaid ARPUs. The expected trends we talked about last quarter are happening as more customers take AT&T Next. Phone-only service ARPU is down year-over-year but up sequentially. When you add a Next doings you get a better view of what an average customer pays us each month.

Phone-only ARPU with Next billings improved sequentially by 2%. The average monthly Next billings were about $29 per month driving our ARPU with Next higher. As the Next base grows, so does the impact on billings. We also continue to see strong growth in data billings, those details are on slide eight.

Wireless data billings increased by nearly 24% in the quarter. This was due to the increasing number of devices on the network and customers choosing 10 gigabit plans or larger. More than half of all Mobile Share accounts are on these plans. During the quarter, we added more than 2 million Mobile Share accounts giving us 16.7 million in total, that’s three times as many as we had a year ago. And we averaged about three connections per Mobile Share accounts or nearly 47 million connections in total. That’s roughly 60% of our overall postpaid base.

Smartphone sales continue to be strong; in fact, we had 6.9 million smartphone gross adds and upgrades. That’s a third quarter record. And it would have been even higher without inventory constraints.

We added $1.2 million subscribers to our smartphone base including about including 500,000 smartphone net adds. Most our sales continue to be smartphones, about 91% of the flow share.

About two-thirds of our postpaid smartphone base use LTE phones. As you know, LTE devices provide the best customer experience, while also being the most efficient on our networks.

Let’s now look at our wireline results, starting with consumer on slide nine. U-verse hit two subscriber milestones in a quarter. First, we now have more than 12 million high-speed broadband subscribers, after adding more than 600,000 in the quarter.

U-verse broadband is now 73% of our total broadband base and 75% in the consumer broadband base, that’s up 70% in the last two years, that’s help to drive total postpaid – that help drive total positive broadband net adds in the quarter.

We also continue to deploy our ultra high-speed GigaPower service. We now offer 1 gigabit speeds in Austin and have turned up the service in Dallas and Fort Worth. We’ve also committed to deploy GigaPower in 14 additional markets including Houston, Miami and Atlanta.

We also passed the 6 million mark with U-verse TV subscribers and in 216,000 in the quarter, and bundles continue to play a big role in our growth. More than 97% or virtually all of our video customers have some kind of bundle with us, most often broadband and video. And nearly two-thirds of U-verse TV subscribers take three or four services with us.

ARPU for U-verse triple play customers continues to be more than $179 that helps drive revenue growth while reducing churn. In fact triple-play bundled customers have significantly lower churn than standalone customers. All this help drive 3% revenue growth in consumer, total U-verse revenues are now more than $15 billion annualized revenue stream and our continued growth at nearly 25% year-over-year. U-verse now represents 64% or nearly two-thirds of our consumer revenues. That compares to 54% just the year ago.

Now let me take you to our wireline business results on slide 10. We also reached another significant milestone in the wireline business. Strategic business services, those are growth services such as VPN, Ethernet, hosting and other advanced IP services are nearly a $10 billion annualized revenue stream for us now.

The services backup more than 28% of business wireline revenue and grew by more than 14% in the third quarter. At our current growth rate strategic business services should be about 39% of business wireline revenues by the end of the year. Overall business revenues decline by 2% in the quarter. Service revenues were also down 2% year-over-year.

The shift to IP data and away from legacy services, as well as the economy is the story in wireline business. But within the business there are some differences. Our retail service revenues actually grew year-over-year.

Those are service revenues from an enterprise and small business. Enterprise revenues were up 1.7%, that it’s best performance in years and the six consecutive quarter of service revenue growth.

Small business trends also improve as even with a lack of new business formations. On the other hand, wholesale is again challenged by network grooming issue. We also make a strategic decision to refocus the wholesale business.

That reduce wholesale revenue is about $50 million in the quarter and we expect that amount to increase in the fourth and thereafter. The positive trends in retail service revenues are encouraging, and as is the transition IP services from legacy product.

But the economy and fewer business starts continue to make for a challenging environment and clearly call for the government to move toward actual form legislation. Now let’s look at consolidated and wireline margins on slide 11. For the quarter, our adjusted consolidated margin was 17.2% compared to 18.5% a year ago quarter. Wireless margins were pressured by strong adoption of mobile share value plans, solid customer growth, promotional activities and the leap acquisition.

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