AT&T Wireless Subscriber Gains, 5G Help Offset Declining Wireline, Business Services

AT&T is focused on wireless and next-generation technologies, such as fiber and 5G, to help stabilize its wireline services segment, especially since its early 5G adopters are all business users, according to AT&T CEO Randall Stephenson.

AT&T is leaning on its strength in wireless and focus on next-generation technologies, such as fiber and 5G, to help offset its declines in its wireline business.

AT&T CEO Randall Stephenson during the carrier's Q1 2019 earnings call on Wednesday called the carrier's 5G strategy a "step change" difference. He added that the carrier's 5G customers today are exclusively business users.

"[5G] is serving as a land replacement product and we are having really impressive demand where we've turned up the 5G service from businesses," he said.

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For the first quarter, which ended March 31, AT&T reported 179,000 postpaid smartphone net adds -- customers that pay a monthly bill -- in the U.S. AT&T said its 96,000 prepaid net adds for the quarter consisted of 85,000 phones. The carrier's net add of 80,000 phone subscribers surprised Wall Street's forecast of a loss of 44,000 subscribers because AT&T has had to make price cuts to its plans to stay competition in the U.S. market.

Business wireline services, on the other hand, declined to $6.50 billion, down from $6.75 billion a year ago.

AT&T's mobility segment, the carrier's largest contributor to earnings and cash flow, totaled $17.57 billion during fourth-quarter 2018, slipping down about 2 percent compared to $17.36 billion in the same quarter a year ago. The communications business, which includes high-speed internet, video and legacy voice services, dipped slightly to $35.39 billion during the quarter from $35.53 billion in fourth-quarter 2017, which John Stephens, AT&T's senior executive vice president and CFO, said reflected gains in mobility that were offset by declines in Business Wireline and the Entertainment Group.

The carrier plans on leveraging the strengths of its fiber and broadband services to stabilize its Communications segment as customers move off of voice and other legacy services. Stephenson said that the company is starting to see the "fruits of its labor" in fiber pay off.

"This is one of the more exciting areas of the business in terms of where we have invested heavily," Stephenson said. "Where we can get AT&T fiber, a video product and a mobile product, churn rates just drop … customers love it, the services are all premium services, so this is going to be an important element for us this year and as we continue into 2020."

Stephens said AT&T had 297,000 AT&T fiber customer gains during the quarter and 45,000 broadband net adds, with broadband revenue growing more than 8 percent in Q1 2019.

Stephenson said that AT&T is the only carrier that's currently offering 5G to both consumers and businesses. AT&T's standards-based mobile 5G network is live today in certain areas of 19 cities, including Atlanta; Charlotte, N.C.; Dallas; Houston; Indianapolis; Jacksonville, Fla.; Louisville, Ky.; Oklahoma City, Okla; New Orleans; Raleigh, N.C.; San Antonio; and Waco, Texas. The carrier also recently switched on six more cities, including San Francisco; San Jose, Calif.; San Diego; Austin, Texas; Nashville, Tenn.; and Orlando, Fla.

5G revenues however, AT&T's executives said, won't be realized until next year. The company expects to have a nationwide 5G network next year.

Another growth driver that AT&T is relying on for future growth is its WarnerMedia unit, which includes Turner and premium TV channel HBO that it acquired from Time Warner last year. WarnerMedia reported revenue of $8.38 billion in the quarter, which fell short of analysts’ estimates of $8.45 billion.

Net income for AT&T's first quarter was $4.10 billion, down from $6.67 billion in the first quarter of 2018. Diluted earnings per share during the quarter was 56 cents compared with 75 cents one year ago. Total revenue rose nearly 18 percent to $44.83 billion from $45.22 billion in the same quarter one year earlier, which the carrier credited to its Time Warner acquisition.

Stephenson said that AT&T continues to be focused on reducing debt from its Time Warner acquisition and its on track to retire 75 percent of that debt by the end of 2019.