AT&T U-Verse Posts Billion-Dollar Quarter

Telco Unit Tops 2.5 Million Video Subs As Broadband Declines

By Todd Spangler -- Multichannel News, 7/26/2010 12:01:00 AM

AT&T is doubling down on the U-verse triple-play strategy — and predicting the turnaround is imminent for its wireline business.

The telco, posting solid overall second-quarter results, grew U-verse TV subscribers 59% year over year to stand at 2.5 million at the end of June.

And in the second quarter, its revenue from U-verse TV, Internet and voice services exceeded $1 billion for the first time — more than double the U-verse revenue in the second quarter of 2009.

“We now have a clear line of sight to a return to revenue growth for consumer wireline,” AT&T chief financial officer Rick Lindner said on the telco’s earnings call.

At the same time, AT&T kept losing legacy phone lines at a doubledigit rate. Retail consumer voice connections dropped 11.2% versus the year-ago quarter, to stand at 25.8 million as of June 30.

In addition, AT&T lost 93,000 wireline broadband subscribers, whereas Wall Street expected a gain of 59,000.

If Verizon also posts a net loss on broadband for the quarter, that means cable is capturing “100% of the broadband flow share, something that has never happened before,” Sanford Bernstein senior analyst Craig Moffett wrote in a research note. And for the telcos, he added, that’s “a troubling sign of things to come.”

(Verizon was scheduled to report earnings on Friday, July 23, after press time.)

Lindner acknowledged broadband was “weaker” in the second quarter, attributing it partly to seasonality and to cable operators targeting non-U-verse areas with aggressive promotions.

But while AT&T is losing lower- ARPU (average revenue per unit) customers, it’s gaining on Uverse. Total broadband ARPU was up 5% year over year, and overall consumer wireline revenue per household is up over 7.5%, Lindner said.

“Not all revenue connections are created equal,” he said.

AT&T’s wireline operating revenue for the second quarter was $15.4 billion, down 3.7% from the year earlier, while segment operating income increased 0.7% to $1.9 billion.

Meanwhile, the telco’s satellite connections — through DirecTV and its now-expired reseller deal with Dish Network — dropped 7% in the quarter, to 2.1 million.

On the earnings call, Lindner was asked about AT&T CEO Randall Stephenson’s comments in an interview with Financial Times published last week in which he said there was “industrial logic” in acquiring DirecTV but that regulators would likely block such a deal.

“There always are advantages of scale and the ability to leverage the size of customer bases to reduce content costs,” Lindner responded. But, he added, “Obviously as we’ve gone up to this point we’ve felt very good about the path we’re on. You continue to see the growth in the U-verse platform…. And so we’ll continue to push down that path.”

Overall, AT&T posted revenue of $30.8 billion (up 0.6% year to year) with net income of $4 billion (up 25.9%). The net income included a one-time gain from the exchange of Telmex Internacional stock for shares of América Móvil; excluding that, earnings grew 13 percent to $0.61 per diluted share.

AT&T’s total capital expenditures in the second quarter totaled $4.9 billion — which included an almost 60% increase in wireless-related capital investment versus the year-earlier quarter — up 21% from the yearago period.

Second-quarter highlights:

Net gain of 209,000 U-verse TV subscribers to 2.5 million
Net loss of 93,000 DSL customers to 13.9 million
U-verse deployment now reaches 25 million residential units
U-verse triple-play customers ARPU nearly $160, up 13.8% year to year
3.2 million iPhones activated, highest quarterly number to date, despite a well-publicized issue with Apple's iPhone 4 antenna
SOURCES: AT&T, Multichannel News research