AT&T Keeps Driving U-verse Forward in Q4

Telco Gains 192,000 TV and 609,000 U-verse Internet Subs in Period

U-verse continues to buoy AT&T’s consumer wireline unit -- with the telco adding 192,000 TV and 609,000 U-verse Internet customers in the fourth quarter of 2012 -- as revenue from the IP-based services offset its ongoing DSL and voice line losses.

AT&T’s IPTV service stood at 4.54 million subscribers as of the end of 2012, up 19.7% from a year earlier. It had 7.7 million U-verse Internet customers (a year-over-year increase of 48%), and for the first time AT&T counted more U-verse Internet than legacy DSL customers. The telco lost 611,000 DSL lines in the period, for a net loss of 2,000 wireline broadband connections, although total broadband average revenue per unit was up more than 10% year over year.

U-verse represented 61% of AT&T’s $5.5 billion residential wireline revenue for the fourth quarter of 2012, up from 53% in the year-earlier quarter and 45% two years ago.

And the telco sees more upside ahead, with U-verse TV penetration of customer locations at 18.7% at the end of the fourth quarter (versus 15.9% in the fourth quarter of 2011).

"We believe the best is yet to come [for U-verse]," AT&T chief financial officer John Stephens said on a call with analysts Thursday. “We think there is a lot of room for growth here. Penetration rates are just starting to climb, so the runway is long."

Last fall AT&T outlined its Project Velocity IP capital spending program. In 2013, AT&T expects capex be in the $21 billion range led by investments in Project VIP growth initiatives, which include expanding the U-verse network to 33 million homes passed by the end of 2015 (up from its previous 30 million footprint).

"We're not disclosing specific levels of fiber-to-the-building or expansion of the U-verse footprint at this time, but you can think about it as kind of radical build schedule as we go forward," AT&T CEO Randall Stephenson said on the analyst call.

Higher U-verse penetration and a larger number of subscribers purchasing multiple services drove U-verse revenue up 36.3% percent compared with the year-ago quarter. According to AT&T, 55% of U-verse broadband subscribers have a plan delivering speeds up to 12 Mbps or higher; about 90% of new U-verse TV customers also signed up for U-verse High Speed Internet in the fourth quarter and 70% of TV subscribers take three or four services. ARPU for U-verse triple-play customers was more than $170. In addition, the number of U-verse voice-over-IP connections increased by 172,000 in the quarter to reach 2.9 million.

But with business wireline revenue down 2.1% year over year (to $9.1 billion in Q4), total fourth-quarter wireline revenues were $14.9 billion, down 0.5% versus the year-earlier quarter but up 0.7% sequentially. Wireline operating income margin was 12.0% in Q4 versus 11.7% in the year-earlier quarter.

On the wireless side of the house, AT&T reported a record 10.2 million smartphone sales in the fourth quarter -- including 8.6 million iPhones activations -- and revenue (which include equipment sales) up 5.7% year over year to $17.6 billion. AT&T posted a net increase in total wireless subscribers of 1.1 million in the fourth quarter to reach 107.0 million in service.

AT&T earlier this week announced it has agreed to buy the U.S. retail wireless operations of Alltel Wireless for $780 million. On Thursday, AT&T also announced that it has completed its acquisition of NextWave Wireless, including its licenses in the Wireless Communications Services (WCS) and Advanced Wireless Service (AWS) bands, for $600 million.

Over all, for the fourth quarter, AT&T's consolidated revenues were $32.6 billion, up 0.2% versus the year-earlier quarter. Excluding revenue primarily from the telco’s divested Advertising Solutions business unit as well as the effect of Superstorm Sandy, revenue was up 2.8% on an annual basis, according to AT&T.

AT&T posted a net loss of $3.9 billion for Q4 2012, or 68 cents per share, compared with a net loss of $6.7 billion in the year-earlier quarter. The fourth-quarter 2012 loss per share included a previously announced charge of approximately $10.0 billion, or $1.10 per share, for the annual adjustment “related to pension and postemployment benefit accounting” and $176 million, or 2 cents per share, related to storm costs.

Separately, earlier this week AT&T’s U-verse experienced outages across at least 10 states. The telco said the vast majority of the affected subscribers were restored by Thursday morning, after a critical server failure resulted in outages across Southeast and Southwest regions that began Monday. AT&T said less than 1% of U-verse subs were affected.