AT&T’s U-verse hummed along in the third quarter, with net adds of 198,000 TV and 613,000 Internet customers, and but the telco’s legacy phone and DSL businesses continued to shrink dramatically.
U-verse results were solid, with the video net adds above consensus Wall Street expectations, “but the rest of the copper plant is… well, falling apart,” Sanford Bernstein senior analyst Craig Moffett wrote in a research note.
AT&T’s access line losses “re-accelerated,” Moffett said -- the telco shed 1.02 million wireline voice connections, to stand at 35.8 million at the end of the period -- and total broadband subscribers declined by 42,000, with the U-verse Internet gains unable to offset the loss of 655,000 DSL connections.
The company’s total Q3 wireline revenue was $14.8 billion, down 1.6% versus the year-earlier quarter, while wireline operating income of $1.9 billion was up 2% year-over-year.
However, U-verse -- which is now a $9.5 billion annualized revenue stream -- drove consumer wireline to $5.4 billion in the third quarter, up 2% year over year, which was the segment’s strongest growth in more than four years and the ninth consecutive quarter of year-over-year growth in wireline consumer revenues.
“The success of U-verse establishes our ability to compete, and gain share, and gives us confidence as we continue the transformation of the wireline business,” AT&T chief financial officer John Stephens said on a conference call with analysts.
U-verse broadband, video and voice-over-IP revenue now represents 59% of wireline consumer revenues, up from 51% a year ago. Total U-verse revenue grew 38.3% in Q3 2012 compared with the year-ago period and 6.1% versus Q2 2012.
At the end of September, AT&T had 4.34 million U-verse TV and 7.1 million U-verse High-Speed Internet customers. While broadband connections decreased 42,000 in the period, total broadband ARPU was up almost 10% year over year, Stephens said.
About 54% of U-verse broadband subscribers have a plan with up to 12 Mbps or higher downstream, up from 43% in the year-ago quarter. ARPU for U-verse triple-play customers was more than $170, up slightly year over year. U-verse TV penetration of eligible living units was at 18% at the end of the third quarter.
The company's satellite subscribers, through a deal with DirecTV and a previous one with Dish Network, declined 51,000 sequentially to 1.63 million (down 10% year over year).
AT&T’s total business wireline revenue was $9.1 billion, down 2.6% versus the year-earlier quarter and slightly lower than the second quarter of 2012.
For AT&T’s wireless business, revenue (which includes equipment sales) increased 6.6% year over year, to $16.6 billion. But the telco added only 151,000 postpaid subscribers, half of analyst expectations, representing year-over-year growth of 1.7% and sequential post-paid subscriber growth of 0.1%.
AT&T touted that postpaid subscriber ARPU increased 2.4% versus the year-earlier quarter to $65.20, the strongest growth in six quarters. The telco sold 6.1 million smartphones in the third quarter (including 4.7 million iPhones), 1.3 million more than in the year-ago period.
The company said about 64%, or 28.5 million, of all smartphone subscribers are on usage-based data plans versus 50% a year ago. Nearly 2 million subscribers signed up for Mobile Share plans in the first five weeks they were available; AT&T said take rates on the higher-data plans were stronger than expected, with more than a third of Mobile Share subscribers taking plans of 10 Gigabytes or higher.
AT&T claimed its Long Term Evolution (LTE) deployment is ahead of schedule, covering more than 135 million people in 77 markets. The company expects to double the size of that footprint by the end of 2012.
Overall, AT&T consolidated revenue was $31.5 billion for the quarter ended September 30, 2012, flat versus the year-earlier quarter. Excluding the divested Advertising Solutions business unit, AT&T revenue was up 2.6%. Net income attributable to AT&T was $3.6 billion for Q3, flat with the year-earlier quarter.
AT&T said free cash flow -- cash from operating activities minus capital expenditures -- was a record $6.5 billion in Q3. The company now expects free cash flow for the full year to be at least $18 billion, up from previous guidance of $15 billion to $16 billion. AT&T said it anticipates capital spending for the year to come in at the low end of the $19 billion to $20 billion range while still meeting network build targets.