AT&T, the No. 2 U.S. wireless carrier, said its revenue fell 3.4 percent to $38 billion in Q1 2018 because of poor performance of AT&T’s Business Solutions and Entertainment Group divisions.
DirecTV Now mobile video bundles contributed to improved video (+125,000 vs. -161,000) and post-paid phone (-22,000 vs -348,000) net additions. AT&T’s pricing strategies pitched against T-Mobile and Verizon contributed to lower Entertainment Group and Mobility EBITDA margins.
The company has been relying on promotions and discounts to stabilize its wireless and pay-TV subscriber numbers, which have taken a toll on its margins, New Street Research analyst Jonathan Chaplin said.
AT&T in a statement said that its net income rose to $4.76 billion from $3.47 billion.
The telecom operator, which owns satellite television service DirecTV, lost 187,000 video users.
As more viewers seek to cut pay-TV packages, AT&T added 312,000 customers to its DirecTV Now streaming service.
The Time Warner deal, which would give AT&T access to content, reflects AT&T’s effort to compete for advertising dollars against Alphabet’s Google and Facebook.
AT&T CEO Randall Stephenson last week said the company would introduce a new video service called AT&T Watch, a package of TV channels without sports, for $15 per month.
TBR analyst Steve Vachon said AT&T’s Entertainment Group EBITDA margin dropped 100 basis points to 22.8 percent as video entertainment revenue (-7.3 percent YTY) was negatively impacted by linear TV subscribers being replaced by DirecTV Now customers, which generate significantly less ARPU.
TBR expects these trends will persist in 2018 as more customers cut the cord and additional OTT platforms become available, including T-Mobile’s Layer 3 TV video service. Video revenue will be limited by linear TV customers transitioning to new AT&T programming options.
AT&T’s Mobility EBITDA margin dipped 40 basis points to 41.8 percent, largely due to higher costs arising from smartphone activations, which increased by about 500,000 to 6.7 million. Smartphone gross additions were spurred by AT&T offering some of the most aggressive device promotions in 1Q18, including the industry’s first BOGO deal for the iPhone X in the U.S.
AT&T said it will be investing $1 billion towards its Workplace 2020 initiative that will train 100,000 employees in advanced technologies including NFV and SDN, cybersecurity and cloud.
TBR analyst said the deployment of 60,000 white-box routers at cell sites across the U.S. will generate significant costs savings for AT&T while positioning the carrier to support 5G edge computing applications requiring ultra-low latency such as augmented realty and autonomous driving.
The strategy to expand AT&T’s SD-WAN platform to 150 countries will enable the carrier to more effectively attract multinational companies amidst competition from other global enterprise operators such as Verizon, NTT and Orange, which are also offering international SD-WAN solutions.