Despitefirst-quarter erosion, AT&T Inc.expects to record overall video subscriber growth over the course of 2016.
AT&Tsustained a loss of 54,000 video subscribers overall as gains with its DIRECTV unitcould not overcome a decline at its U-Verse offering during the first quarter endedMarch 31.
CFO JohnStephens told analysts on the company's April 26 earnings conference call that AT&Texpects to finish the year with more video customers as continued operational benefitsand offerings tied to the integration of DIRECTV, following its last July, take firmer hold.
Stephenssaid single truck rolls in which technicians can handle both video platforms, theavailability of a wireless bundle and other integrated packages as prompts to enticemore customers, and enhanced customer service should coalesce to lift subscriberrolls during the second half of 2016. He also noted that the will come into play duringthe second half of the year, when DIRECTCV has historically added more customers.
AT&Treported that DIRECTV added 328,000 new subscribers in the quarter, while U-verse— which had added 49,000 subs in the first quarter of 2015 — shed 382,000, resultingin overall net loss of 54,000. DIRECTV finished the first quarter of 2016 with 20.1million video subs, while U-verse had 5.2 million.
Stephenssaid that while both DIRECT and U-verse platforms are receiving good grades fortheir video quality, AT&T sales channels are pushing new and existing customerstoward the satellite package because of its lower-cost structure.
Stephens'discussion of projected subscriber growth pertained to the extant pay TV platformsand did not include a trio of over-the-top services, which are expected to launchin the second half of the year. He said the company, which has yet to make any specificpredictions about OTT subscriber potential for streaming services, is continuingto chart progress in contract negotiations with content providers, and is eyeinga lineup that will be similar to what the DBS giant has historically offered.
Accessto DIRECTV Now and DIRECTV Mobile will require signing up for the DIRECTV streaming service and downloadingthe app, whereas DIRECTV Preview is expected to be ad-supported and target millennialusers, much like Verizon CommunicationsInc.'s Go90 OTT mobilevideo app.
Stephenssaid the services are being aimed at non-pay TV households and cord-nevers. He saidcost efficiencies relative to the absence of dish installation and set-top box feescould hold appeal to these groups, while noting that the high-end video customersthat currently subscribe to DIRECTV and U-verse are interested in maintaining theirpackages that often connect three or four televisions in the home.
Stephensalso mentioned that Fullscreen Media bowed its ad-free subscription video-on-demandservice today, and that AT&T will be marketingthe service to its more than 100 million video, mobile and broadband customers.Multichannel network Fullscreen is owned by Otter Media, a joint venture of AT&Tand The Chernin Group.
Relativeto advertising, the company is registering gains and the revenue stream with DIRECTVcould surpass the $1 billion mark on an annualized basis.
Mergersynergies are progressing as planned, with an annualized run-rate expected to reachor possibly exceed $1.5 billion over the course of the year. Those reductions arestemming from lower programming cost tied to the shift to lower DIRECTV contractrates, as well as savings at headquarters, plus lower administrative, professionaland consulting fees.
On thebroadband side, U-Verse added about 186,000 high-speed data connections, down fromthe 413,000 additions a year ago. The digital subscriber line service lost 181,000customers, an improvement over the 320,000 defections in the year-ago quarter.
AT&TWireless added 2.3 million customers in North America, including 1.8 million newones in the U.S. At first quarter's end, AT&T's North American wireless customerbased was 139.7 million, up from 127.5 million a year ago.
Bolsteredin large part by the DIRECTV acquisition, quarterly operating revenue rose 24.4%year over year to $40.54 billion, up from $32.58 billion a year ago. Measured againstresults for the first quarter of 2015, operating expenses grew to $33.40 billionfrom $27.02 billion, as operating income jumped 28.3% to $7.13 billion from $5.56billion.
On aconsolidated basis, AT&T posted first-quarter net income attributable to thecompany of $3.80 billion, or 61 cents per share, compared to $3.26 billion, or 63cents per share, in the year-earlier quarter.
The S&PGlobal Market Intelligence final first-quarter consensus EPS estimate was 69 centsper share on a normalized basis and 64 cents per share on a GAAP basis.