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AT&T CFO: 'More thoughtful' pricing to help entertainment unit boost earnings

AT&T Inc. CFO John Stephens told investors Jan. 9 at the Citi 2019 Global TMT West Conference in Las Vegas that the company is going to be "more thoughtful" about promotional pricing, as it pivots away from two-year price locks on its DIRECTV satellite offering, as well as its U-verse video platform.

As such, the company "expects to have normal pricing increases on the traditional video side," which will yield margin amelioration. Rollbacks in promotional pricing for video packages are expected to play a role in helping AT&T's entertainment group meet its 2019 EBITDA goal.

Relative to its DIRECTV branded over-the-top offering, Stephens said the company has moved away from being "very promotional." He noted that last year about this time, DIRECTV NOW had about one-third of its then 1.5 million customer base on three-month promotions.

"We stopped doing three-month promotions for $10. So you have a risk of those customers choosing not to renew or you have the hopes of those customers buying up and getting a full package," he said. "But either way, you significantly improve your profitability by moving away from that intensely promotional environment."

Last summer, AT&T also enacted a $5 monthly price hike for DIRECTV NOW.

The pricing changes are intended to help generate some $10 billion in EBITDA in 2019 for AT&T's entertainment unit, which houses its DIRECTV satellite business and U-verse video platform, as well as virtual offerings like DIRECTV NOW. The unit's 2019 EBITDA goal was announced at AT&T's investor day in November 2018. The company expects to achieve its goal through a base of 25 million video subscribers, contributions from its Xandr advertising unit, broadband growth tied to increased fiber installations and cost-cutting initiatives.

Analysts, though, believe revised pricing could further upset the company's results. During the third quarter ended Sept. 30, 2018, AT&T sustained a loss of 297,000 video customers.

The legacy satellite service shed 359,000 subscribers in the quarter, compared with 251,000 in the third quarter of 2017. For its part, U-verse added 13,000 customers, compared to a drop of 134,000 in the prior-year period, while DIRECTV NOW upped its streaming rolls to 1.9 million, with 49,000 additions. However, the streaming service had added 296,000 customers in the corresponding quarter in 2017.