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AT&T improves value proposition despite increasing competition

Jul, 26 2017, 5:19 AM

Editor's note: AT&T is improving its value proposition as competition within the mobile and video markets intensify, says Technology Business Research Steve Vachon in his review of the tech giant's latest earnings report. Part two of the review highlights AT&T's moves to bolster its business segment.

HAMPTON, N.H. - AT&T’s consolidated revenue fell 1.7% year-to-year to $39.8 billion in 2Q17 due to declines across all of the company’s core businesses, with the exception of its International division, according to its latest earnings report on Wednesday

AT&T’s profitability improved in the quarter, however, as operating margins rose 220 basis points year-to-year to 18.4%, aided by the company’s emphasis on non-subsidized wireless device plans.

Pricing pressures, smartphone saturation and stronger competition from OTT providers are creating obstacles for AT&T to grow its mobility and video businesses, which is spurring the carrier to become more reliant on bundles combining both services to improve its value proposition.

Unlimited data helps

Though TBR believes AT&T trailed all of its Tier 1 competitors in postpaid phone net additions in 2Q17, the launch of its unlimited data plans helped to mitigate declines as the carrier’s postpaid phone losses improved in the quarter to -89,000, compared to -180,000 in 2Q16.

In June Unlimited Choice customers gained the option to add DirecTV Now to their accounts for $10 per month, a benefit previously offered only to Unlimited Plus customers. TBR believes the move will boost wireless and DirecTV subscriber additions, but will come at the expense of limiting postpaid phone ARPU as customers now have less incentive to select AT&T Unlimited Plus plans, which have a starting price point that is $30 more expensive than Unlimited Choice plans.

DirecTV flexibility

AT&T is relying on the low price point and flexibility of DirecTV Now, which gained 152,000 customers in 2Q17, to help offset declines within its U-verse TV and DirecTV satellite businesses, which lost a combined 351,000 subscribers in the quarter.

Though AT&T increased Video Entertainment revenue by 2.1% year-to-year in 2Q17, TBR believes sustaining revenue growth in the segment will be increasingly challenging as total video subscribers decrease and the company trades linear TV subscribers for lower ARPU DirecTV Now connections.

New features such as the inclusion of additional live local channels and upcoming 4K HDR and cloud DVR support provide added incentives to attract DirecTV Now customers, but addressing the platform’s streaming capacity is critical as recent service interruptions will drive some subscribers to switch to rivals such as SlingTV and Hulu Live.

Part Two: AT&T's moves to improve business sector performance.

(C) TBR





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