AT&T (T -1.39%) reported third-quarter consolidated revenues of $39.1 billion, up nearly 19% versus the same period a year ago. The increases were driven by the company's acquisition of DirecTV and decent customer acquisition, though U-Verse was a weak spot.
Due to costs related to the merger, the continued decommissioning of the network that once belonged to AT&T acquisition Leap, and other one-time costs, the company actually reported lower earnings per share ($0.50) versus the third quarter of 2014 ($0.60). Excluding those charges, EPS was $0.74 versus $0.65 a year ago, up nearly 14% year over year.
The adjusted numbers beat the average analyst prediction of $0.69 EPS, according to Reuters.
"We now have integrated solutions that are unlike any competitor in the market," said CEO Randall Stephenson. "With our national wireless and video capabilities, as well as our extensive broadband network, we now have assets that make us a unique competitor and the first scaled, fully integrated U.S. service provider.
Broadly, AT&T held up well in wireless, where it faces intense pricing pressure from rivals led by T-Mobile (TMUS -0.45%), and in pay television, where its biggest competitor could be considered people giving up the product altogether.
Source: AT&T.
Wireless numbers were decent
AT&T added 289,000 postpaid customers, which was well below the 785,000 it added during the same quarter a year ago. On the positive side, the company added 466,000 prepaid net customers, its best performance in the category for a quarter in nearly eight years, according to The Wall Street Journal.
The wireless subscriber numbers offer minor cause for concern, as they are well below T-Mobile's -- in its most-recent quarter, ended July 30, the No. 3 wireless company's reported 1 million postpaid net adds, its fourth-consecutive quarter topping that number, and 760,000 postpaid.
T-Mobile has not yet made major inroads into AT&T's market share, but it has been steadily growing by impressive amounts. It's possible that its aggressive iPhone pricing -- which is below AT&T's -- and offering generally cheaper service costs, as well as not charging overages, will increase customer turnover. T-Mobile's network, which still rates below AT&T's according to the most recent RootMetrics survey, actually has a higher rating than it did a year ago.
Video results are a cause for concern
When it comes to selling pay television, AT&T has gained an asset in DirecTV at a time when more consumers are cutting the cord and avoiding traditional subscriptions. DirecTV gives the company a product, which has generally been priced cheaper than cable, and which many consumers see as a lower-cost option to wired service.
DirecTV added 26,000 subscribers for the period, but the company still posted a net video loss, because U-Verse lost 92,000 paying customers.
Despite the negative pressures Stephenson remains confident. "Our early integration efforts with DIRECTV are going very well and we've just begun to scratch the surface on the video, wireless and broadband cross-selling opportunities," he said.
Be a little wary
In a post-earnings release conference call, CFO John Stephens explained that it was early in the integration. He said that the company could drive profits through efficiencies created by adding the satellite service to U-verse and its wireless offerings.
"Whether it is just blocking and tackling, taking calls into the call center and getting answers right the first time -- all of those things, all of those things are driving cost savings," Stephens said.
That's true, for a time, but there are only so many ways to consolidate and save money before service suffers. Pushing a profits-by-spending-less-money plan will work for a while, but it does nothing to offset the reality that growth may be slowing, and drops could be coming specifically in the television end of the business.
AT&T is managing its place in a fast-changing market well, but there are some red flags -- they might not be issues now, but if left unaddressed they could pose problems down the road.
