AT&T (NYSE:T) has so far weathered multiple storms.
The company faces challenges to both its major businesses -- wireless phone service and providing cable as well as internet services.
On the wireless side the company has to deal with T-Mobile (NASDAQ:TMUS) which has relentlessly marketed not only lower prices, but more included services, no overages, and generally more generous terms. AT&T has fought that by pushing its network quality -- an advantage that may be true, but one that has certainly diminished.
In the cable world the company has to face the constant threat that consumers are going to cut the cord. That's not a factor on the internet side, but should people start ditching traditional pay television for streaming services or other options, AT&T could take a big hit.
So far though none of those threats have done any real damage to the company's business. Going forward however as the company reports its Q2 results July 21, there are three things to watch:
1. Are wireless customers leaving?
AT&T lost 363,000 postpaid wireless customers in Q1 despite reporting an increase in overall connection due to devices and pre-paid plans. That's not a huge number, but it could be the start of a trend.
The company offers expensive wireless service with terms that are much less consumer-friendly than T-Mobile's. That only works if people actually believe that the AT&T network is worth paying for. The public may believe that, but it has become increasingly less true as it can be argued that all four wireless carriers now have good enough networks. If public perception catches on to that then it could be very bad news for AT&T.
2. Are cable customers leaving?
With its potent two-pronged attack of its traditional wired cable service and DirecTV, AT&T has both a full-price and a cheaper choice for consumers. The problem is that the lower-priced service may be cannibalizing full-fare customers.
In Q1, DirecTV gained 328,000 U.S. customers, likely helped by an AT&T promotion offering satellite subscribers unlimited wireless (which it does not offer new users otherwise). But despite the strength of the satellite company, drops in the AT&T U-verse video brand resulted in an overall loss of 54,000 video subscribers.
That's a bad trend, but in the long run it's hard to know if it might help the company to battle cord cutting as satellite customers who pay less may be less tempted to drop the service.
3. Is revenue holding strong?
In Q1 AT&T managed to raise revenues despite losing customers.
Consolidated revenues grew to $40.5 billion for the quarter, up 24% year over year, though the company acknowledged that was "primarily" a result of its DirecTV acquisition. After factoring out some charges related to that deal the company had earnings per share of $0.72, compared with an adjusted $0.65 in the year-ago quarter, an increase of 10.8%.
"With these kinds of margins and these kinds of expansions in margins, it gives us the flexibility, and, quite frankly, it grows the universe of customers that are long-term value-creating customers for us," CFO John Stephens said during the post-reporting call with investors. He also noted that growth in the company's Cricket pre-paid brand opens it up to new customers and helps drive revenue. He was also confident that the company would manage its way through the market changes causing it to lose customers.
That's an optimistic view which the company has lived up to so far. Going forward whether AT&T can continue to make more money off less people may be the most important for investors to watch.
Daniel Kline has no position in any stocks mentioned. He does not agree with calling flip flops "slides." The Motley Fool recommends T-Mobile US. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.