AT&T (T +3.65%) faces a fairly hostile and highly competitive market for its wireless, broadband, and pay-television services. The company has not lost ground in all of those segments, but it's struggled as DirecTV has cast a shadow over the entire company.
Check out the latest AT&T earnings call transcript.
What happened
While AT&T has added wireless customers and its overall outlook remains positive, the company has no answer for stemming the declines in its satellite television business. In the third quarter alone, DirecTV lost 359,000 customers while its DirecTV Now streaming service added 49,000 and AT&T U-verse increased by 13,000.
That's not an AT&T problem but, rather, a satellite television one. Satellite used to be the main competitor to traditional wired cable. Now, with streaming services and cord-cutting as lower-cost options, consumers have no reason to opt for satellite. In addition, DirecTV does not offer bundled broadband service and AT&T's U-verse (which does) lost 23,000 video customers in the third quarter. Again, that's due to customers shifting away from phone company-based internet preferring cable-based service and not a problem specific to AT&T.
Cord-cutting and customers dropping satellite have become a problem for AT&T. Image source: Getty Images.
So what
AT&T faces problems with DirecTV and pay television in general that it has no answers for. The company will continue to lose satellite customers in large number,s and it's not going to make that up in streaming customers. It should, however, remain a strong player in wireless, but it will face pricing challenges in that market assuming the Sprint and T-Mobile merger gets approved.
Concerns over the pay-television business were a drag on the shares of the company in 2018. After closing 2017 at $36.11 before closing the year at $28.07, a 22% drop, according to data provided by S&P Global Market Intelligence.
Now what
It's really a question of how AT&T manages its declines in satellite television and how it leverages its various assets. CEO Randall Stephenson understands that ongoing success will involve more than just providing services.
"We are well positioned for success as the lines between entertainment and communications continue to blur," he said in a press release. "If you're a media company, you can no longer rely exclusively on wholesale distribution models. You must develop a direct relationship with your viewers. And if you're a communications company, you can no longer rely exclusively on oversized bundles of content."
AT&T, of course, owns content through its acquisition of Time Warner. In theory, that content could be used to entice more customers to buy DirecTV Now or some sort of streaming service using the company's programming library. That's a possible but very challenging proposition for a company that's facing significant competition and changing consumer demand.
