2019 has been a tough year for AT&T's (NYSE:T) entertainment segment. It lost nearly 3 million video subscribers through the first nine months of the year. Management says subscriber losses should've peaked last quarter, when it lost nearly 1.4 million total customers between its premium pay-TV services and its over-the-top service, AT&T TV Now.

While most pay-TV companies have been able to offset their video subscriber declines with new internet subscribers, AT&T isn't immune to losses in its broadband business. The company lost 119,000 customers last quarter on top of 34,000 in the second quarter. The losses stem from its legacy DSL service, which now accounts for just 562,000 of AT&T's 14.3 million internet customers.

AT&T expects things to turn around in 2020, though. Here are a few important factors for investors to keep in mind.

A television displaying a navigation menu with a set-top box in front of it and remote

AT&T TV. Image source: AT&T.

A cleaner and simpler product lineup

Speaking at a recent investor conference, AT&T Communications CEO Jeff McElfresh said the product offering will become much cleaner and simpler next year.

Specifically, the company wants to focus on markets where it can offer three of the best-in-class products across wireless, home internet, and television. Those would be its top-tier unlimited wireless data service on its 5G Evolution network, its fiber internet service, and AT&T TV. The latter is currently in beta testing, but will launch nationwide in February.

McElfresh said AT&T is winning market share of home internet service in the areas it's built out fiber. Indeed, the company's added nearly 1 million new fiber internet subscribers through the first nine months of 2019. That's as its total IP broadband subscribers have remained relatively flat. As AT&T expands its fiber footprint (and eventually sunsets DSL), it should start to see better growth in internet subscriptions.

At the company's investor day last month, AT&T's management said AT&T TV will be the future of its pay-TV business. It serves video over-the-top through a self-installed Android set-top box. Eventually, the company plans to integrate the back end of AT&T TV with HBO Max, so they run on a single platform. The shift to delivering video over the internet instead of via satellite or hardline will reduce the switching costs for consumers and the customer acquisition cost for AT&T.

Low capital intensity

Over the last couple years, AT&T has been very aggressive in expanding its fiber footprint. That said, fiber plays an important role in AT&T's 5G network plans as the backbone of the network. So the capital expenditures for fiber ought to be considered going toward both its home broadband segment and its wireless segment.

AT&T now has over 20 million locations with fiber, but management says it's going to slow down its expansion next year. "It's just not going to expand at the pace we've been going on. It's been on a torrid pace," CEO Randall Stephenson said on AT&T's third-quarter earnings call. "Now it's time to reap the rewards of what we've done and let's go penetrate the market."

Meanwhile, AT&T TV has very low capital intensity compared to legacy services like DIRECTV or even U-Verse. Since the product is delivered over the top of an internet connection, it can serve a broad segment of the country without needing a physical deployment of network or on-premise equipment.

AT&T says customer acquisition costs for AT&T TV will be lower than its traditional TV services as well, since it's not sending anyone to install equipment. Management has said it will pass some of those savings onto customers, but it will still enable margin expansion for the video segment.

2020 will be the year AT&T's strategy of going after the premium market for television and home internet will either pay off or fall flat. Management has set the stage to grow its fiber internet service and launch AT&T TV. Now it has to execute on bringing in new customers willing to pay for its premium products.

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