AT&T (NYSE:T) reported its first-quarter earnings results April 22, beating analysts' estimates on the bottom line but missing on the top line. During the quarter, the wireless carrier earned $0.63 per share on sales of $32.6 billion. Analysts were expecting $0.62 per share on $32.84 billion of revenue.
Postpaid net adds declined to 441,000 from 625,000 in the year-ago period. However, AT&T continued to show strength in tablets, connected devices, and its prepaid business.
After the report, AT&T CFO John Stephens spoke with analysts. Here are some of his more notable comments and insights.
Mobile Share customers increased data billings
Mobile Share customers continue to buy up larger buckets of data. ... This helped drive a 14% increase in data billings. ... That strong sequential increase comes even when you factor in the impact of our new Data Rollover plan, which generated about $0.25 of ARPU pressure in the quarter.
Despite pressure from T-Mobile (NASDAQ:TMUS) and Sprint, AT&T continues to increase its data billings. That's particularly impressive in light of offers from T-Mobile to roll over data for up to 12 months for a large portion of its customers. AT&T responded by offering rollover data for one month, but it's had only a small impact on customers' data-plan choices.
As more customers switch to Mobile Share plans, AT&T believes it will benefit from increased service billings and lower churn rates. Mobile Share plans also increase AT&T's ability to add devices to accounts, which it has done successfully with tablets. Last quarter, AT&T added 711,000 postpaid tablet connections. Additional devices, in turn, increase data billings and customer stickiness.
BYOD customers are very valuable
We had about 5%, or about 300,000 ... BYOD devices. Those are great net adds for us. While they don't bring any equipment revenue, they don't bring any equipment expense. And so that's a good deal for us. They often join Mobile Share value plans, so they are sticky customers.
Even though bring-your-own-device customers don't add any equipment revenue to AT&T's top line, it saves AT&T the cost of financing the equipment (at 0% interest) through its Next plan or taking on the upfront cost of subsidizing new equipment. As a result, these customers can often be more valuable to AT&T despite lower monthly cash flow.
Customers of Next pay monthly installments for their equipment, but AT&T accounts for a large percentage of a device's price in its revenue at the time of activation. Doing so leads to lower cash flow compared with revenue increases.
The big opportunity with DirecTV
About 30 million of [our] 57 million broadband locations, a little bit under that number, don't currently have a video product. Once we can do a real bundle with owner's economics and provide the efficiencies of one truck roll, the efficiencies of one service call, the efficiency of one troubleshooting call for the customers, one offer, one pricing structure, we believe that that will not only be good for our company, but it will be very good for customers.
AT&T expects to close its acquisition of DirecTV (NYSE:DTV.DL) this quarter and sees significant synergies. It raised its expectations to $2.5 billion in cost savings within three years of the acquisition, where it had originally estimated $1.6 billion. Those cost savings come largely from content costs, but the company also sees savings in installment costs, billing, customer care, and supply chain for consumer premise equipment.
Moreover, AT&T sees an opportunity to add video customers through offering bundled video to those 30 million or so customer locations it passes with its broadband Internet service but doesn't offer video service.
Building out Mexico
We closed on Iusacell ... and we expect to close the Nextel Mexico deal shortly. Together, these properties will give us a leading spectrum position in a dynamic wireless market that is just beginning its transformation to the mobile Internet. We plan to deploy a near-nationwide 4G LTE network, something we know how to do very well. It will be covering about 100 million people in a country that borders the United States. The cross-border opportunities that this opens up are exciting from both a consumer and a business standpoint.
AT&T's acquisitions in Mexico will increase its addressable market by about 30%. What's more, it has an excellent opportunity to penetrate the nascent mobile broadband market. Wireless carriers in Mexico connect just 39.9 devices to mobile broadband per 100 people, according to the Organisation for Economic Co-operation and Development. Comparatively, the U.S. connects 101.4 devices per 100 people.
Establishing a cross-border presence increases the value of AT&T's wireless service and differentiates it from the competition at a time when the smaller carriers are reaching parity with AT&T with their networks.
The future of streaming video
Over-the-top distribution of video on wireless, on broadband connections, with or without linear subscription is something that I'm sure we'll see and something that we will see be a part of packages in the future. ... I see it as an add-on to subscription package ... and we're going to certainly be in a position to help and develop that part of the process.
Verizon (NYSE:VZ)is working on a wireless streaming service that it sees benefiting its wireless business. With the acquisition of DirecTV, AT&T will have even more leverage over content owners to obtain streaming rights to some of their content. A streaming service could add significant revenue through higher data consumption, premium subscription prices, and additional advertising opportunities. Additionally, it serves as a differentiator between AT&T and the competition.
If Stephens is correct in his assessment of the future of streaming video, AT&T is in a very strong position to take advantage of the shift.