AT&T (NYSE:T) closed its year posting strong revenue and solid gains in wireless customers, showing that it should be able to easily integrate DirecTV with the rest of its product line.
The company had consolidated revenue of $42.1 billion in Q4, 2015, up 22% year over year largely due to the company's acquisition of the satellite television providers. AT&T reported fourth quarter earnings per share of $0.65 -- in line with expectations -- and a reversal of a $0.77 loss during Q4, 2014.
"We now have a unique set of capabilities that positions us for growth and also gives us a strategic advantage in providing consumers and businesses the integrated mobile, video and data solutions they want," CEO Randall Stephenson said in the earnings release "Our DIRECTV integration is going well, and the customer response to our new integrated mobile and entertainment offers is strong."
It was a strong finish to what has been a solid year from the company despite heavy competition in its wireless business from T-Mobile's (NASDAQ:TMUS) aggressive marketing and low-price strategy as well as cord cutting pressure in its pay-TV business. So far, AT&T has largely weathered those storms and while it's not clear sailing ahead, the results so far are encouraging for investors.
How is the subscribers count holding up?
AT&T's key revenue drivers are wireless, pay-television (through its own branded products and its DirecTV service), and Internet access. Broadly, the company did well in all three areas in Q4, even though it would have been reasonable to expect a drop in wireless due to T-Mobile's lower prices and a bigger drop in cable/satellite due to cord cutting.
In reality wireless continued to grow adding 2.8 million overall connections with 2.2 million of them coming from the United States. But, the company did see a 4.9% drop in wireless revenue to $18.9 billion, which the company blamed partly on lower equipment sales, and a 1.7% drop in service revenues, Recode reported.
AT&T's mix of adds is also a concern since the company lost postpaid customers, but made up for it with connected devices. That's not entirely surprising, but T-Mobile has steadily gained postpaid users, which suggests it might be luring people from its rival.
In pay-television the company added 214,000 DirectTV customers, but losses from its U-Verse service more than equaled those gains causing an overall loss of 26,000 subscribers. In reality -- given that the cable universe shrank by about 650,000 customers across all providers through the first three quarters of 2015 -- a 26,000 loss can be considered a victory.
On the Internet side the company added 192,000 subscribers, a number that also matches industry growth trends.
It's cautious optimism
AT&T faces a continued assault on its wireless business from T-Mobile which correctly charges that the industry leader costs more and comes with the possibility of huge overages. As the difference in network quality between the two rivals has shrunk and continues to shrink, AT&T will have a hard time maintaining its audience without price cuts.
In pay-television the company is well-positioned because it can offer bundles including wireless, Internet, cable or satellite, and even a landline phone. Having both a wired cable product and a satellite offering gives the company pricing flexibility it can use to keep cord cutters in the fold.
Holding onto users in both wireless and pay television probably means making less money on those customers in order to compete with lower-priced rivals in the phone space and cord cutting in pay TV. Some of that money however may be recoupable in broadband because cutting the cord in favor of streaming services only works if you have a good broadband connection.
AT&T has held serve in what has become an increasingly difficult game. Going forward it's going to face margin pressure and increased competition. But, at least for Q4, the company has done as well as, or perhaps even better than, could be expected.