AT&T is expected to issue its second quarterly earnings of 2016 on July 21. The carrier results will be determined by their entertainment division, which has been greatly benefited from cost improvement. Following mid-2015 acquisition of DirecTV, their entertainment division had a greater mix of beneficial satellite subscribers’ additions. However, at the same time, the slow sale of their phone equipment and services’ sale has resulted in revenue pressure in the mobility division.
AT&T Mobility Division
The sales trend of AT&T’s mobility division has been in a declining state for the last 6 quarters with a net loss of postpaid phones coming in around 363,000 during the first quarter. The main reason for the decline is due to the attrition of less worthwhile post-paid phone subscribers with average revenue per user roughly around $35.
AT&T is facing tough competition from smaller companies like T-Mobile and Sprint as well. These companies are getting positive subscriber numbers in the middle of improving network quality, and introducing attractive promotional offers.
The equipment revenue of AT&T has also fallen substantially, with one major reason being lower smartphone sales and lengthy upgrade cycles. You could see a decline in this quarter also due to the fact that AT&T has not introduced any new flagship handset for luring in customers.
Yet in contrary, AT&T’s margin is improving year-over-year due to lower equipment sales, higher mix of smartphone customers, and subsidy free equipment installment plans.
AT&T Entertainment Division
AT&T’s entertainment business have been benefited by the potential cost saving and increasing mix of satellite subscribers. AT&T has promoted DirecTV packages through their U-Verse offerings, as the satellite service has higher revenue per user and lower content cost. During the first quarter of 2016, satellite subscribers’ percentage among the total pay TV subscribers stood at 79.3%, which is a 240-point rise when compared to the 3rd quarter of 2015 when the DirecTV acquisition was closed.
But at the same time, AT&T is losing U-Verse customers at an alarming rate when compared to the addition of DirecTV customers. With an aggregate loss of 54,000 during the first quarter, we will have to wait to see if the trend continues or AT&T could reverse the trend.
AT&T is expecting $1.5 billion with the integration of DirecTV in run-rate cost synergies by the last quarter of this year.