AT&T had a huge second quarter for wireless subscriber gains, smashing Wall Street expectations with 789,000 postpaid net phone additions.
The figure contributed to 1.15 million total postpaid net adds and 5.5 million net adds overall, including 174,000 in prepaid.
The carrier also exceeded service revenue estimates and reported record-low postpaid phone churn of 0.69%. Churn even beat the same quarter last year (0.84%), AT&T’s previous lowest.
New Street Research analysts wrote Thursday that lower than expected churn helped drive “extremely strong” postpaid phone net adds, beating the firm’s projection of 406,000 and Wall Street consensus of 259,000.
Verizon reported Q2 results yesterday, adding 275,000 postpaid phones.
On the quarterly earnings call Thursday, AT&T CEO John Stankey noted it’s been four quarters since the carrier laid out a strategy to grow subscribers across its segments with a focus on 5G, fiber and HBO Max.
AT&T has since put out aggressive handset promotions and new offers aimed at attracting new and existing customers to 5G phones and unlimited plans.
“We’ve made notable progress on each of our priorities,” Stankey said. “In wireless we’re gaining share, lowering churn, and had our best 12 months of postpaid phone net adds in more than a decade.”
New Street analysts gave kudos to AT&T’s management in Q2, saying “the change wrought…was huge.”
“Whatever one thought AT&T was worth before, it is unequivocally worth more now,” wrote New Street’s Jonathan Chaplin.
AT&T saw revenue climb in its mobility segment in Q2, with both device sales and wireless service gains driving a 10.4% bump year over year to $18.9 billion. Last year AT&T took a hit as Covid-19 impacted international roaming revenue and waived fees as part of the Connect America pledge. In the second quarter, wireless service revenues were up 5% year over year to $14.3 billion. Executives said the carrier’s simplified rate plan structure continues to resonate with consumers. A mix of higher priced smartphones and selling more postpaid data devices helped drive equipment revenues up 31.9% to $4.6 billion.
Revenues were up and so were operating expenses, with the latter jumping 14% to $12.9 billion because of higher equipment, network and content costs.
AT&T generated slightly less revenue per account, with postpaid phone-only ARPU down 0.4% year over year to $54.24, mostly accounting for promotional discounts.
Wireless industry subscriber growth, continued competition
Strong subscriber metrics and lower churn from both AT&T and Verizon brought up analyst questions as to where industry-wide growth is coming from and how long it can last.
New Street said the recent results should mean slower growth for T-Mobile and cable players, but doesn’t see that as likely.
MoffettNathanson analysts, in a Thursday note to investors, mentioned observations based on last quarter’s metrics “that industry growth at 5X population growth in a saturated industry is (obviously) not sustainable.”
And unless T-Mobile and cable companies surprise analysts with poor subscriber metrics, “the industry’s growth rate appears likely to have accelerated further in Q2,” wrote MoffettNathanson analyst Craig Moffett.
Moffett cited stimulus checks and buy-one get-one offers as “almost certainly” the drivers of the significant growth. However, the firm is concerned that when growth rates normalize, “the industry will find itself locked in a promotional stalemate from which AT&T won’t be able to exit.”
As Moffett pointed out, Verizon ended it’s big 5G upgrade promotion yesterday that was on par with AT&T’s, but indicated it will continue to be aggressive as needed to match AT&T.
RELATED: Verizon ends big 5G upgrade promo
“For now, AT&T is doing its level best to make hay while the sun shines,” wrote Moffett, viewing overall Q2 results as very strong.
AT&T is working to boost its customer base as it builds out 5G, with the first tranche of C-band spectrum coming available later this year. Of that batch, AT&T won 40-megahertz at the FCC auction and is targeting coverage of 70 million to 75 million people with C-band by the end of 2022.
T-Mobile still has a significant head start on mid-band 5G with 2.5 GHz spectrum. New Street analysts are worried about AT&T’s long-term prospects particularly in terms of differentiating from T-Mobile in wireless. The firm questioned why AT&T should command a premium price as its wireless product aligns more and more with that of T-Mobile.
“The increased focus and investment in wireless may improve AT&T’s prospects in several years, but in the interim, we continue to expect AT&T to struggle as T-Mobile and Cable rise,” wrote Chaplin. “That doesn’t seem to have happened this quarter though, with exceptionally strong net adds.”
Some additional earning results from AT&T:
- Record low prepaid churn of less than 3%
- Net losses of 22,000 for postpaid tablet and other branded computing devices
- Mobility operating income was up 3.4% year over year to $6 billion
- Mobility EBITDA grew 2.7% to $8 billion.
- Consolidated revenues were up 7.6% to $44 billion
- Consolidated operating income of $3.3 billion was down from $3.5 billion
- With strong Q2 results, AT&T updated its 2021 guidance and is now expecting full-year consolidated revenue growth between 2%-3%, versus 1% previously. That includes around 3% growth for wireless service revenue, versus earlier expectation of about 2%.