AT&T had its best quarter for adding valuable postpaid phone customers in more than a decade, and executives said wireless promotions are only one element of a broader strategy.
AT&T reported 928,000 postpaid net phone additions in Q3, contributing to total postpaid net adds of 1.2 million for AT&T in Q3.
The carrier has been following a strategy to grow and retain customers, including extending promotional offers to new and existing subscribers. On Thursday’s earnings call AT&T CEO John Stankey said that the most recent quarter represented continued and consistent execution on the carrier’s efforts, while pushing back against the notion of phone subsidies hurting the health of the industry.
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AT&T Communications CEO Jeff McElfresh pointed to AT&T’s own subscriber and financial metrics including service revenue.
In Q3 mobility revenues increased 7% year over year to $19.1 billion, with wireless service revenue up 4.6% to $14.5 billion. Equipment revenues were up 15% year over year to $4.6 billion. How much revenue AT&T gets per user declined though, with ARPU down 0.6% to $54.37, citing accounting for promotional discounts. Wireless EBITDA was up 3.6% to $8 billion.
“For us to be able to post this kind of growth in the quarter in this competitive market and drive this kind of solid performance in subscriber revenue, accounting for any cost of the promotions gives us confidence we’re creating value,” McElfresh said.
It comes after a handful of quarters with strong subscriber momentum, including last quarter when AT&T added 789,000 net postpaid phones. In Q3 2020 AT&T added 645,000 net postpaid phones and McElfresh compared today’s results to Q3 2019 when the carrier gained 101,000 postpaid net adds.
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AT&T now has almost three million more postpaid phone subscribers than a year ago, ending the quarter with 66.4 million postpaid phone subscribers. And customers are staying, as postpaid phone churn remained low in the quarter at 0.72%. Prepaid also had a big showing in Q3, with 249,000 prepaid net phone adds.
Promotions only part of the equation
AT&T expects mobility growth to accelerate in the fourth quarter and McElfresh emphasized the sustainability of the carrier’s strategy.
He called out optimizing distribution channels and expanding reach to address new segments AT&T didn’t have before (also citing momentum for the law enforcement segment with FirstNet), in combination with consistent and simplified wireless rate plans for more than a year, as helping drive traction with customers.
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Not all customers that switch are taking promotions, he said, but those that do have better scores on metrics like value over time, churn and customer satisfaction.
“We know this is driving accretive value, the industry is healthy,” McElfresh said. And AT&T doesn’t believe its numbers are boosted by lower-value customers. “We know based on metrics, we see we’re adding high value customers, and don’t believe this is uniquely driven by any subsidy or extra cash flow that happens to be in the marketplace of the general market,” he said.
Still, the company also has a large part of its base that can be stepped up into pricier unlimited plans, which can help increase ARPU – and there’s room to run for a number of quarters, according to McElfresh.
Strategy beyond promos?
While AT&T reported another quarter of subscriber gains, MoffettNathanson analysts questioned what its wireless strategy will be beyond promotions.
Verizon pulled back on aggressive promotions last week, while AT&T stepped back a little bit too but its promotions still “remain by far the industry’s richest,” wrote Craig Moffett in a Thursday report to investors. Unlike rivals, in addition to extending offers to existing customers as well as new, AT&T hasn’t been requiring customers sign on to more expensive premium unlimited plans for many offers. T-Mobile introed a new deal on Thursday to pay the remaining device bill, up to $1,000, for customers that bring their own phone when they switch from other carriers and sign on to T-Mobile’s basic tier Essentials plan.
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“They are now known only as the carrier that runs the industry’s most generous promotions,” wrote Moffett regarding AT&T– which spun off media and satellite TV businesses this year and narrowed focus on 5G wireless and fiber. The firm pointed out that T-Mobile is competing on lower cost and network superiority with a push in rural and business segments while Verizon is focused on 5G mobile edge compute and enterprise, with millimeter wave and network density prowess in its back pocket.
AT&T is likely to catch up on a mid-band spectrum deficit with the ongoing 3.45 GHz auction, but MoffettNathanson still sees the carrier as third in the race for network leader in an environment where the analysts expect current industry growth to slow down.
“For now, their Mobility segment is riding the wave of spectacular industry growth. Their promotions are driving churn to remarkable lows,” wrote Moffett, calling AT&T’s churn a highlight of Q3 that also drove net adds to very high levels. “But the industry growth rate will inevitably slow. How will AT&T compete to ensure they win their fair share without simply paying their customers to stay?”
It will be more costly and difficult to retain subscribers with premium prices if its in third place network wise, with more competition from cable MVNOs and the entrance of Dish Network not helping, according to the firm,
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Moffett said that AT&T is hardly growing revenue or EBTIDA in the communications business (now the main star since divesting its video business) with a significant downturn in its other big segment, business wireline.
“When wireless industry growth inevitably slows from its unsustainable 5x-population-growth pace, AT&T’s promotional costs will remain, but their subscriber growth will inevitably ebb,” wrote Moffett.
One area where AT&T isn’t putting much attention is fixed wireless access service (which both T-Mobile and Verizon are pursuing).
Executives said Thursday that the carrier is predominately focused on the enterprise space with current FWA offerings. Like competitors AT&T is experimenting with using its scaled wireless network to deliver FWA services, but that’s not a lead product and won’t be a priority for bringing customers into the broadband services fold.
On the other hand, leveraging wireless capacity for wholesale is something AT&T is interested in.
It inked a 10-year MVNO deal with Dish Network in July. That effort is off and running operationally, executives said, with AT&T systems integrated with Dish and plans to ramp the MVNO offering in 2022.
Earnings tidbits:
- AT&T is on track to meet the halfway point of its $6 billion cost-savings goal by the end of the year.
- Consolidated revenues were down 5.7% to $39.9 billion, after the spin out of U.S. video business and lower business wireline revenues.
- It reported 4.9 million total U.S. wireless net adds in Q3.
- Q3 saw around $200 million in 3G network shutdown costs and AT&T expects similar costs through the first quarter of 2022.