AT&T adds fewer postpaid subs in Q2 than expected as it loses 322K postpaid phone customers

AT&T Mobility (NYSE: T) added fewer postpaid customers in the second quarter than analysts were expecting and many fewer than it gained in the year-ago period. AT&T notched 410,000 postpaid subscribers in the quarter and the company relied heavily on connected cars and prepaid customers for subscriber growth in the second quarter.  

In the year-ago quarter, AT&T added 1,026,000 postpaid subscribers. That figure included 707,000 postpaid smartphone additions and 366,000 postpaid tablet net adds. 

Analysts at Wells Fargo had expected AT&T to add 500,000 postpaid customers in the second quarter of 2015 (losing 10,000 postpaid phone customers and gaining 510,000 tablet customers). Credit Suisse analyst Joseph Mastrogiovanni just today reduced his estimate of AT&T's postpaid net additions to 500,000 down from 600,000 given strong growth at Verizon Wireless (NYSE: VZ) and T-Mobile US (NYSE:TMUS). 

Verizon said earlier this week it added 1.134 million total postpaid customers in the second quarter, slightly ahead of T-Mobile's 1 million. Verizon added 321,000 postpaid phone customers, who are typically the most lucrative kind of customers for carriers; T-Mobile said it added 760,000 such subscribers in the second quarter. AT&T had much weaker performance on that front, and lost 322,000 postpaid phone customers in the second quarter, mostly in feature phones.

AT&T CFO John Stephens said on the company's earnings conference call that AT&T had positive branded phone net additions when taking into account prepaid customers. He said "Cricket is really kicking into gear" and that Cricket gained about as many subscribers in the second quarter as it lost in the year-ago period.

Stephens said 90 percent of Cricket customers are now on AT&T's GSM-based network and that the shutdown of the legacy Cricket CDMA network is on track for September. Almost all Cricket customers choose smartphones and two-thirds are choosing the carrier's "highest-value" plans with the highest average revenue per user. Stephens said those Cricket customers' ARPU is "similar or sometimes better than other carriers' postpaid ARPU."  

Stephens added that the market continues to be competitive and "noisy" and he does not expect that to change. But he added that when taking into account AT&T's premium prepaid experience, its lead in connected cars, its Next plans and its LTE network, "I believe we are in the best position to compete going forward."

Here's a breakdown of AT&T's key quarterly metrics:

Subscribers: AT&T added 2.141 million net customers in the quarter, which included 410,000 postpaid additions, 331,000 prepaid customer additions and 1.4 million connected devices, including 1 million connected cars. AT&T said it added 600,000 postpaid tablets and computing device customers.

Financials: AT&T said total wireless revenue in the second quarter inched up 2.2 percent year-over-year to $18.3 billion. Wireless service revenues clocked in at $15.1 billion, stabilized and were essentially flat year over year, reflecting continued customer adoption of Mobile Share Value plans. Those plans offer lower service pricing in exchange for customers paying off their smartphones in monthly installments or bringing their own devices. AT&T said wireless service revenues were up 2 percent from the first quarter of 2015.

Margins: AT&T's wireless operating income margin was 25.6 percent, compared to 24.1 percent in the year-earlier quarter. The company's wireless EBITDA margin was 36.9 percent, up from 35.5 percent in the second quarter of 2014.

When adjusting for wireless integration costs, AT&T said its wireless EBITDA margin was 40.1 percent, up from 36 percent in the year-ago quarter. AT&T said its wireless EBITDA service margin was a record 48.5 percent, up from 42.6 percent in the year-ago period.

Mobile Share: AT&T said that the total number of Mobile Share shared data accounts was up more than 38 percent year-over-year to reach 20.1 million with an average of about three devices per account. In total, about 87 percent of postpaid smartphone subscribers are on usage-based data plans (tiered data, Mobile Share and other plans).

Smartphones/AT&T Next: AT&T had 7.2 million branded smartphone gross adds and upgrades in the quarter, including 1.5 million prepaid smartphones. Sales on AT&T's Next equipment installment plans also increased during the quarter as 68 percent of all postpaid smartphone gross additions and upgrades chose AT&T Next. That's up from 65 percent in the first quarter.

AT&T has aggressively pushed Next plans, and has indicated it thinks that it will eventually stop selling subsidized smartphones with two-year contracts.

Nearly 37 percent of AT&T's postpaid smartphone base is on AT&T Next plans. By comparison, Verizon said that at the end of the second quarter, it had 14 million customers on its Edge EIP program, or 16 percent of its postpaid phone base.

AT&T said around 64 percent, or 36.9 million, of its postpaid smartphone subscribers are on no-device-subsidy Mobile Share Value plans.

ARPU: AT&T said its "phone-only" postpaid average revenue per user was $61.26, down 1.6 percent from a year ago. However, AT&T said that when adding in Next monthly equipment billings, ARPU actually climbed 6.1 percent year-over-year to $68.29.

Churn: AT&T said postpaid churn was 1.01 percent, up from 0.86 percent in the year-ago period. Total churn was 1.31 percent, down from 1.47 percent from a year ago.

For more:
- see this release

Special Report: Wireless in the second quarter of 2015

Related articles:
Verizon beats T-Mobile in postpaid net adds in Q2, thanks to tablets
T-Mobile seeks to pre-empt AT&T's international expansion with free roaming to Mexico, Canada
AT&T to spend $3B to cover 100M Mexicans with LTE by 2018
Analysts: AT&T to rely on tablets in Q2 for postpaid subscriber growth
Analysts: AT&T will focus more on profitability and keeping churn low than on promotions
AT&T's de la Vega: 2-year contracts will eventually go away
AT&T subscribers flock to Next installment plans in Q1, making up 65% of all smartphone sales

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