AT&T Mobility (NYSE: T) forecasted sharply higher postpaid subscriber additions for the second quarter than it had in the year-ago period, and also said it expects more customers than ever before to buy smartphones via its Next handset upgrade program.
The carrier said it expects around 800,000 postpaid subscriber additions in the second quarter, compared to 551,000 in the year-ago quarter and 625,000 in the first quarter of 2014.
Most noticeably though, AT&T pointed to the continued growth in its Next program and in the shift of customers away from the traditional U.S. postpaid model of carriers subsidizing a smartphone in exchange for customers signing a two-year service contract. AT&T said it expects around 3.2 million AT&T Next smartphone sales in the second quarter, compared to 2.9 million in the first quarter. AT&T said Next sales have been rising throughout the second quarter, and are expected to be around 50 percent of all sales in the second quarter. That compares to around 40 percent in the first quarter (or 35 percent when taking out accelerated upgrades).
Further, AT&T said that by the end of the second quarter, around one-half of the company's postpaid smartphone customer base will be on a no-device-subsidy Mobile Share Value pricing plan, and that figure will grow to around two-thirds by year-end. In the first quarter, AT&T said more than a quarter of its smartphone subscribers were on no-device-subsidy pricing plans.
Next and AT&T's Mobile Share Value shared data plans go hand in hand, in that customers who choose to finance the cost of their device through Next then get access to discounted Mobile Share Value service pricing and earlier device upgrades.
However, AT&T noted the financial downside to the trend. The carrier said that Next and its Mobile Share Value plans lead to higher equipment revenues and lower service revenues and average revenue per user. AT&T said it expects to record no service revenue growth in the second quarter and also expects second-quarter wireless service EBITDA margins to come under pressure on a year-over-year basis due to the movement to the no-device-subsidy model. AT&T said wireless service EBITDA margins are expected to be above 40 percent in each of the three remaining quarters of 2014.
Overall, on a companywide basis, AT&T said that revenue will rise about 5 percent this year; AT&T had previously forecasted revenue growth of 4 percent for 2014.
"While the success of AT&T's initiatives is clearly coming through on customer growth and retention, the cost of these initiatives remain a concern for investors," Credit Suisse analysts Joseph Mastrogiovanni and Michael Baresich wrote in a research note. "We feel comfortable with the trade-off for new customers."
They wrote that the impact of a cut in ARPU of 15 percent on the lifetime value of a customer could be offset by reducing subsidy costs and improving churn.
In giving an update on its network, AT&T said its LTE network now covers around 290 million POPs, closing in on Verizon Wireless' (NYSE: VZ) LTE network coverage of around 305 million POPs. AT&T has said it expects to be substantially complete with its macro LTE network buildout by mid-year.
- see this AT&T release
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article
- see this CNET article
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