AT&T expects higher postpaid churn in Q4 but isn't worried about promotions

AT&T Mobility (NYSE: T) will likely see higher churn in the fourth quarter than it had in the year-ago period, according to AT&T CFO John Stephens. However, Stephens said that the company is not that worried about ongoing promotions from other carriers that could be stealing away AT&T customers because of the limited-time nature of the offers.

Stephens, speaking at the UBS Global Media and Communications Conference, said that AT&T expects postpaid churn to be higher in the fourth quarter than it was in the year-ago quarter. However, he said that AT&T continues to expect full-year postpaid churn "to be one of our best ever."

In the fourth quarter of 2013 AT&T's postpaid churn was 1.11 percent (it was 0.99 percent in the third quarter of 2014). Despite the higher expected churn in the fourth quarter, Stephens said AT&T has seen total and postpaid net subscriber additions improve year-over-year every quarter so far in 2014 and expects that to continue in the fourth quarter. In the fourth quarter of 2013, AT&T reported a net increase in total wireless subscribers of 809,000, including postpaid net adds of 566,000.

Stephens said the combination of higher churn, promotions and more subscriber growth is going to cut into fourth-quarter margins but said he expects full-year 2014 wireless service margins to be similar or better than those of 2013.

In terms of promotions, Stephens said there is more competition, especially for iPhone customers, of which AT&T has the largest base.  Additionally, Sprint (NYSE: S) is offering to cut customers' bills in half if they switch from Verizon Wireless (NYSE: VZ) or AT&T through Jan. 15, though customers also need to purchase a new Sprint phone.

However, Stephens said none of the promotions "give us significant pause" for the long term because they will end. Once promotions end, he said, "The phones have got to work. The service has got to be great. You've got to have a great network."  Stephens noted that AT&T's promotions are "somewhat more limited" compared to other carriers' deals; indeed, AT&T canceled its recent promotion that offered 15 GB of shared data for $100 per month after 13 days.

Stephens also discussed AT&T's decision to cut capital expenditures next year down to $18 billion, down from $21 billion in 2013. He reiterated AT&T's position that with its Project VIP network improvements winding down, and with the company's LTE buildouts substantially complete, it is returning to more normalized levels of capex spending, around 15 percent of service revenues.

Meanwhile, he said, AT&T is starting to see savings in capex from its "Domain 2.0" initiatives and its move to Software-Defined Networking. Stephens cautioned that it is still early in the process and will take time since AT&T is such a large company, but indicated that there is room to grow SDN-related savings. SDN enables carriers to use software to control network functions and policies in the cloud, and is often married to Network Functions Virtualization, which lets carriers virtualize hardware functions and turn them into software within their networks.

Stephens noted that while that AT&T isn't yet quantifying SDN savings, the shift eliminates the need to send workers up to towers or on truck rolls and lets customers make adjustments to how they experience the network much more quickly, which can produce more  revenue.
For more:
- see this webcast

Related Articles:
AT&T ends 15 GB promotion after 13 days
AT&T to expand wireless network to Mexico with $2.5B purchase of Iusacell
AT&T's postpaid net adds fall below expectations in Q3, and shift from subsidies continues
AT&T hits milestone early, covers 300 million POPs with LTE