AT&T loses 268,000 postpaid phone subs in Q3, but notches ‘best-ever’ wireless service margin of 50.1%

(Flickr user Mike Mozart)

AT&T reported it lost 268,000 postpaid phone subscribers during the third quarter, which the company said was largely due to subscriber losses among those with lower-ARPU feature phones. However, the company also boasted of its “strong” U.S. wireless operating margin of 29.6 percent, and its “best-ever” U.S. wireless service EBITDA (earnings before interest, taxes, depreciation, and amortization) margin of 50.1 percent.

AT&T’s third quarter earnings were released a few days ahead of schedule (the company had been scheduled to announce its third-quarter earnings Tuesday). The company released its earnings in conjunction with the announcement that it reached a deal to acquire Time Warner Inc. for $85.4 billion. If approved by regulators, that deal would give AT&T ownership of Time Warner’s vast content holdings, including HBO, CNN, TNT, TBS and Warner Bros. TV Studios and Warner Bros. Pictures.

Analysts offered a relatively muted reaction to AT&T’s third quarter performance. “Overall results were weak, with soft sub trends in wireless,” wrote the analysts with New Street Research in a note to investors released shortly after AT&T announced its third quarter results. “These results are supportive of our thesis that incumbents are disadvantaged in an environment with increased turnover following the iPhone launch. While the margin pressure was less than expected, it appears this was due to AT&T’s choice to lose more share than we had expected. With Verizon posting phone losses for the first time ever in a third quarter, and AT&T’s miss, TMUS and Sprint are set up for a strong set of results (Sprint preannounced better than expected sub trends last week).”

Others, however, offered a slightly more upbeat look at AT&T’s results. “Postpaid phone net adds of -268k were in-line with our estimate (-275k) and below consensus at -226k (note significantly stronger results from S/TMUS had driven pressure at VZ last week as well),” the analysts at Deutsche Bank wrote in a note to investors. “Of note, we believe fears around the impact of elevated iPhone 7 subsidies may have been overdone.”

In comparison, T-Mobile in September said it had added roughly 753,000 net postpaid phone adds thus far during the third quarter and an additional 650,000 net prepaid customer adds. And last week Sprint said it recorded 344,000 net postpaid additions during the quarter and 347,000 net postpaid phone adds.

Verizon lost 36,000 net postpaid phone subscribers during the third quarter, falling well short of the 92,000 net additions Wells Fargo Securities had predicted it would report.

Not surprisingly, AT&T reported ongoing sales of smartphones in its most recent quarter. Specifically, the carrier said it recorded 7 million branded smartphone gross adds and upgrades in the quarter, including 1.9 million from prepaid. The carrier said that 83 percent of all of its postpaid smartphone gross adds and upgrades selected its AT&T Next equipment installment plans. Interestingly, AT&T also said that it notched 595,000 BYOD (bring your own device) gross adds, “the second most ever,” the carrier said.

Overall, AT&T reported companywide revenues of $40.9 billion, up 4.6 percent, alongside net income attributable to AT&T rising 11.2 percent. The company said its cash from operations reached $11 billion during the quarter.

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

Unlimited data customers: About 6.7 million postpaid subscribers were on AT&T’s unlimited wireless plans at the end of the third quarter. That’s up from the roughly 5 million the company counted at the end of the previous quarter. AT&T’s unlimited data service is only available to those customers who also sign up for its DirecTV service.

Subscribers: In the third quarter, AT&T said it added 1.5 million total new wireless customers to grow its overall wireless base to more than 133 million wireless subscribers, which the company said was an overall increase of 6.9 million over the past year.

AT&T said it added 212,000 postpaid subscribers, 304,000 prepaid subscribers and 1.3 million connected devices during the third quarter. The carrier said it lost 315,000 reseller subscribers in the quarter, “largely due to disconnects from the company’s 2G network.” Further, AT&T said it added 299,000 postpaid tablet and computing devices in the quarter, and lost 268,000 postpaid phone subscribers.

As for AT&T’s 2G network shutdown specifically, the carrier said it counted around 4 million total 2G subscribers at the end of the third quarter, a figure that includes 2.8 million connected devices, 673,000 reseller customers and 335,000 postpaid and 210,000 prepaid subscribers. The company said it remains on track to shutter its 2G network on Jan. 1, 2017, but warned that the “2G shutdown is expected to impact net adds and churn in the fourth quarter.”

Churn: AT&T’s postpaid churn clocked in at 1.05 percent, down from 1.16 percent in the year-ago quarter. The company’s postpaid phone churn was 0.90 percent, also down from the year-ago quarter.

ARPU: AT&T said its wireless service ARPU reached $37.65, continuing a slow decline from past quarters. The company’s postpaid ARPU was $54.67 in the third quarter, a figure that also represents a slight decline from previous quarters.