AT&T's de la Vega: We are ahead of the competition in many areas

ATLANTA-- AT&T Mobility's (NYSE:T) Ralph de la Vega says he isn't sweating the competition too much. De la Vega, CEO of AT&T's Mobile & Business Solutions Group, said the carrier takes what its competitors do seriously, including aggressive moves by T-Mobile US (NYSE:TMUS) and Sprint (NYSE: S), but is comfortable with its place in the industry and is confident it is ahead of other carriers on connected cars, homes and the Internet of Things.

AT&T Mobility CEO Ralph de la Vega

De la Vega

In an interview at AT&T's foundry here, de la Vega said that "in a very competitive industry, when there's people trying to win market share, and they're not successful, they have to keep trying things." Yet he noted that despite the flurry of competitive moves in 2014, including 125 different price changes, AT&T still recorded its lowest postpaid churn ever. AT&T has focused on building out its LTE network to more than 300 million POPs and making sure it is reliable, and improving its customer service (and being rewarded repeatedly with awards from J.D. Power).

AT&T's postpaid churn jumped to 1.22 percent in the fourth quarter of 2014, up from 1.11 percent in the corresponding quarter of 2013, which had been AT&T's best fourth-quarter postpaid churn. In the third quarter of 2014, AT&T had recorded its best-ever third-quarter postpaid churn, at 0.99 percent. The carrier has said that for the first quarter of 2015 its postpaid churn is running lower on both a year-over-year and sequential basis. The carrier's postpaid churn was 1.07 percent in the first quarter of 2014. 

Despite those strong churn figures, T-Mobile CEO John Legere has noted that in 2014, T-Mobile captured virtually all of the postpaid phone net subscriber growth in the industry, including three times as many postpaid phone net adds as Verizon and five times as many as AT&T.

De la Vega said it is "getting more cloudy all the time" to try to determine the best metrics for measuring success. "That's the challenge with the industry analysts trying to understand an industry that is changing right before our very eyes," he said.

The AT&T executive noted that the industry used to think average revenue per user was the best metric to use but that the advent of equipment installment plans, which shift service revenue to equipment revenue, has changed how carriers calculate and report ARPU.

"Our proposition has been we're going to retain our customer base, which is the best in the industry, and we demonstrated that with low churn," de la Vega said. "And then we're going to enter growth areas of the business where we can show our innovation and our capabilities."

For AT&T, the focus is not solely on adding handset subscribers. The company has spent the past several years pushing into the connected-car market, with deals with General Motors, Nissan, Audi, Tesla, BMW, Subaru, Ford Motor Co. and Volvo. AT&T has publicly stated that it thinks it will have at least 50 percent flow share of the connected-car market in 2015. The company added 800,000 connected cars in the fourth quarter of 2014 alone. De la Vega also said that the company's Digital Life home-automation and -security business, which is less than two years old, was the No. 1 security company in terms of net subscriber additions in 2014.

"I think our emphasis and our differentiation is completely different from a Sprint, or from a T-Mobile or even a Verizon, who I think have stayed more in the traditional sense of" focusing on adding smartphones "instead of venturing into what is the next era of carriers to get into."

In the meantime, de la Vega said, the company is holding onto its subscriber base better than ever and has been adding things like Next EIP, unlimited calling to Mexico for $5 per line and rollover data (which T-Mobile mocks as "not a serious response" to its own "Data Stash" program).

De la Vega said other carriers' growth is sometimes coming from prepaid or feature-phone customers upgrading to smartphones, which he said is fine. "We're not saying smartphone customers are not important," he said. "On the opposite, we've always said that the smartphone is the remote control for your life and it's very important."

When AT&T upgrades a feature-phone customer of its own to a smartphone it doesn't get counted as a net subscriber addition, he said, "but if you look at the number of smartphone customers we've added it's tremendous."

That then enables the customer to use the smartphone to control their car or home or access the Internet of Things, de la Vega said. "We feel really good about how we're positioned," he added. "I don't think there's any other carrier in the world doing what AT&T is doing in the connected home, in the connected car or in the connected things that deal with the IoT space."

T-Mobile added 8.3 million total customers in 2014, which represented an 89 percent jump from 2013, and the carrier by far led the industry in subscriber growth. Legere has said "we won't stop" and the company is pushing into the business market.

"We look at every competitive move seriously," de la Vega said. "We don't ever underestimate our competitors."

At the same time, he noted, the wireless industry, not just in the U.S., has always had fierce competition. But de la Vega said he is taking the long view. "I think the way to judge any company's performance is not to judge it on a quarter or year," he said. "If you look at what we have done over the last 10 years, our company before we merged with AT&T Wireless was a 26 million subscriber company. We added 20 million 10 years ago when we merged with AT&T Wireless, and now we're 120 million."

De la Vega said that AT&T's margins and revenues have continually gone up and churn has gone down. "When I see others doing that consistently, over a multi-year period, we can judge them," he said. "Early success can be achieved if you lower prices. The key is, can you sustain it, can you grow revenues over an extended period of time? Time will tell. That's the way I look at it. I think it's probably too [soon] just to make a judgment. I don't know that I need to do just this short time period."

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