AT&T subscribers flock to Next installment plans in Q1, making up 65% of all smartphone sales

AT&T Mobility (NYSE:T) reported better-than-expected postpaid subscribers in the first quarter, adding 441,000 new subscribers. In addition the company reported churn of just 1.02 percent, which it said was the best it had ever reported in a first quarter.

AT&T had 6.2 million postpaid smartphone gross additions and upgrades in the first quarter. The company also said 65 percent of postpaid smartphone gross adds in the quarter came from AT&T Next, up from 58 percent in the fourth quarter. The company also had 313,000 bring-your-own-device gross adds. That means 70 percent of smartphone transactions in the quarter were for non-subsidized phones.

Further, AT&T said that more than 30 percent of its postpaid smartphone base is on AT&T Next and that 62 percent, or 35.4 million, of its postpaid smartphone subscribers are on no-device-subsidy Mobile Share Value plans. Those plans typically have discounted service pricing.

AT&T CFO John Stephens said on the company's earnings conference that the carrier now covers 308 million POPs with LTE, up from around 300 million at the end of 2014. The company deployed more spectrum and Distributed Antenna Systems to densify its network, he said.

Stephens noted the Leap Wireless acquisition brought AT&T an average of 10 MHz of spectrum in the top 100 markets. Some of that was unused AWS-1 and PCS spectrum that AT&T has already put into use in more than 200 markets. AT&T expects to shut down Leap's legacy CDMA network by the end of 2015 and refarm the rest of Leap's spectrum.

In regard to Google's (NASDAQ: GOOG) "Project Fi" MVNO, which will use the networks of Sprint (NYSE: S) and T-Mobile US (NYSE:TMUS) and let customers dynamically switch between the two as well as Wi-Fi, Stephens indicated that it seems to be a limited proposition. The service works on only one smartphone, the Nexus 6, and Stephens said it seems like the service will have limited distribution and customer support. "We'll just have to wait and see," he said. "It's just one of a number of plays that are out there."

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

Subscribers: AT&T had forecasted it would add around 400,000 postpaid customers in the first quarter and most analysts had expected that would be the case. The company wound up adding 441,000 postpaid subscribers which, while better than expected, was weaker than the 625,000 postpaid customers AT&T added in the year-ago period. In the first quarter of 2015 AT&T added 711,000 postpaid tablets, which masked losses in feature phone customers. 

The bulk of AT&T's subscriber growth in the first quarter came from connected devices. AT&T had 945,000 connected device net adds in the quarter, including 684,000 connected cars. AT&T added 98,000 prepaid subscribers, primarily due to continued smartphone growth in its Cricket brand. The company also lost 266,000 reseller subscribers, primarily due to losses in low-end subscribers. Overall, AT&T added 1.218 million wireless connections in the quarter.

Financials: AT&T said total wireless revenues were up 1.8 percent year-over-year to $18.2 billion. Wireless service revenues slipped 3.7 percent to $14.8 billion, reflecting continued customer growth of Mobile Share Value plans, and partially offset by increased revenues from Cricket. Wireless equipment revenues jumped 36.1 percent to $3.4 billion, as more customers chose equipment installment and bring-your-own-device plans vs. subsidized devices.

Mobile Share: The number of Mobile Share accounts was up more than 70 percent year-over-year and now stands at 19.4 million, with an average of about three devices per account. Mobile Share plans, including Mobile Share Value, now represent almost 56 million connections, or more than 70 percent of AT&T's postpaid subscribers. At the end of the first quarter, about half of Mobile Share accounts had 10 GB or larger data plans. 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 added more than 500,000 postpaid smartphone customers to its smartphone customer base and 1.2 million total smartphones when including prepaid. Those figures include upgrades from feature phones are not counted as net subscriber additions, Stephens noted. At the end of the first quarter, 84 percent, or 57.2 million, of AT&T's postpaid phone subscribers had smartphones. Smartphones accounted for about 94 percent of AT&T's phone sales during the quarter.

ARPU: The continued adoption of AT&T Next and Mobile Share Value plans led to a year-over-year reduction in postpaid service average revenue per user. Postpaid phone-only ARPU dropped 9.6 percent from $66.33 in the first quarter of 2014 to $59.98 in the first quarter of 2015. The first quarter marked the one-year anniversary of the introduction of Mobile Share Value plans.

"We anticipate wireless competition to remain heightened and are lowering our consolidated revenue estimates," Pacific Crest Securites analyst Michael Bowen wrote in a research note. "We are also raising our wireless margin estimates as the wireless revenue mix continues to shift toward equipment revenue, and the resulting higher margin accounting impact of Next." 

Churn: AT&T said postpaid churn was 1.02 percent, the best it has ever recorded in a first quarter. That figure was down from 1.07 percent in the year-ago quarter and 1.22 percent in the fourth quarter of 2014.

For more:
- see this release

Special Report: Wireless in the first quarter of 2015

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