AT&T urges tax reform as Q4 results largely meet expectations

AT&T CEO Randall Stephenson

AT&T’s fourth-quarter performance was generally in line with analysts’ expectations, capping what CEO Randall Stephenson described as a “transformational year” for the carrier.

And 2017 may be even more transformational if the Trump administration moves aggressively on business-friendly policies such as tax reform, AT&T executives suggested.

The No. 2 wireless carrier in the U.S. lost 67,000 postpaid net phone customers during the quarter of 2016, marking a significant improvement over the 256,000 it lost during the same period in 2015 and the 268,000 it bled during the previous quarter. Earnings per share of 66 cents matched Wells Fargo analysts’ estimates, as did total wireless revenue of $18.8 billion.

The carrier’s guidance for 2017 also appeared to line up with analysts’ expectations: AT&T expects revenue growth to be in the low-single digits for the year, with adjusted EPS growth in the mid-single digits and capex of roughly $22 billion.

But during an earnings call with analysts, executives suggested that capex could increase substantially if the White House moves quickly to make good on Trump’s promise of tax reform.

“My sentiment – and I don’t think this is unique among the CEO community – is that I am optimistic as I look forward. I’m optimistic that if we get line of sight to real, meaningful tax reform – if we get line of sight, I don’t mean if tax reform passes – we’ll begin to think differently about areas we’re investing in,” CEO Randall Stephenson told investors. “I think you’re going to see people open up the purse book and begin to invest at a higher level.”

Here’s a look at some of AT&T’s other key quarterly metrics:

Subscribers: AT&T saw a net loss of postpaid phone subscribers for the ninth consecutive quarter, but those 67,000 defections beat the 220,000 predicted by Wells Fargo. The carrier saw 520,000 postpaid net adds for the quarter and once again demonstrated strong momentum in prepaid phones with 406,000 net new customers. Postpaid churn was 1.16 percent, just missing analysts’ estimates, and postpaid phone ARPU of $58.84 was in line with expectations.

Financials: Total consolidated revenue came in at $41.8 billion, shy of Wells Fargo’s estimate of $42.1 billion and .7 percent lower than the year-ago period. The figure marks the first year-to-year consolidated revenue decline since the first quarter of 2013, according to Technology Business Research, Inc. “Though AT&T’s wireless revenue declined 7 percent year-to-year, due mainly to lower ARPU and postpaid phone subscriber losses, wireless revenue is beginning to stabilize due to strong connected device and prepaid net additions,” TBRI said.

DirecTV Now: AT&T continues to draw customers to its new DirecTV Now offering despite its recent technical and logistical glitches. The company reiterated it has added 200,000 DirecTV subscribers since its Nov. 30 launch – AT&T released that figure last week – although Stephenson acknowledged the technical difficulties, saying “We’re still not completely there on the plumbing.”

Zero-rated data: Like Verizon, AT&T’s zero-rated data offering was criticized earlier this month by the FCC, which questioned whether the model runs afoul of net neutrality rules. Trump earlier this week elevated Ajit Pai to chair the FCC, replacing outgoing Chairman Tom Wheeler and leading some to speculate that the FCC under Pai likely won’t question zero-rated offerings. Stephenson said AT&T had long been confident its zero-rated services were on solid legal ground, however. “As it relates to our plans on zero-rating under a Pai chairmanship, you shouldn’t expect that (our plans) would change. We were already going hard” to deploy zero-rated services.

Summary: AT&T appears to have largely stopped the bleeding of postpaid phone subscribers – temporarily, at least – which should allay some investors’ fears. But the company still has major hurdles to overcome as it looks to grow a digital video and advertising empire: It must iron out some serious wrinkles in DirecTV Now, and its acquisition of Time Warner is not a done deal. A relatively stable fourth quarter might be seen as good news for an operator in the midst of a major transition, however.