AT&T Wireless’s Gains Dwarf Shrinking Media Footprint – The Wall Street Journal

  • by

AT&T Inc. T -0.58% cut a slimmer profile in the third quarter with the first of a series of entertainment divestitures out the door, even as its core wireless business continued to grow.

The Dallas company reported its biggest jump in cellphone customers in more than a decade during the September quarter, while the number of domestic subscribers to its HBO services dipped and it spun off its DirecTV business.

AT&T posted a net gain of 928,000 postpaid phone connections, a key figure for investors who watch the growth of subscribers under contracts for signs of overall business strength. The company also added 249,000 prepaid phone connections.

Rival Verizon Communications Inc. VZ -0.41% on Wednesday reported a net gain of 429,000 postpaid phone connections. Its relatively small prepaid-phone business could grow larger if regulators approve its pending purchase of TracFone from Mexico’s América Móvil SAB. T-Mobile US Inc. TMUS -4.17% is slated to post its quarterly results on Nov. 2.

Verizon reported a net gain of 429,000 postpaid phone connections.

Photo: David Paul Morris/Bloomberg News

T-Mobile’s 2020 merger with Sprint Corp. reshaped the wireless business into a three-player market, leaving carriers with fewer paths to poach each other’s customers. AT&T has grown its wireless base by offering customers sharply discounted smartphones in exchange for long-term commitments, a tactic rivals have copied to varying degrees.

T-Mobile reminded investors of that dynamic Thursday by launching an offer to pay AT&T and Verizon subscribers who switch providers up to $1,000 of what they owe for an already-bought 5G-capable smartphone, such as the new Apple Inc. iPhone 13.

AT&T executives said their cellular-industry gains stemmed from more than just discounts, crediting a simpler marketing strategy and other changes for the pickup. They also said federal stimulus programs, while helpful to the overall economy, weren’t driving the company’s growth in wireless revenue.

“The industry is healthy,” telecom division chief Jeff McElfresh said Thursday during a call with analysts. “We’re adding high-value customers and don’t believe that this is driven uniquely by any kind of subsidy or extra cash flow that happens to be in the marketplace.”

AT&T’s overall quarterly revenue fell about 5.7% compared with a year ago, when it still ran DirecTV, a massive but shrinking satellite brand that had burdened its financial results. Excluding that effect, the remaining company’s revenue rose 4.7% to $38.07 billion.

AT&T gave up a 30% stake and operational control of its U.S. pay-TV business to a joint venture with private-equity firm TPG in August, which skewed results in the full September quarter.

The DirecTV asset sale was the first in a string of deals struck this year to point the telephone giant away from the media business and toward its core cellular and fiber-optic services. A sale of its Latin American pay-TV operations is awaiting regulatory approval, while the biggest of those divestitures—splitting WarnerMedia into a stand-alone company merged with Discovery Inc.—is expected to close before the middle of next year.

Amid the wait, WarnerMedia’s flagship HBO Max service suffered from the loss of carriage on Amazon.com Inc.’s streaming platforms in the most recent quarter, underscoring that sector’s more volatile returns. The business ended September with 45.2 million domestic HBO subscribers, down from 47 million three months earlier. The total included additions to the HBO Max service.

WarnerMedia executives had signaled earlier this year they would end their partnership with Amazon, a move designed to keep control of the usage data and billing information from HBO subscribers. Amazon’s streaming-video portals boast millions of users, but its Prime Video service also competes with HBO Max. The e-commerce giant would add more material to its library after closing a $9 billion deal for Hollywood studio MGM, pitting its content against the future HBO owner, which will be named Warner Bros. Discovery.

Worldwide subscriptions to the HBO services hit 69.4 million, up from 67.5 million at the end of the prior quarter as gains from expansion in Latin America more than offset U.S. losses. AT&T said it expects to reach the higher end of its year-end target of 70 million to 73 million total HBO subscribers after the streaming service launches in parts of Europe later this year.

Rival Netflix Inc. added 4.4 million memberships in the third quarter, as viewers flocked to the streaming platform with the return of popular series and new hits such as “Squid Game.” The new additions, mostly from outside the U.S., bring Netflix’s total paid global subscriber base to 213.6 million.

WarnerMedia’s film-and-TV operations still contributed to its parent’s bottom line. The division’s overall revenue jumped 14% to $8.44 billion, lifted by the global subscription gains and licensing deals. Revenue from the U.S. wireless segment rose 7% to $19.14 billion, while the business wireline segment’s revenue fell 5.2% to $5.94 billion.

Overall, the third-quarter profit attributable to AT&T jumped to $5.92 billion, or 82 cents a share, from a year-earlier result of $2.82 billion, or 39 cents a share. The reported earnings included gains from asset sales and improved over a year-earlier result depressed by accounting charges.

The company said it expects its full-year adjusted earnings to reach the high end of its year-end target, which excludes the now-divested pay-TV business.

AT&T’s shares, which have slumped this year, were little changed at $25.93 in early trading.

Write to Drew FitzGerald at [email protected]

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8