REG - AT & T Inc. - 1st Quarter Results 2017 <Origin Href="QuoteRef">T.N</Origin> - Part 3
23/05/2017 15:40
- Part 3: For the preceding part double click ID:nRSW0123Gb
2017 2016
(in 000s) Percent Change
Business Wireless Net Additions 1, 4
Postpaid/Branded (125 ) 133 - %
Reseller 6 (22 ) -
Connected devices 2 2,553 1,578 61.8
Business Wireless Net Subscriber Additions 2,434 1,689 44.1
Business Wireless Postpaid Churn1, 3, 4 1.07 % 1.02 % 5 BP
Business IP Broadband Net Additions 4 17 (76.5 )%
1 Excludes migrations between AT&T segments and/or subscriber categories and acquisition-related additions during the period.
2 Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.
3 Calculated by dividing the aggregate number of wireless subscribers who canceled service during a period divided by the total number of wireless subscribers at the beginning of that period. The churn rate for the period is equal to the average of the churn rate for each month of that period.
4 2017 excludes the impact of the 2G shutdown, which was reflected in beginning of period subscribers.
Operating Revenues decreased $761, or 4.3%, in the first quarter of 2017. Revenue declines reflect technological shifts
away from legacy products, as well as decreasing wireless equipment revenues resulting from changes in customer buying
habits. Our second-quarter 2016 sale of certain hosting operations also negatively impacted revenue comparability. These
decreases were partially offset by continued growth in wireless services and fixed strategic services, which represent 40%
of non-wireless revenues.
Wireless service revenues increased $74, or 0.9%, in the first quarter of 2017. The revenue increase is primarily due to
the migration of customers from our Consumer Mobility segment.
At March 31, 2017, we served 82.4 million subscribers, an increase of 8.7% from the prior year. Postpaid subscribers
increased 4.1% from the prior year reflecting the addition of new customers as well as migrations from our Consumer
Mobility segment, partially offset by continuing competitive pressures in the industry. Connected devices, which have lower
average revenue per average subscriber (ARPU) and churn, increased 17.0% from the prior year reflecting growth in our
connected car business and other data centric devices that utilize the network to connect and control physical devices
using embedded computing systems and/or software, commonly called the Internet of Things (IoT).
24
AT&T INC.
MARCH 31, 2017
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and
improve margins. In the first quarter, business wireless postpaid churn increased to 1.07% in 2017 from 1.02% in 2016.
Fixed strategic services revenues increased $223, or 8.1%, in the first quarter of 2017. Our revenues increased in the
first quarter of 2017 primarily due to: Ethernet of $73; Dedicated Internet services of $59; IP Broadband, Voice, and Video
of $44; and VoIP of $43.
Legacy wired voice and data service revenues decreased $743, or 17.0%, in the first quarter of 2017. Legacy voice billings
in the first quarter of 2017 decreased $402 and traditional data billings decreased $341. The decreases were primarily due
to lower demand, as customers continue to shift to our more advanced IP-based offerings or to competitors, and the sale of
certain hosting operations in 2016.
Wireless equipment revenues decreased $273, or 15.4%, in the first quarter of 2017. The decrease in the first quarter was
primarily due to decreases in handset upgrades.
Operations and support expenses decreased $626, or 5.8%, in the first quarter of 2017. Operations and support expenses
consist of costs incurred to provide our products and services, including costs of operating and maintaining our networks
and personnel costs, such as compensation and benefits.
Decreased operations and support expenses in the first quarter were primarily due to lower wireless equipment sales and
upgrade transactions, which decreased equipment costs $248, and efforts to automate and digitize our support activities,
which improved results approximately $170. Expense reductions also reflect lower USF rates, contributing to a $77 reduction
in USF fees, and fewer traffic compensation and wireless interconnect costs, resulting in a $51 decline in access and
interconnect costs.
Depreciation expense decreased $196, or 7.8%, in the first quarter of 2017. The decreases were primarily due to our
fourth-quarter 2016 change in estimated useful lives and salvage value of certain network assets. Also contributing to
lower depreciation expenses were network assets becoming fully depreciated, partially offset by ongoing capital spending
for network upgrades and expansion.
Operating income increased $61, or 1.4%, in the first quarter of 2017. Our Business Solutions segment operating income
margin in the first quarter increased from 24.4% in 2016 to 25.9% in 2017. Our Business Solutions EBITDA margin in the
first quarter increased from 38.7% in 2016 to 39.6% in 2017.
25
AT&T INC.
MARCH 31, 2017
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
Entertainment Group
Segment Results
First Quarter
2017 2016 Percent Change
Segment operating revenues
Video entertainment $ 9,020 $ 8,904 1.3 %
High-speed internet 1,941 1,803 7.7
Legacy voice and data services 1,056 1,313 (19.6 )
Other service and equipment 606 638 (5.0 )
Total Segment Operating Revenues 12,623 12,658 (0.3 )
Segment operating expenses
Operations and support 9,601 9,578 0.2
Depreciation and amortization 1,419 1,488 (4.6 )
Total Segment Operating Expenses 11,020 11,066 (0.4 )
Segment Operating Income 1,603 1,592 0.7
Equity in Net Income (Loss) of Affiliates (6 ) 3 -
Segment Contribution $ 1,597 $ 1,595 0.1 %
The following tables highlight other key measures of performance for the Entertainment Group segment:
March 31,
(in 000s) 2017 2016 Percent Change
Linear Video Connections
Satellite 21,012 20,112 4.5 %
U-verse 4,020 5,232 (23.2 )
Total Linear Video Connections 25,032 25,344 (1.2 )
Broadband Connections
IP 13,130 12,542 4.7
DSL 1,164 1,749 (33.4 )
Total Broadband Connections 14,294 14,291 -
Retail Consumer Switched Access Lines 5,533 6,888 (19.7 )
U-verse Consumer VoIP Connections 5,470 5,225 4.7
Total Retail Consumer Voice Connections 11,003 12,113 (9.2 )%
26
AT&T INC.
MARCH 31, 2017
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
First Quarter
2017 2016 Percent Change
(in 000s)
Linear Video Net Additions 1
Satellite - 328 - %
U-verse (233 ) (382 ) 39.0
Linear Net Video Additions (233 ) (54 ) -
Broadband Net Additions
IP 242 186 30.1
DSL (127 ) (181 ) 29.8
Net Broadband Additions 115 5 - %
1 Includes disconnections for customers that migrated to DIRECTV NOW.
Operating revenues decreased $35, or 0.3%, in the first quarter of 2017, largely due to lower revenues from legacy voice
and data products, substantially offset by growth in revenues from consumer IP broadband and satellite video services.
As consumers continue to demand more mobile access to video, we provide streaming access to our subscribers, including
mobile access for existing satellite and U-verse subscribers. In November 2016, we launched DIRECTV NOW, our newest video
streaming option that does not require either satellite or U-verse service (commonly called over-the-top video service).
Video entertainment revenues increased $116, or 1.3%, in the first quarter of 2017, primarily due to a 1.8% increase in
average revenue per linear video connection. Our continued focus on satellite service and the lower marginal content costs
associated with those subscribers contributed to increased video revenue. However, this strategy contributed to lower
U-verse video revenue and connections. More than 80% of our linear video subscribers are on the DIRECTV platform. Our
decline in linear video connections for the first quarter of 2017 reflects, in part, the migration of satellite customers
to DIRECTV NOW. Churn rose for subscribers with linear video only service, partially reflecting annual content cost
increases.
High-speed internet revenues increased $138, or 7.7%, in the first quarter of 2017. When compared to 2016, IP broadband
subscribers increased 4.7%, to 13.1 million subscribers at March 31, 2017, reflecting higher IP broadband net additions.
Also contributing to higher revenues was a 3.3% increase in average revenue per IP broadband connection.
To compete more effectively against other broadband providers, we continued to deploy our all-fiber, high-speed wireline
network, which has improved customer retention rates in those areas.
Legacy voice and data service revenues decreased $257, or 19.6%, in the first quarter of 2017. For the quarter ended March
31, 2017, legacy voice and data services represented approximately 8% of our total Entertainment Group revenue compared to
10% at March 31, 2016, and reflect decreases of $174 in local voice and long-distance, and $83 in traditional data
billings. The decreases reflect the continued migration of customers to our more advanced IP-based offerings or to
competitors. At March 31, 2017, approximately 8% of our broadband connections were DSL compared to 12% at March 31, 2016.
Operations and support expenses increased $23, or 0.2%, in the first quarter of 2017. Operations and support expenses
consist of costs associated with providing video content, and expenses incurred to provide our products and services, which
include costs of operating and maintaining our networks, as well as personnel charges for compensation and benefits.
Increased operations and support expenses were primarily due to annual content cost increases and the impact of storms and
flooding on the West Coast in 2017. Partially offsetting these increases was the impact of our ongoing focus on cost
efficiencies and merger synergies, lower employee-related expenses resulting from workforce reductions and lower
advertising costs.
27
AT&T INC.
MARCH 31, 2017
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
Depreciation expense decreased $69, or 4.6%, in the first quarter of 2017. The decrease was primarily due to our
fourth-quarter 2016 change in estimated useful lives and salvage value of certain assets. Also contributing to lower
depreciation expenses were network assets becoming fully depreciated assets. These decreases were offset by ongoing capital
spending for network upgrades and expansion.
Operating income increased $11, or 0.7%, in the first quarter of 2017. Our Entertainment Group segment operating income
margin in the first quarter increased from 12.6% in 2016 to 12.7% in 2017. Our Entertainment Group segment EBITDA margin in
the first quarter decreased from 24.3% in 2016 to 23.9% in 2017.
Consumer Mobility
Segment Results
First Quarter
2017 2016 Percent Change
Segment operating revenues
Service $ 6,609 $ 6,943 (4.8 )%
Equipment 1,131 1,385 (18.3 )
Total Segment Operating Revenues 7,740 8,328 (7.1 )
Segment operating expenses
Operations and support 4,528 4,912 (7.8 )
Depreciation and amortization 873 922 (5.3 )
Total Segment Operating Expenses 5,401 5,834 (7.4 )
Segment Operating Income 2,339 2,494 (6.2 )
Equity in Net Income of Affiliates - - -
Segment Contribution $ 2,339 $ 2,494 (6.2 )%
The following tables highlight other key measures of performance for the Consumer Mobility segment:
March 31,
(in 000s) 2017 2016 Percent Change
Consumer Mobility Subscribers
Postpaid 26,510 28,294 (6.3 )%
Prepaid 13,844 12,171 13.7
Branded 40,354 40,465 (0.3 )
Reseller 10,549 13,313 (20.8 )
Connected devices 1 961 896 7.3
Total Consumer Mobility Subscribers 51,864 54,674 (5.1 )%
1 Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.
28
AT&T INC.
MARCH 31, 2017
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
First Quarter
2017 2016 Percent Change
(in 000s)
Consumer Mobility Net Additions 1, 4
Postpaid (66 ) (4 ) - %
Prepaid 282 500 (43.6 )
Branded Net Additions 216 496 (56.5 )
Reseller (588 ) (378 ) (55.6 )
Connected devices 2 19 (26 ) -
Consumer Mobility Net Subscriber Additions (353 ) 92 - %
Total Churn 1, 3, 4 2.42 % 2.11 % 31 BP
Postpaid Churn 1, 3, 4 1.22 % 1.24 % (2) BP
1 Excludes migrations between AT&T segments and/or subscriber categories and acquisition-related additions during the period.
2 Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.
3 Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided by the total number of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for each month of that period.
4 2017 excludes the impact of the 2G shutdown and a true-up to the reseller subscriber base, which were reflected in beginning of period subscribers.
Operating Revenues decreased $588, or 7.1%, in the first quarter of 2017. Decreased revenues reflect declines in postpaid
service revenues due to customers migrating to our Business Solutions segment and choosing unlimited and Mobile Share
plans, partially offset by higher prepaid service revenues. Our business wireless offerings allow for individual
subscribers to purchase wireless services through employer-sponsored plans for a reduced price. The migration of these
subscribers to the Business Solutions segment negatively impacted our consumer postpaid subscriber total and service
revenue growth.
Service revenue decreased $334, or 4.8%, in the first quarter of 2017. The decrease was largely due to the migration of
subscribers to Business Solutions and postpaid customers continuing to shift to discounted monthly service charges under
our unlimited and Mobile Share plans. Revenues from postpaid customers declined $507, or 9.9%, in the first quarter of
2017. Without the migration of customers to Business Solutions, postpaid wireless revenues would have decreased
approximately 5.4%. The decreases were partially offset by higher prepaid service revenues of $239, or 18.4%, primarily
from growth in Cricket subscribers.
Equipment revenue decreased $254, or 18.3%, in the first quarter of 2017. The decrease in equipment revenues resulted from
lower handset sales and upgrades. As previously discussed, equipment revenue is becoming increasingly unpredictable as
customers are choosing to upgrade devices less frequently or bring their own.
Operations and support expenses decreased $384, or 7.8%, in the first quarter of 2017. Operations and support expenses
consist of costs incurred to provide our products and services, including costs of operating and maintaining our networks
and personnel expenses, such as compensation and benefits.
Decreased operations and support expenses were primarily due to lower volumes of wireless equipment sales and upgrades,
which decreased equipment costs $257. Also contributing to the declines were increased operational efficiencies and lower
marketing and advertising costs resulting from the timing of scheduled ad campaigns and integrated advertising.
Depreciation expense decreased $49, or 5.3%, in the first quarter of 2017. The decrease was primarily due to fully
depreciated assets, partially offset by ongoing capital spending for network upgrades and expansion.
Operating income decreased $155, or 6.2%, in the first quarter of 2017. Our Consumer Mobility segment operating income
margin in the first quarter increased from 29.9% in 2016 to 30.2% in 2017. Our Consumer Mobility EBITDA margin in the first
quarter increased from 41.0% in 2016 to 41.5% in 2017.
29
AT&T INC.
MARCH 31, 2017
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
International
Segment Results
First Quarter
2017 2016 Percent Change
Segment operating revenues
Video entertainment $ 1,341 $ 1,130 18.7 %
Wireless service 475 455 4.4
Wireless equipment 113 82 37.8
Total Segment Operating Revenues 1,929 1,667 15.7
Segment operating expenses
Operations and support 1,759 1,588 10.8
Depreciation and amortization 290 277 4.7
Total Segment Operating Expenses 2,049 1,865 9.9
Segment Operating Income (Loss) (120 ) (198 ) 39.4
Equity in Net Income (Loss) of Affiliates 20 14 42.9
Segment Contribution $ (100 ) $ (184 ) 45.7 %
The following tables highlight other key measures of performance for the International segment:
(in 000s) First Quarter
2017 2016 Percent Change
Mexican Wireless Subscribers
Postpaid 5,095 4,404 15.7 %
Prepaid 7,244 4,445 63.0
Branded 12,339 8,849 39.4
Reseller 267 364 (26.6 )
Total Mexican Wireless Subscribers 12,606 9,213 36.8
Latin America Satellite Subscribers
PanAmericana 8,090 7,094 14.0
SKY Brazil 1 5,588 5,342 4.6
Total Latin America Satellite Subscribers 13,678 12,436 10.0 %
1 Excludes subscribers of our International segment equity investments in SKY Mexico, in which we own a 41.3% stake. SKY Mexico had 8.0 million subscribers at December 31, 2016 and 7.7 million subscribers at March 31, 2016.
30
AT&T INC.
MARCH 31, 2017
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
First Quarter
(in 000s) 2017 2016 Percent Change
Mexican Wireless Net Additions
Postpaid 130 116 12.1 %
Prepaid 517 450 14.9
Branded Net Additions 647 566 14.3
Reseller (14 ) (37 ) 62.2
Mexican Wireless Net Subscriber Additions 633 529 19.7
Latin America Satellite Net Additions 1
PanAmericana 52 28 85.7
SKY Brazil 39 (101 ) -
Latin America Satellite Net Subscriber Additions2 91 (73 ) - %
1 In 2017, we updated the methodology used to account for prepaid video connections. The impact of this change is excluded.
2 SKY Mexico had net subscriber additions of 100,000 for the quarter ended December 31, 2016, and 398,000 for the quarter ended March 31, 2016.
Operating Results
Our International segment consists of the Latin American operations acquired with DIRECTV as well as our Mexican wireless
operations. Video entertainment services are provided to primarily residential customers using satellite technology. Our
international subsidiaries conduct business in their local currency and operating results are converted to U.S. dollars
using official exchange rates. Our International segment is subject to foreign currency fluctuations.
Operating revenues increased $262, or 15.7%, in the first quarter of 2017. The increase in the first quarter includes $211,
or 18.7%, from video services in Latin America driven by price increases and favorable foreign currency exchange rates.
Mexico wireless revenues increased $51, or 9.5%, in the first quarter of 2017, primarily due to an increase in our
subscriber base and higher equipment sales offset by lower ARPU (average revenue per average wireless subscriber) and
foreign currency pressure.
Operations and support expenses increased $171, or 10.8%, in the first quarter of 2017. Operations and support expenses
consist of costs incurred to provide our products and services, including costs of operating and maintaining our networks
and providing video content and personnel expenses, such as compensation and benefits. The increase in expenses is
primarily due to higher programming and other operating costs in Latin America, and favorable foreign currency exchange
rates.
Depreciation expense increased $13, or 4.7%, in the first quarter of 2017. The increase was primarily due to updating the
estimated asset lives for video equipment in Latin America.
Operating income increased $78, or 39.4%, in the first quarter of 2017. Our International segment operating income margin
in the first quarter increased from (11.9)% in 2016 to (6.2)% in 2017. Our International EBITDA margin in the first quarter
increased from 4.7% in 2016 to 8.8% in 2017.
31
AT&T INC.
MARCH 31, 2017
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
Supplemental Operating Information
As a supplemental discussion of our operating results, for comparison purposes, we are providing a view of our combined
domestic wireless operations (AT&T Mobility). See "Discussion and Reconciliation of Non-GAAP Measure" for a reconciliation
of these supplemental measures to the most directly comparable financial measures calculated and presented in accordance
with U.S. generally accepted accounting principles.
AT&T Mobility Results
First Quarter
2017 2016 Percent Change
Operating revenues
Service $ 14,538 $ 14,798 (1.8 )%
Equipment 2,629 3,156 (16.7 )
Total Operating Revenues 17,167 17,954 (4.4 )
Operating expenses
Operations and support 9,998 10,624 (5.9 )
EBITDA 7,169 7,330 (2.2 )
Depreciation and amortization 1,997 2,056 (2.9 )
Total Operating Expenses 11,995 12,680 (5.4 )
Operating Income $ 5,172 $ 5,274 (1.9 )%
The following tables highlight other key measures of performance for AT&T Mobility:
First Quarter Percent Change
(in 000s) 2017 2016
Wireless Subscribers 1
Postpaid smartphones 59,025 58,258 1.3 %
Postpaid feature phones and data-centric devices 18,324 18,880 (2.9 )
Postpaid 77,349 77,138 0.3
Prepaid 13,844 12,171 13.7
Branded 91,193 89,309 2.1
Reseller 10,625 13,378 (20.6 )
Connected devices 2 32,400 27,758 16.7
Total Wireless Subscribers 134,218 130,445 2.9
Branded Smartphones 71,274 68,271 4.4
Smartphones under our installment programs at end of period 31,583 28,548 10.6 %
1 Represents 100% of AT&T Mobility wireless subscribers.
2 Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.
32
AT&T INC.
MARCH 31, 2017
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
First Quarter
2017 2016 Percent Change
(in 000s)
Wireless Net Additions 1, 4
Postpaid (191 ) 129 - %
Prepaid 282 500 (43.6 )
Branded Net Additions 91 629 (85.5 )
Reseller (582 ) (400 ) (45.5 )
Connected devices 2 2,572 1,552 65.7
Wireless Net Subscriber Additions 2,081 1,781 16.8
Smartphones sold under our installment programs during period 3,501 4,135 (15.3 )%
Total Churn 3, 4 1.46 % 1.42 % 4 BP
Branded Churn 3, 4 1.71 % 1.63 % 8 BP
Postpaid Churn 3, 4 1.12 % 1.10 % 2 BP
Postpaid Phone Only Churn 3, 4 0.90 % 0.96 % (6) BP
1 Excludes acquisition-related additions during the period.
2 Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.
3 Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided by the total number of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for each month of that period.
4 2017 excludes the impact of the 2G shutdown and a true-up to the reseller subscriber base, which were reflected in beginning of period subscribers.
Operating income decreased $102, or 1.9%, in the first quarter of 2017. The first-quarter operating income margin of AT&T
Mobility increased from 29.4% in 2016 to 30.1% in 2017. AT&T Mobility's first-quarter EBITDA margin increased from 40.8% in
2016 to 41.8% in 2017. AT&T Mobility's first-quarter EBITDA service margin decreased from 49.5% in 2016 to 49.3% in 2017
(EBITDA service margin is operating income before depreciation and amortization, divided by total service revenues.)
Subscriber Relationships
As the wireless industry continues to mature, future wireless growth will become increasingly dependent on our ability to
offer innovative services, plans and devices and a wireless network that has sufficient spectrum and capacity to support
these innovations on as broad a geographic basis as possible. To attract and retain subscribers in a maturing market, we
have launched a wide variety of plans, including unlimited and Mobile Share, as well as equipment installment programs.
Beginning in the first quarter of 2017, we expanded our unlimited wireless data plans to make them available to customers
that do not subscribe to our video services.
ARPU
Postpaid phone-only ARPU was $58.09 and postpaid phone-only ARPU plus equipment installment billings was $68.81 for the
first quarter of 2017, compared to $59.53 and $69.54 in 2016.
Churn
The effective management of subscriber churn is critical to our ability to maximize revenue
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