REG - AT & T Inc. - 1st Quarter Results <Origin Href="QuoteRef">T.N</Origin> - Part 3
16/05/2016 15:45
- Part 3: For the preceding part double click ID:nRSP3835Yb
Segment operating expenses
Operations and support 10,802 11,073 (2.4 )
Depreciation and amortization 2,508 2,342 7.1
Total Segment Operating Expenses 13,310 13,415 (0.8 )
Segment Operating Income 4,299 4,142 3.8
Equity in Net Income (Loss) of Affiliates - - -
Segment Contribution $ 4,299 $ 4,142 3.8 %
23
AT&T INC.
MARCH 31, 2016
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 following table highlights other key measures of performance for the Business Solutions segment:
First Quarter
2016 2015 PercentChange
(in 000s)
Business Wireless Subscribers
Postpaid 48,844 45,959 6.3 %
Reseller 64 14 -
Connected devices 1 26,863 20,972 28.1
Total Business Wireless Subscribers 75,771 66,945 13.2
Business Wireless Net Additions 2
Postpaid 133 297 (55.2 )
Reseller (22 ) 3 -
Connected devices 1 1,578 1,024 54.1
Business Wireless Net Subscriber Additions 1,689 1,324 27.6
Business Wireless Postpaid Churn 2, 3 1.02% 0.90% 12 BP
Business IP Broadband Connections 928 849 9.3
Business IP Broadband Net Additions 17 27 (37.0 ) %
1 Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.
2 Excludes migrations between AT&T segments and/or subscriber categories and acquisition-related additions during the period.
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.
Operating revenues increased $52, or 0.3%, in the first quarter of 2016. Revenue growth was driven by wireless service
revenues and increased fixed strategic business services. Revenue increases were partially offset by continued declines in
our legacy voice and data products, lower equipment revenue and foreign exchange pressures.
Wireless service revenues increased $340, or 4.5%, in the first quarter of 2016. The revenue increase is primarily due to
customer migrations from our Consumer Mobility segment and reflects smartphone and tablet gains.
At March 31, 2016, we served 75.8 million subscribers, an increase of 13.2% from the prior year. Postpaid subscribers
increased 6.3% 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 28.1% from the prior year reflecting growth in business
customers using tracking, monitoring and other sensor-embedded devices on their equipment.
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 1.02% in 2016 from 0.90% in 2015.
Fixed strategic services revenues increased $237, or 9.3%, in the first quarter of 2016. Our revenues, which were
negatively impacted by foreign exchange rates, increased in the first quarter of 2016 due to increases in: Ethernet of $65,
AT&T Dedicated Internet (formally known as Ethernet access to Managed Internet Services) of $54, U-verse services of $50,
and VPN of $26.
24
AT&T INC.
MARCH 31, 2016
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
Legacy wired voice and data service revenues decreased $416, or 8.8%, in the first quarter of 2016. Traditional data
revenues in the first quarter of 2016 decreased $229 and long-distance and local voice revenues decreased $183. The
decreases were primarily due to lower demand as customers continue to shift to our more advanced IP-based offerings or our
competitors.
Other service and equipment revenues increased $13, or 1.5%, in the first quarter of 2016. Other service revenues include
project-based revenue, which is nonrecurring in nature, as well as revenues from other managed services, outsourcing,
government professional service and customer premises equipment.
Wireless equipment revenues decreased $122, or 6.4%, in the first quarter of 2016. The decrease in equipment revenues
resulted from a decrease in handsets sold to postpaid customers and increased promotional activities during the quarter.
The decreases were partially offset by an increase in purchases of devices on installment payment agreements rather than
the device subsidy model.
Operations and support expenses decreased $271, or 2.4%, in the first quarter of 2016. 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.
The first quarter decrease was primarily due to declines of $170 in wireless equipment and $161 in wireless commissions
costs, reflecting a decrease in sale volumes and upgrade transactions, as well as lower average commission rates. Access
costs also declined $59, resulting from lower interconnect and roaming costs. Partially offsetting these decreases were
higher advertising expenses, wireless handset insurance claims and bad debt expense driven by a higher AT&T Next SM (AT&T
Next) subscriber base.
Depreciation expense increased $166, or 7.1%, in first quarter of 2016. The increases were primarily due to ongoing capital
spending for network upgrades and expansion, partially offset by fully depreciated assets.
Operating income increased $157, or 3.8%, in the first quarter of 2016. Our Business Solutions segment operating income
margin in the first quarter increased from 23.6% in 2015 to 24.4% in 2016. Our Business Solutions EBITDA margin in the
first quarter increased from 36.9% in 2015 to 38.7% in 2016.
Entertainment Group
Segment Results
First Quarter
2016 2015 Percent Change
Segment operating revenues
Video entertainment $ 8,904 $ 1,871 -
High-speed Internet 1,803 1,553 16.1
Legacy voice and data services 1,313 1,612 (18.5 )
Other service and equipment 638 624 2.2
Total Segment Operating Revenues 12,658 5,660 -
Segment operating expenses
Operations and support 9,578 4,859 97.1
Depreciation and amortization 1,488 1,065 39.7
Total Segment Operating Expenses 11,066 5,924 86.8
Segment Operating Income (Loss) 1,592 (264) -
Equity in Net Income (Loss) of Affiliates 3 (6) -
Segment Contribution $ 1,595 $ (270) -
25
AT&T INC.
MARCH 31, 2016
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 following table highlights other key measures of performance for the Entertainment Group segment:
First Quarter
2016 2015 PercentChange
(in 000s)
Video Connections
Satellite 20,112 - -
U-verse 5,232 5,969 (12.3 )
Total Video Connections 25,344 5,969 -
Video Net Additions
Satellite 328 - -
U-verse (382 ) 49 -
Net Video Additions (54 ) 49 -
Broadband Connections
IP 12,542 11,796 6.3
DSL 1,749 2,741 (36.2 )
Total Broadband Connections 14,291 14,537 (1.7 )
Broadband Net Additions
IP 186 413 (55.0 )
DSL (181 ) (320 ) 43.4
Net Broadband Additions 5 93 (94.6 )
Retail Consumer Switched Access Lines 6,888 8,660 (20.5 )
U-verse Consumer VoIP Connections 5,225 5,009 4.3
Total Retail Consumer Voice Connections 12,113 13,669 (11.4 ) %
Operating revenues increased $6,998 in the first quarter of 2016, largely due to our acquisition of DIRECTV in the third
quarter of 2015. Also contributing to the increase was continued strong growth in consumer IP broadband, which more than
offset lower revenues from legacy voice and data products.
Video entertainment revenues increased $7,033 in the first quarter of 2016. The first quarter increase was primarily
related to our acquisition of DIRECTV. We are now focusing our sales efforts on satellite service as there are lower
content costs for satellite subscribers. U-verse video revenue was flat in the first quarter of 2016, primarily due to a
12.3% decrease in U-verse video connections, when compared to 2015.
High-speed Internet revenues increased $250, or 16.1%, in the first quarter of 2016. When compared to 2015, IP broadband
connections increased 6.3%, to 12.5 million connections at March 31, 2016; however, first quarter net additions were lower
due to fewer U-verse sales promotions in the year. The churn of video customers also contributed to lower net additions as
a portion of those video subscribers also choose to disconnect their IP broadband service.
Legacy voice and data service revenues decreased $299, or 18.5%, in the first quarter of 2016. At March 31, 2016, legacy
voice and data services represented approximately 10% of our total Entertainment Group revenue, and reflect a decrease of
$179 in long-distance and local voice revenues, and $120 in traditional data revenues. The decreases reflect our continued
migration of customers to our more advanced IP-based offerings or to competitors. At March 31, 2016, approximately 12% of
our broadband connections were DSL compared to nearly 19% at March 31, 2015.
26
AT&T INC.
MARCH 31, 2016
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
Operations and support expenses increased $4,719, or 97.1%, in the first quarter of 2016. 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, as well as personnel charges for compensation and benefits.
The first quarter increase was primarily due to our acquisition of DIRECTV in the third quarter of 2015, which increased
our first quarter Entertainment Group expenses by $4,823. The DIRECTV related increases were primarily due to the
recognition of additional content costs for satellite subscribers, customer support and service related charges and
advertising expenses.
Partially offsetting the increased expenses were lower employee charges resulting from ongoing workforce reductions and our
focus on cost initiatives.
Depreciation expense increased $423, or 39.7%, in the first quarter of 2016. The increase was primarily due to our
acquisition of DIRECTV and ongoing capital spending for network upgrades and expansion, partially offset by fully
depreciated assets.
Operating income increased $1,856 in the first quarter of 2016. Our Entertainment Group segment operating income margin
increased from (4.7)% in 2015 to 12.6% in 2016. Our Entertainment Group segment EBITDA margin in the first quarter
increased from 14.2% in 2015 to 24.3% in 2016.
Consumer Mobility
Segment Results
First Quarter
2016 2015 PercentChange
Segment operating revenues
Service $ 6,943 $ 7,297 (4.9 ) %
Equipment 1,385 1,481 (6.5 )
Total Segment Operating Revenues 8,328 8,778 (5.1 )
Segment operating expenses
Operations and support 4,912 5,541 (11.4 )
Depreciation and amortization 922 1,002 (8.0 )
Total Segment Operating Expenses 5,834 6,543 (10.8 )
Segment Operating Income 2,494 2,235 11.6
Equity in Net Income (Loss) of Affiliates - - -
Segment Contribution $ 2,494 $ 2,235 11.6 %
27
AT&T INC.
MARCH 31, 2016
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 following table highlights other key measures of performance for the Consumer Mobility segment:
First Quarter
2016 2015 PercentChange
(in 000s)
Consumer Mobility Subscribers
Postpaid 28,294 30,216 (6.4 ) %
Prepaid 12,171 10,037 21.3
Branded 40,465 40,253 0.5
Reseller 13,313 13,581 (2.0 )
Connected devices 1 896 993 (9.8 )
Total Consumer Mobility Subscribers 54,674 54,827 (0.3 )
Consumer Mobility Net Additions 2
Postpaid (4) 144 -
Prepaid 500 98 -
Branded Net Additions 496 242 -
Reseller (378) (269) (40.5 )
Connected devices 1 (26) (79) 67.1
Consumer Mobility Net Subscriber Additions 92 (106) -
Total Churn 2, 3 2.11% 2.04% 7 BP
Postpaid Churn 2, 3 1.24% 1.20% 4 BP
1 Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.
2 Excludes migrations between AT&T segments and/or subscriber categories and acquisition-related additions during the period.
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.
Operating Revenues decreased $450, or 5.1%, in the first quarter of 2016. Decreased revenues reflect declines in postpaid
service revenues due to customers choosing Mobile Share plans and migrating to our Business Solutions segment, 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 $354, or 4.9%, in the first quarter of 2016. The decrease was largely due to a $516 decline from
postpaid customers continuing to shift to no-device-subsidy plans, which allow for discounted monthly service charges under
our Mobile Share plans and the migration of subscribers to Business Solutions. Without the migration of customers to
Business Solutions, postpaid wireless revenues would have decreased approximately 4.2%. The decrease was partially offset
by a $204 increase in prepaid service revenues, which includes services sold under the Cricket brand.
Equipment revenue decreased $96, or 6.5%, in the first quarter of 2016. The decrease in equipment revenues resulted from a
decrease in handsets sold to postpaid customers and increased promotional activities, partially offset by an increase in
handsets sold to prepaid customers and devices purchased on installment payment agreements rather than the device subsidy
model.
Operations and support expenses decreased $629, or 11.4%, in the first quarter of 2016. 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.
28
AT&T INC.
MARCH 31, 2016
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
Decreased operations and support expenses in the first quarter were primarily due to the following:
· Selling and commission expenses decreased $205 primarily due to lower sales volumes and lower average commission rates, including those paid under the AT&T Next program, combined with fewer upgrade transactions.
· Equipment costs decreased $120 primarily due to a decrease in postpaid handset volumes partially offset by the sale of more devices to prepaid subscribers.
· Network costs decreased $115 primarily due to lower interconnect costs resulting from our ongoing network transition to more efficient Ethernet/IP-based technologies.
· Other administrative expenses decreased $73 primarily due to lower technology and development costs.
Depreciation expense decreased $80, or 8.0%, in the first quarter of 2016. The decrease was primarily due to fully
depreciated assets, partially offset by the ongoing capital spending for network upgrades and expansion.
Operating income increased $259, or 11.6%, in the first quarter of 2016. Our Consumer Mobility segment operating income
margin increased from 25.5% in 2015 to 29.9% in 2016. Our Consumer Mobility EBITDA margin increased from 36.9% in 2015 to
41.0% in 2016.
International
Segment Results
First Quarter
2016 2015 PercentChange
Segment operating revenues
Video entertainment $ 1,130 $ - -
Wireless 455 215 -
Equipment 82 21 -
Total Segment Operating Revenues 1,667 236 -
Segment operating expenses
Operations and support 1,588 218 -
Depreciation and amortization 277 28 -
Total Segment Operating Expenses 1,865 246 -
Segment Operating Income (Loss) (198) (10) -
Equity in Net Income of Affiliates 14 - -
Segment Contribution $ (184) $ (10) -
29
AT&T INC.
MARCH 31, 2016
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 following table highlights other key measures of performance for the International segment:
First Quarter
Percent
(in 000s) 2016 2015 Change
Mexican Wireless Subscribers
Postpaid 4,405 1,646 -
Prepaid 4,445 3,590 23.8
Branded 8,850 5,236 69.0
Reseller 363 492 (26.2 )
Total Mexican Wireless Subscribers 9,213 5,728 60.8
Mexican Wireless Net Additions
Postpaid 116 - -
Prepaid 450 - -
Branded Net Additions 566 - -
Reseller (37 ) - -
Mexican Wireless Net Subscriber Additions 529 - -
Latin America Satellite Subscribers
PanAmericana 7,094 - -
SKY Brazil 5,342 - -
Total Latin America Satellite Subscribers 12,436 - -
Latin America Satellite Net Additions
PanAmericana 28 - -
SKY Brazil (101 ) - -
Latin America Satellite Net Subscriber Additions (73 ) - -
Operating Results
Our International segment consists of the Latin American operations acquired in our July 2015 acquisition of DIRECTV as
well as the Mexican wireless operations acquired earlier in 2015 (see Note 7). 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 $1,431, with $1,130 in video services in Latin America and $301 attributable to additional
wireless revenues in Mexico.
Operations and support expenses increased $1,370 and consist of costs incurred to provide our products and services,
including costs of operating and maintaining our networks and providing video content, as well as personnel expenses, such
as compensation and benefits.
Depreciation expense increased $249 in 2016. The increase was primarily due to the acquisition of DIRECTV and the Nextel
Mexico wireless property.
Operating income decreased $188. Our International segment operating income margin in the first quarter was (11.9)% for
2016, compared to (4.2)% for 2015. Our International EBITDA margin in the first quarter was 4.7% for 2016 and 7.6% for
2015.
30
AT&T INC.
MARCH 31, 2016
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).
AT&T Mobility Results
First Quarter
2016 2015 PercentChange
Operating revenues
Service $ 14,798 $ 14,812 (0.1 ) %
Equipment 3,156 3,374 (6.5 )
Total Operating Revenues 17,954 18,186 (1.3 )
Operating expenses
Operations and support 10,624 11,472 (7.4 )
EBITDA 7,330 6,714 9.2
Depreciation and amortization 2,056 2,005 2.5
Total Operating Expenses 12,680 13,477 (5.9 )
Operating Income $ 5,274 $ 4,709 12.0 %
31
AT&T INC.
MARCH 31, 2016
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 following table highlights other key measures of performance for AT&T Mobility:
First Quarter
2016 2015 PercentChange
(in 000s)
Wireless Subscribers 1
Postpaid smartphones 58,258 57,157 1.9 %
Postpaid feature phones and data-centric devices 18,880 19,018 (0.7 )
Postpaid 77,138 76,175 1.3
Prepaid 12,171 10,037 21.3
Branded 89,309 86,212 3.6
Reseller 13,378 13,595 (1.6 )
Connected devices 2 27,758 21,965 26.4
Total Wireless Subscribers 130,445 121,772 7.1
Net Additions 3
Postpaid 129 441 (70.7 )
Prepaid 500 98 -
Branded Net Additions 629 539 16.7
Reseller (400) (266) (50.4 )
Connected devices 2 1,552 945 64.2
Net Subscriber Additions 1,781 1,218 46.2
Branded Smartphones 68,271 64,047 6.6
Mobile Share connections 59,372 55,581 6.8
Smartphones under our installment program at end of period 28,548 18,540 54.0
Smartphones sold under our installment program during period 4,135 4,065 1.7 %
Total Churn 4 1.42% 1.40% 2 BP
Branded Churn 4 1.63% 1.59% 4 BP
Postpaid Churn 4 1.10% 1.02% 8 BP
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.
3 Excludes acquisition-related additions during the period.
4 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.
Operating income increased $565, or 12.0%, in the first quarter of 2016. The operating income margin of AT&T Mobility
increased from 25.9% in 2015 to 29.4% in 2016. AT&T Mobility's EBITDA margin increased from 36.9% in 2015 to 40.8% in 2016.
AT&T Mobility's EBITDA service margin increased from 45.3% in 2015 to 49.5% in 2016. (EBITDA service margin is operating
income before depreciation and amortization, divided by total service revenues.)
Subscriber Relationships
As the wireless industry continues to mature, we believe that future wireless growth will increasingly depend 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 Mobile Share and AT&T Next. Additionally, in the first quarter
of 2016, we introduced an integrated offer that
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