REG - AT & T Inc. - 3Q16 10-Q <Origin Href="QuoteRef">T.N</Origin> - Part 4
17/11/2016 17:40
- Part 4: For the preceding part double click ID:nRSQ5061Pc
172 (9.3 ) 396 802 (50.6 )
DSL (161 ) (278) 42.1 (506 ) (922) 45.1
Net Broadband Additions (5 ) (106) 95.3 % (110 ) (120) 8.3 %
1 Excludes acquisition-related additions during the period.
Operating revenues increased $1,862, or 17.1%, in the third quarter and $15,789, or 70.8%, for the first nine months of
2016, largely due to our acquisition of DIRECTV in the third quarter of 2015. Also contributing to the increases was
continued growth in consumer IP broadband, which offset lower revenues from legacy voice and data products.
As consumers continue to demand more mobile access to video, we have launched streaming access to our subscribers,
including mobile access for existing satellite and U-verse subscribers. We also have created an option for customers to
access most video programming on a mobile device while awaiting home installation of their video service ("walk out and
watch"). At September 30, 2016, we had approximately 100,000 "walk out and watch" individuals and approximately 70% of such
individuals complete the installation process and become subscribers. In the fourth quarter, we will launch our newest
video streaming option that does not require either satellite or U-verse service (commonly called "Over the Top" service).
Video entertainment revenues increased $1,864, or 26.0%, in the third quarter and $15,869 for the first nine months of
2016, 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 lower in the third quarter and the first nine
months of 2016, primarily due to a 22.9% decrease in U-verse video connections, when compared to 2015. At September 30,
2016, more than 80% of our video subscribers were on the DIRECTV platform.
High-speed internet revenues increased $207, or 12.3%, in the third quarter and $701, or 14.4%, for the first nine months
of 2016. When compared to 2015, IP broadband subscribers increased 4.7%, to 12.8 million subscribers at September 30, 2016;
however, third quarter and year-to-date 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 these video subscribers also chose to
disconnect their IP broadband service.
Legacy voice and data service revenues decreased $251, or 17.7%, in the third quarter and $822, or 18.1%, for the first
nine months of 2016. For the period ended September 30, 2016, legacy voice and data services represented approximately 10%
of our total Entertainment Group revenue compared to 13% at September 30, 2015, and reflect decreases of $149 and $489 in
local voice and long-distance, and $102 and $333 in traditional data revenues. The decreases reflect the continued
migration of customers to our more advanced IP-based offerings or to competitors. At September 30, 2016, approximately 10%
of our broadband connections were DSL compared to nearly 15% at September 30, 2015.
Operations and support expenses increased $1,278, or 15.1%, in the third quarter and $10,653, or 58.5%, for the first nine
months 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.
Increased expenses were primarily due to our acquisition of DIRECTV, which increased our third quarter and year-to-date
Entertainment Group expenses by $1,457 and $11,380. The DIRECTV related third quarter and year-to-date 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 these increases were lower employee charges resulting from
ongoing workforce reductions and our focus on cost initiatives.
32
AT&T INC.
SEPTEMBER 30, 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
In the fourth quarter, margins will be pressured by a full quarter of NFL Sunday Ticket costs, annual content cost
increases and start-up costs for DIRECTV NOW.
Depreciation expenses increased $115, or 8.3%, in the third quarter and $962, or 27.3%, for the first nine months of 2016.
The increases were 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 $469, or 46.0%, in the third quarter and $4,174 for the first nine months of 2016. Our
Entertainment Group segment operating income margin in the third quarter increased from 9.4% in 2015 to 11.7% in 2016, and
for the first nine months increased from 2.5% in 2015 to 12.4% in 2016. Our Entertainment Group segment EBITDA margin in
the third quarter increased from 22.2% in 2015 to 23.5% in 2016, and the first nine months increased from 18.3% in 2015 to
24.2% in 2016.
Consumer Mobility
Segment Results
Third Quarter Nine-Month Period
2016 2015 PercentChange 2016 2015 PercentChange
Segment operating revenues
Service $ 6,914 $ 7,363 (6.1 )% $ 20,805 $ 22,019 (5.5 )%
Equipment 1,353 1,421 (4.8 ) 3,976 4,298 (7.5 )
Total Segment Operating Revenues 8,267 8,784 (5.9 ) 24,781 26,317 (5.8 )
Segment operating expenses
Operations and support 4,751 5,065 (6.2 ) 14,343 15,808 (9.3 )
Depreciation and amortization 944 976 (3.3 ) 2,798 2,912 (3.9 )
Total Segment Operating Expenses 5,695 6,041 (5.7 ) 17,141 18,720 (8.4 )
Segment Operating Income 2,572 2,743 (6.2 ) 7,640 7,597 0.6
Equity in Net Income of Affiliates - - - - - -
Segment Contribution $ 2,572 $ 2,743 (6.2 )% $ 7,640 $ 7,597 0.6 %
The following table highlights other key measures of performance for the Consumer Mobility segment:
September 30, Percent
(in 000s) 2016 2015 Change
Consumer Mobility Subscribers
Postpaid 27,374 29,257 (6.4 )%
Prepaid 13,035 10,988 18.6
Branded 40,409 40,245 0.4
Reseller 12,566 13,647 (7.9 )
Connected devices1 936 953 (1.8 )
Total Consumer Mobility Subscribers 53,911 54,845 (1.7 )%
1 Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.
33
AT&T INC.
SEPTEMBER 30, 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
Third Quarter Nine-Month Period
2016 2015 PercentChange 2016 2015 PercentChange
(in 000s)
Consumer Mobility Net Additions 1, 4
Postpaid 21 23 (8.7 )% 89 289 (69.2 )%
Prepaid 304 466 (34.8 ) 1,169 895 30.6
Branded Net Additions 325 489 (33.5 ) 1,258 1,184 6.3
Reseller (316 ) 149 - (1,140 ) (218) -
Connected devices2 41 - - 14 (109) -
Consumer Mobility Net Subscriber Additions 50 638 (92.2 )% 132 857 (84.6 )%
Total Churn1, 3, 4 2.11% 1.90% 21 BP 2.06% 1.93% 13 BP
Postpaid Churn1, 3, 4 1.19% 1.33% (14) BP 1.17% 1.23% (6) 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 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 Includes the impacts of the expected shutdown of our U.S. 2G network.
Operating Revenues decreased $517, or 5.9%, in the third quarter and $1,536, or 5.8%, for the first nine months 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 $449, or 6.1%, in the third quarter and $1,214, or 5.5%, for the first nine months of 2016. The
decreases were largely due to postpaid customers continuing to shift to no-device-subsidy plans that allow for discounted
monthly service charges under our Mobile Share plans, and the migration of subscribers to Business Solutions. Revenues from
postpaid customers declined $632, or 11.4%, in the third quarter and $1,775, or 10.6%, for the first nine months. Without
the migration of customers to Business Solutions, postpaid wireless revenues would have decreased approximately 6.8% and
5.7%, respectively. The decreases were partially offset by higher prepaid service revenues of $250 in the third quarter and
$703 for the first nine months and include services sold under the Cricket brand.
Equipment revenue decreased $68, or 4.8%, in the third quarter and $322, or 7.5%, for the first nine months of 2016. The
decreases in equipment revenues resulted from lower handset volumes and increased promotional activities, partially offset
by the sale of higher priced devices and increases in devices purchased on installment payment agreements rather than the
device subsidy model. We had fewer customers upgrading their handsets and more new customers bringing their own devices.
Operations and support expenses decreased $314, or 6.2%, in the third quarter and $1,465, or 9.3%, for the first nine
months 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.
34
AT&T INC.
SEPTEMBER 30, 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 third quarter were primarily due to the following:
· Equipment costs decreased $110 primarily due to lower handset volumes partially offset by the sale of higher priced devices.
· Bad debt expense decreased $70 primarily due to fewer expected write-offs.
· Marketing and advertising costs decreased $51 due to lower media and production costs.
· Network costs decreased $29 primarily due to lower interconnect costs resulting from our ongoing network transition to more efficient Ethernet/IP-based technologies.
Decreased operations and support expenses for the first nine months were primarily due to the following:
· Equipment costs decreased $453 primarily due to lower handset volumes partially offset by the sale of higher priced devices.
· Selling and commission expenses decreased $299 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.
· Network costs decreased $225 primarily due to lower interconnect costs resulting from our ongoing network transition to more efficient Ethernet/IP-based technologies.
· Customer service costs decreased $107 primarily due to reduced salaries and benefits and lower vendor and professional services from reduced call volumes.
· Bad debt expense decreased $101 primarily due to fewer expected write-offs.
Depreciation expense decreased $32, or 3.3%, in the third quarter and $114, or 3.9% for the first nine months of 2016. The
decrease was primarily due to fully depreciated assets, partially offset by ongoing capital spending for network upgrades
and expansion and accelerating depreciation related to the expected year-end 2016 shutdown of our U.S. 2G network.
Operating income decreased $171, or 6.2%, in the third quarter and increased $43, or 0.6%, for the first nine months of
2016. Our Consumer Mobility segment operating income margin in the third quarter decreased from 31.2% in 2015 to 31.1% in
2016, and for the first nine months increased from 28.9% in 2015 to 30.8% in 2016. Our Consumer Mobility EBITDA margin in
the third quarter increased from 42.3% in 2015 to 42.5% in 2016, and for the first nine months increased from 39.9% in 2015
to 42.1% in 2016.
International
Segment Results
Third Quarter Nine-Month Period
2016 2015 PercentChange 2016 2015 PercentChange
Segment operating revenues
Video entertainment $ 1,297 $ 945 37.2 % $ 3,649 $ 945 - %
Wireless 484 494 (2.0 ) 1,428 1,153 23.9
Equipment 98 87 12.6 297 155 91.6
Total Segment Operating Revenues $ 1,879 $ 1,526 23.1 $ 5,374 $ 2,253 -
Segment operating expenses
Operations and support $ 1,640 $ 1,384 18.5 $ 4,951 $ 2,131 -
Depreciation and amortization 293 225 30.2 868 346 -
Total Segment Operating Expenses 1,933 1,609 20.1 5,819 2,477 -
Segment Operating Income (Loss) (54 ) (83) 34.9 (445 ) (224) (98.7 )
Equity in Net Income (Loss) of Affiliates 1 (4) - 24 (4) -
Segment Contribution $ (53 ) $ (87) 39.1 % $ (421 ) $ (228) (84.6 )%
35
AT&T INC.
SEPTEMBER 30, 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 tables highlight other key measures of performance for the International segment:
September 30, Percent
(in 000s) 2016 2015 Change
Mexican Wireless Subscribers
Postpaid 4,733 4,159 13.8 %
Prepaid 5,665 3,487 62.5
Branded 10,398 7,646 36.0
Reseller 300 445 (32.6 )
Total Mexican Wireless Subscribers 10,698 8,091 32.2
Latin America Satellite Subscribers
PanAmericana 7,139 7,006 1.9
SKY Brazil 5,337 5,538 (3.6 )
Total Latin America Satellite Subscribers1 12,476 12,544 (0.5 )%
1 Excludes subscribers of our International segment equity investments in SKY Mexico, in which we own a 41% stake. At June 30, 2016, SKY Mexico had 7.8 million subscribers.
Third Quarter Nine-Month Period
(in 000s) 2016 2015 PercentChange 2016 2015 PercentChange
Mexican Wireless Net Additions
Postpaid 163 15 - % 444 47 - %
Prepaid 606 (210) - 1,670 (677) -
Branded Net Additions 769 (195) - 2,114 (630) -
Reseller (26 ) (36) 27.8 (100 ) (59) (69.5 )
Mexican Wireless Net Subscriber Additions 743 (231) - 2,014 (689) -
Latin America Satellite Net Additions
PanAmericana (36 ) 16 - 73 16 -
SKY Brazil (12 ) (129) 90.7 (107 ) (129) 17.1
Latin America Satellite Net Subscriber Additions1 (48 ) (113) 57.5 % (34 ) (113) 69.9 %
1 Excludes subscribers of our International segment equity investments in SKY Mexico, in which we own a 41% stake. At June 30, 2016, SKY Mexico had 7.8 million subscribers and net subscriber additions of 121,000 in the second quarter of 2016.
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 $353, or 23.1%, in the third quarter and $3,121 for the first nine months of 2016. The
increase in the third quarter and for the first nine months includes $352, or 37.2%, and $2,704 from video services in
Latin America. Mexico wireless revenues increased $1, or 0.2%, in the third quarter and $417, or 31.9%, for the first nine
months of 2016, primarily due to an increase in our subscriber base offset by lower ARPU (average revenue per average
wireless subscriber).
36
AT&T INC.
SEPTEMBER 30, 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 $256, or 18.5%, in the third quarter and $2,820 for the first nine months 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 and personnel expenses, such as compensation and
benefits. The increase in our third-quarter 2016 expenses is partially offset by approximately $70 in settlements and
reserve adjustments for interconnect, and operating and payroll taxes from our Mexico wireless operations.
Depreciation expense increased $68, or 30.2%, in the third quarter and $522 for the first nine months of 2016. The increase
was primarily due to the acquisition of DIRECTV.
Operating income increased $29, or 34.9%, in the third quarter and decreased $221, or 98.7%, for the first nine months of
2016. Our International segment operating income margin in the third quarter increased from (5.4)% in 2015 to (2.9)% in
2016, and for the first nine months increased from (9.9)% in 2015 to (8.3)% in 2016. Our International EBITDA margin in the
third quarter increased from 9.3% in 2015 to 12.7% in 2016 and the first nine months increased from 5.4% in 2015 to 7.9% in
2016.
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
Third Quarter Nine-Month Period
2016 2015 Percent Change 2016 2015 Percent Change
Operating revenues
Service $ 14,963 $ 15,095 (0.9 )% $ 44,673 $ 45,022 (0.8 )%
Equipment 3,229 3,234 (0.2 ) 9,398 9,797 (4.1 )
Total Operating Revenues 18,192 18,329 (0.7 ) 54,071 54,819 (1.4 )
Operating expenses
Operations and support 10,696 10,865 (1.6 ) 31,822 33,310 (4.5 )
EBITDA 7,496 7,464 0.4 22,249 21,509 3.4
Depreciation and amortization 2,107 2,046 3.0 6,244 6,082 2.7
Total Operating Expenses 12,803 12,911 (0.8 ) 38,066 39,392 (3.4 )
Operating Income 5,389 5,418 (0.5 ) 16,005 15,427 3.7
Equity in Net Income of Affiliates - - - - - -
Operating Contribution $ 5,389 $ 5,418 (0.5 )% $ 16,005 $ 15,427 3.7 %
37
AT&T INC.
SEPTEMBER 30, 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 tables highlight other key measures of performance for AT&T Mobility:
September 30, PercentChange
(in 000s) 2016 2015
Wireless Subscribers1
Postpaid smartphones 58,688 57,733 1.7 %
Postpaid feature phones and data-centric devices 18,700 18,938 (1.3 )
Postpaid 77,388 76,671 0.9
Prepaid 13,035 10,988 18.6
Branded 90,423 87,659 3.2
Reseller 12,624 13,729 (8.0 )
Connected devices2 30,291 25,018 21.1
Total Wireless Subscribers 133,338 126,406 5.5
Branded Smartphones 69,752 66,233 5.3
Mobile Share connections 57,142 59,592 (4.1 )
Smartphones under our installment programs at end of period 29,382 23,487 25.1 %
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.
Third Quarter Nine-Month Period
2016 2015 PercentChange 2016 2015 PercentChange
(in 000s)
Wireless Net Additions 1, 4
Postpaid 212 289 (26.6 )% 598 1,140 (47.5 )%
Prepaid 304 466 (34.8 ) 1,169 895 30.6
Branded Net Additions 516 755 (31.7 ) 1,767 2,035 (13.2 )
Reseller (315 ) 156 - (1,174 ) (205) -
Connected devices2 1,331 1,602 (16.9 ) 4,081 3,995 2.2
Wireless Net Subscriber Additions 1,532 2,513 (39.0 ) 4,674 5,825 (19.8 )
Smartphones sold under our installment programs during period 4,283 4,074 5.1 % 12,378 11,998 3.2 %
Total Churn3, 4 1.45% 1.33% 12 BP 1.41% 1.35% 6 BP
Branded Churn3, 4 1.63% 1.68% (5) BP 1.57% 1.60% (3) BP
Postpaid Churn3, 4 1.05% 1.16% (11) BP 1.04% 1.06% (2) 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 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 Includes the impacts of the expected shutdown of our U.S. 2G network.
Operating income decreased $29, or 0.5%, in the third quarter and increased $578, or 3.7%, for the first nine months of
2016. The operating income margin of AT&T Mobility in the third quarter was 29.6% in both 2015 and 2016, and increased for
the first nine months from 28.1% in 2015 to 29.6% in 2016. AT&T Mobility's EBITDA margin in the third quarter increased
from 40.7% in 2015 to 41.2% in 2016, and increased for the first nine months from 39.2% in 2015 to 41.1% in 2016. AT&T
Mobility's EBITDA service margin in the third quarter increased from 49.4% in 2015 to 50.1% in 2016, and increased for the
first nine months from 47.8% in 2015 to 49.8% in 2016 (EBITDA service margin is operating income before depreciation and
amortization, divided by total service revenues).
38
AT&T INC.
SEPTEMBER 30, 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
Subscriber Relationships
As the wireless industry continues
- More to follow, for following part double click ID:nRSQ5061PeRecent news on AT&T
See all newsREG - AT & T Inc. - Annual Financial Report
AnnouncementREG - Societe Generale SA - Stabilisation Notice - AT+T
AnnouncementREG - Societe Generale SA - Stabilisation Notice - AT&T
AnnouncementREG - Societe Generale SA - Stabilisation Notice - AT&T
AnnouncementREG - Nestle SA Nestle Holdings Inc - Nestlé appoints Lisa Gibby as CCO
Announcement