REG - AT & T Inc. - Half-year Report 10-Q <Origin Href="QuoteRef">T.N</Origin> - Part 3
23/08/2017 16:50
- Part 3: For the preceding part double click ID:nRSW8233Ob
Service $ 36,538 $ 37,142 (1.6 )% $ 72,994 $ 74,243 (1.7 )%
Equipment 3,299 3,378 (2.3 ) 6,208 6,812 (8.9 )
Total Operating Revenues 39,837 40,520 (1.7 ) 79,202 81,055 (2.3 )
Operating expenses
Cost of services and sales
Equipment 4,138 4,260 (2.9 ) 7,986 8,635 (7.5 )
Broadcast, programming and operations 4,898 4,701 4.2 9,872 9,330 5.8
Other cost of services 9,218 9,514 (3.1 ) 18,283 18,910 (3.3 )
Selling, general and administrative 8,113 8,909 (8.9 ) 16,600 17,350 (4.3 )
Depreciation and amortization 6,147 6,576 (6.5 ) 12,274 13,139 (6.6 )
Total Operating Expenses 32,514 33,960 (4.3 ) 65,015 67,364 (3.5 )
Operating Income 7,323 6,560 11.6 14,187 13,691 3.6
Income Before Income Taxes 6,070 5,421 12.0 11,448 11,428 0.2
Net Income 4,014 3,515 14.2 7,588 7,400 2.5
Net Income Attributable to AT&T $ 3,915 $ 3,408 14.9 % $ 7,384 $ 7,211 2.4 %
Overview
Operating revenues decreased $683, or 1.7%, in the second quarter and $1,853, or 2.3%, for the first six months of 2017.
Service revenues decreased $604, or 1.6%, in the second quarter and $1,249, or 1.7%, for the first six months of 2017. The
decreases were primarily due to continued declines in legacy wireline voice and data products and lower wireless service
revenues reflecting increased adoption of unlimited plans. These were partially offset by increased revenues from video and
strategic business services.
Equipment revenues decreased $79, or 2.3%, in the second quarter and $604, or 8.9%, for the first six months of 2017. The
decreases were primarily due to lower wireless handset sales, driven by a continuing low rate of customer device upgrades
and strong Bring Your Own Device (BYOD) participation. Equipment revenue is becoming increasingly unpredictable as many
customers are choosing to upgrade devices less frequently or are bringing their own.
Operating expenses decreased $1,446, or 4.3%, in the second quarter and $2,349, or 3.5%, for the first six months of
2017.
Equipment expenses decreased $122, or 2.9%, in the second quarter and $649, or 7.5%, for the first six months of 2017. The
decreases were driven by a decline in devices sold reflecting a change in customer buying habits.
22
AT&T INC.
JUNE 30, 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
Broadcast, programming and operations expenses increased $197, or 4.2%, in the second quarter and $542, or 5.8%, for the
first six months of 2017, reflecting annual content cost increases.
Other cost of services expenses decreased $296, or 3.1%, in the second quarter and $627, or 3.3%, for the first six months
of 2017. The decreases reflect our continued focus on cost management and the utilization of automation and digitalization
where appropriate. Also contributing to the decreases were lower Federal Universal Service Fund (USF) rates and fees and an
actuarial gain due to remeasurement of our postretirement benefit obligation. These expense declines were partially offset
by an increase in amortization of deferred customer fulfillment cost.
Selling, general and administrative expenses decreased $796, or 8.9%, in the second quarter and $750, or 4.3%, for the
first six months of 2017. The decreases were attributable to our disciplined cost management, lower advertising costs and
an actuarial gain due to remeasurement of our postretirement benefit obligation. The decrease in the first six months was
partially offset by lower gains on wireless spectrum transactions during 2017 than in the comparable period of 2016.
Depreciation and amortization expense decreased $429, or 6.5%, in the second quarter and $865, or 6.6%, for the first six
months of 2017. Depreciation expense decreased $281, or 5.3%, in the second quarter and $569, or 5.4%, for the first six
months of 2017. The decreases were primarily due to our fourth-quarter 2016 change in estimated useful lives and salvage
values of certain assets associated with our transition to an IP-based network, which accounted for $327 of the decrease in
the second quarter and $654 of the decrease for the first six months. These decreases were partially offset by increases
resulting from ongoing capital spending for upgrades and expansion.
Amortization expense decreased $148, or 11.2%, in the second quarter and $296, or 11.1%, for the first six months of 2017
due to lower amortization of intangibles for the customer lists associated with acquisitions.
Operating income increased $763, or 11.6%, in the second quarter and $496, or 3.6%, for the first six months of 2017. Our
operating income margin in the second quarter increased from 16.2% in 2016 to 18.4% in 2017, and the first six months
increased from 16.9% in 2016 to 17.9% in 2017.
Interest expense increased $137, or 10.9%, in the second quarter and $223, or 9.0%, for the first six months of 2017. The
increases were primarily due to higher debt balances and average interest rates when compared to the prior year. Fees paid
to secure financing for pending acquisitions also contributed to higher expenses in 2017.
Equity in net income (loss) of affiliates decreased $14 in the second quarter and $200 for the first six months of 2017,
predominantly from losses from our legacy publishing business (which we sold in June 2017), partially offset by income from
our investments in video-related businesses.
Other income (expense) - net increased $37, or 40.7%, in the second quarter and decreased $53, or 32.9%, for the first six
months. The increase in the second quarter was primarily due to growth in interest and dividend income of $54, including
interest on tax-related settlements, and net gains from the sale of non-strategic assets and investments of $8. These
increases were partially offset by foreign exchange pressure.
The decrease for the first six months was primarily due to additional net losses from the sale of non-strategic assets
totaling $97 and foreign exchange pressure, partially offset by growth in interest and dividend income of $55.
Income taxes increased $150, or 7.9%, in the second quarter of 2017 and decreased $168, or 4.2%, for the first six months
of 2017. Our effective tax rate was 33.9% for the second quarter and 33.7% for the first six months of 2017, as compared to
35.2% for the second quarter and 35.2% for the first six months of 2016. The increase in income tax expense for the second
quarter was primarily due to higher income before income taxes in 2017. The decrease in income tax expense for the first
six months of 2017 was primarily due to the recognition of tax benefits related to the restructuring of a portion of our
wireless business, which also resulted in decreases in our effective tax rate for the second quarter and the first six
months of 2017.
23
AT&T INC.
JUNE 30, 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
Selected Financial and Operating Data
June 30,
Subscribers and connections in (000s) 2017 2016
Domestic wireless subscribers 136,500 131,805
Mexican wireless subscribers 13,082 9,955
North American wireless subscribers 149,582 141,760
North American branded subscribers 104,421 99,557
North American branded net additions 1,626 2,596
Domestic satellite and over-the-top video subscribers 21,347 20,454
AT&T U-verse (U-verse) video subscribers 3,853 4,869
Latin America satellite video subscribers 1 13,622 12,523
Total video subscribers 38,822 37,846
Total domestic broadband connections 15,686 15,641
Network access lines in service 12,791 15,284
U-verse VoIP connections 5,853 5,593
Debt ratio 2 53.3% 50.5%
Net debt ratio 3 43.8% 47.6%
Ratio of earnings to fixed charges 4 3.84 4.01
Number of AT&T employees 260,480 277,200
1 Excludes subscribers of our International segment equity investments in SKY Mexico, in which we own a 41% stake. At March
31, 2017, SKY Mexico had 8.0 million subscribers.
2 Debt ratios are calculated by dividing total debt (debt maturing within one year plus long-term debt) by total capital
(total debt plus total stockholders' equity) and do not consider cash available to pay down debt. See our "Liquidity and
Capital Resources" section for discussion.
3 Net debt ratios are calculated by deriving total debt (debt maturing within one year plus long-term debt) less cash
available by total capital (total debt plus total stockholders' equity).
4 See Exhibit 12.
Segment Results
Our segments are strategic business units that offer different products and services over various technology platforms
and/or in different geographies that are managed accordingly. Our segment results presented in Note 4 and discussed below
for each segment follow our internal management reporting. We analyze our segments based on Segment Contribution, which
consists of operating income, excluding acquisition-related costs and other significant items, and equity in net income
(loss) of affiliates for investments managed within each segment. We have four reportable segments: (1) Business Solutions,
(2) Entertainment Group, (3) Consumer Mobility and (4) International.
We also evaluate segment performance based on EBITDA and/or EBITDA margin, which is defined as Segment Contribution,
excluding equity in net income (loss) of affiliates and depreciation and amortization. We believe EBITDA to be a relevant
and useful measurement to our investors as it is part of our internal management reporting and planning processes and it is
an important metric that management uses to evaluate operating performance. EBITDA does not give effect to cash used for
debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary
uses. EBITDA margin is EBITDA divided by total revenues.
24
AT&T INC.
JUNE 30, 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 Business Solutions segment provides services to business customers, including multinational companies; governmental
and wholesale customers; and individual subscribers who purchase wireless services through employer-sponsored plans. We
provide advanced IP-based services including Virtual Private Networks (VPN); Ethernet-related products and broadband,
collectively referred to as fixed strategic services; as well as traditional data and voice products. We utilize our
wireless and wired networks to provide a complete integrated communications solution to our business customers.
The Entertainment Group segment provides video, internet, voice communication, and interactive and targeted advertising
services to customers located in the United States or in U.S. territories. We utilize our copper and IP-based wired network
and our satellite technology.
The Consumer Mobility segment provides nationwide wireless service to consumers, wholesale and resale wireless subscribers
located in the United States or in U.S. territories. We utilize our networks to provide voice and data services, including
high-speed internet, video and home monitoring services over wireless devices.
The International segment provides entertainment services in Latin America and wireless services in Mexico. Video
entertainment services are provided to primarily residential customers using satellite technology. We utilize our regional
and national networks in Mexico to provide consumer and business customers with wireless data and voice communication
services. 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.
Our operating assets are utilized by multiple segments and consist of our wireless and wired networks as well as an
international satellite fleet. We manage our assets to provide for the most efficient, effective and integrated service to
our customers, not by segment, and therefore asset information and capital expenditures by segment are not presented.
Depreciation is allocated based on asset utilization by segment.
Business Solutions
Segment Results
Second Quarter Six-Month Period
2017 2016 PercentChange 2017 2016 PercentChange
Segment operating revenues
Wireless service $ 8,006 $ 7,963 0.5 % $ 15,935 $ 15,818 0.7 %
Fixed strategic services 3,028 2,805 8.0 6,002 5,556 8.0
Legacy voice and data services 3,508 4,162 (15.7 ) 7,138 8,535 (16.4 )
Other service and equipment 844 874 (3.4 ) 1,661 1,733 (4.2 )
Wireless equipment 1,721 1,775 (3.0 ) 3,219 3,546 (9.2 )
Total Segment Operating Revenues 17,107 17,579 (2.7 ) 33,955 35,188 (3.5 )
Segment operating expenses
Operations and support 10,313 10,857 (5.0 ) 20,489 21,659 (5.4 )
Depreciation and amortization 2,335 2,521 (7.4 ) 4,647 5,029 (7.6 )
Total Segment Operating Expenses 12,648 13,378 (5.5 ) 25,136 26,688 (5.8 )
Segment Operating Income 4,459 4,201 6.1 8,819 8,500 3.8
Equity in Net Income of Affiliates - - - - - -
Segment Contribution $ 4,459 $ 4,201 6.1 % $ 8,819 $ 8,500 3.8 %
25
AT&T INC.
JUNE 30, 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 following tables highlight other key measures of performance for the Business Solutions segment:
June 30, Percent
(in 000s) 2017 2016 Change
Business Wireless Subscribers
Postpaid/Branded 51,111 49,433 3.4 %
Reseller 72 51 41.2
Connected devices 1 33,611 28,061 19.8
Total Business Wireless Subscribers 84,794 77,545 9.3
Business IP Broadband Connections 992 948 4.6 %
1 Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.
Second Quarter Six-Month Period
2017 2016 Percent 2017 2016 Percent
(in 000s) Change Change
Business Wireless Net Additions 1, 4
Postpaid/Branded 36 185 (80.5 )% (89 ) 318 - %
Reseller (5 ) (13 ) 61.5 1 (35 ) -
Connected devices 2 2,170 1,199 81.0 4,723 2,777 70.1
Business Wireless Net Subscriber 2,201 1,371 60.5 4,635 3,060 51.5
Additions
Business Wireless Postpaid Churn 1, 3, 4 0.97 % 0.91 % 6 BP 1.02 % 0.97 % 5 BP
Business IP Broadband Net Additions 12 20 (40.0 )% 16 37 (56.8 )%
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 $472, or 2.7%, in the second quarter and $1,233, or 3.5%, for the first six months 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. These decreases were partially offset by continued growth in wireless
services and fixed strategic services, which represent 41% of non-wireless revenues. Our revenues continue to be pressured
by slower fixed business investment.
Wireless service revenues increased $43, or 0.5%, in the second quarter and $117, or 0.7%, for the first six months of
2017. The revenue increases are primarily due to the migration of customers from our Consumer Mobility segment.
At June 30, 2017, we served 84.8 million subscribers, an increase of 9.3% from the prior year. Postpaid subscribers
increased 3.4% 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 19.8% 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) .
26
AT&T INC.
JUNE 30, 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 second quarter, business wireless postpaid churn increased to 0.97% in 2017 from 0.91% in 2016, and
for the first six months increased to 1.02% in 2017 from 0.97% in 2016.
Fixed strategic services revenues increased $223, or 8.0%, in the second quarter and $446, or 8.0%, for the first six
months of 2017. Our revenues increased in the second quarter and first six months of 2017 primarily due to: Ethernet of $93
and $166; Dedicated Internet services of $45 and $104; and VoIP of $61 and $118, respectively.
Legacy wired voice and data service revenues decreased $654, or 15.7%, in the second quarter and $1,397, or 16.4%, for the
first six months of 2017. In the second quarter and first six months of 2017, legacy voice billings decreased $342 and $744
and traditional data billings decreased $312 and $653, respectively. These decreases were primarily due to lower demand, as
customers continue to shift to our more advanced IP-based offerings or to competitors.
Wireless equipment revenues decreased $54, or 3.0%, in the second quarter and $327, or 9.2%, for the first six months of
2017. While equipment revenue is becoming increasingly unpredictable as many customers are choosing to upgrade devices less
frequently or bring their own, equipment revenues improved sequentially in the second quarter as compared to the first
quarter of 2017 due to customers choosing to purchase higher priced devices and lower promotional activity in the quarter.
Operations and support expenses decreased $544, or 5.0%, in the second quarter and $1,170, or 5.4%, for the first six
months 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 second quarter and first six months were primarily due to efforts to
automate and digitize our support activities, improving results approximately $230 and $397, and lower equipment sales and
wireless upgrade transactions, decreasing equipment costs by $148 and $396, respectively. Expense reductions also reflect
lower administrative costs, contributing to a reduction in expenses of $149 and $164, and fewer traffic compensation and
wireless interconnect costs, resulting in declines of $60 and $111, respectively, in access and interconnect costs. USF
rates and fees also contributed to lower expenses for the first six months.
Depreciation expense decreased $186, or 7.4%, in the second quarter and $382, or 7.6%, for the first six months 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 $258, or 6.1%, in the second quarter and $319, or 3.8%, for the first six months of 2017. Our
Business Solutions segment operating income margin in the second quarter increased from 23.9% in 2016 to 26.1% in 2017, and
for the first six months increased from 24.2% in 2016 to 26.0% in 2017. Our Business Solutions EBITDA margin in the second
quarter increased from 38.2% in 2016 to 39.7% in 2017, and for the first six months increased from 38.4% in 2016 to 39.7%
in 2017.
27
AT&T INC.
JUNE 30, 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
Second Quarter Six-Month Period
2017 2016 PercentChange 2017 2016 PercentChange
Segment operating revenues
Video entertainment $ 9,153 $ 8,963 2.1 % $ 18,173 $ 17,867 1.7 %
High-speed internet 1,927 1,867 3.2 3,868 3,670 5.4
Legacy voice and data services 1,005 1,244 (19.2 ) 2,061 2,557 (19.4 )
Other service and equipment 597 637 (6.3 ) 1,203 1,275 (5.6 )
Total Segment Operating Revenues 12,682 12,711 (0.2 ) 25,305 25,369 (0.3 )
Segment operating expenses
Operations and support 9,558 9,569 (0.1 ) 19,159 19,147 0.1
Depreciation and amortization 1,458 1,489 (2.1 ) 2,877 2,977 (3.4 )
Total Segment Operating Expenses 11,016 11,058 (0.4 ) 22,036 22,124 (0.4 )
Segment Operating Income 1,666 1,653 0.8 3,269 3,245 0.7
Equity in Net Income (Loss) of Affiliates (11 ) (2 ) - (17 ) 1 -
Segment Contribution $ 1,655 $ 1,651 0.2 % $ 3,252 $ 3,246 0.2 %
The following tables highlight other key measures of performance for the Entertainment Group segment:
June 30,
(in 000s) 2017 2016 PercentChange
Video Connections
Satellite 20,856 20,454 2.0 %
U-verse 3,825 4,841 (21.0 )
DIRECTV NOW 1 491 - -
Total Video Connections 25,172 25,295 (0.5 )
Broadband Connections
IP 13,242 12,596 5.1
DSL 1,060 1,585 (33.1 )
Total Broadband Connections 14,302 14,181 0.9
Retail Consumer Switched Access Lines 5,257 6,515 (19.3 )
U-verse Consumer VoIP Connections 5,439 5,300 2.6
Total Retail Consumer Voice Connections 10,696 11,815 (9.5 )%
1 Consistent with industry practice, DIRECTV NOW includes trial-period subscribers.
28
AT&T INC.
JUNE 30, 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
Second Quarter Six-Month Period
2017 2016 PercentChange 2017 2016 PercentChange
(in 000s)
Video Net Additions
Satellite 1 (156 ) 342 - % (156 ) 670 - %
U-verse 1 (195 ) (391 ) 50.1 (428 ) (773 ) 44.6
DIRECTV NOW 2 152 - - 224 - -
Net Video Additions (199 ) (49 ) - (360 ) (103 ) -
Broadband Net Additions
IP 112 54 - 354 240 47.5
DSL (104 ) (164 ) 36.6 (231 ) (345 ) 33.0
Net Broadband Additions 8 (110 ) - % 123 (105 ) - %
1 Includes disconnections for customers that migrated to DIRECTV NOW.
2 Consistent with industry practice, DIRECTV NOW includes trial-period subscribers.
Operating revenues decreased $29, or 0.2%, in the second quarter and $64, or 0.3%, for the first six months of 2017,
largely due to lower revenues from legacy voice and data products, 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 $190, or 2.1%, in the second quarter and $306, or 1.7%, for the first six months of
2017, reflecting a 3.5% and 2.3% increase in average revenue per linear (combined satellite and U-verse) video connection
and increases of $51 and $72 in advertising revenues, respectively. While linear video losses have continued their recent
trend, we are beginning to see the impact of customers wanting mobile and over-the-top offerings, which is contributing to
growth in our DIRECTV NOW connections and offsetting linear video subscriber losses. DIRECTV NOW connections continue to
grow as we add eligible devices and increase content choices. While our ability to bundle services has also positively
impacted subscriber trends and churn, we did experience an increase in churn for subscribers with linear video but no
wireless service through AT&T, partially due to pricing increases associated with annual content cost increases and
involuntary churn.
High-speed internet revenues increased $60, or 3.2%, in the second quarter and $198, or 5.4%, for the first six months of
2017, reflecting a 5.1% increase in IP broadband subscribers when compared to the prior year. Also contributing to higher
revenues was the increasing trend of subscribers to select higher-speed and higher-rated plans. Average revenue per IP
broadband connection (ARPU) increased 0.7% in the first six months of 2017. To compete more effectively against other
broadband providers in the midst of ongoing declines in DSL broadband subscribers, we continued to deploy our all-fiber,
high-speed wireline network, which has improved customer retention rates.
Legacy voice and data service revenues decreased $239, or 19.2%, in the second quarter and $496, or 19.4%, for the first
six months of 2017. For the six months ended June 30, 2017, legacy voice and data services represented approximately 8% of
our total Entertainment Group revenue compared to 10% for the June 30, 2016 period, and reflect second quarter and year to
date decreases of $161 and $335 in local voice and long-distance, and $79 and $162 in traditional data billings,
respectively. The decreases reflect the continued migration of customers to our more advanced IP-based offerings or to
competitors. At June 30, 2017, approximately 7% of our broadband connections were DSL compared to 11% at June 30, 2016.
Operations and support expenses decreased $11, or 0.1%, in the second quarter and increased $12, or 0.1%, for the first six
months 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.
29
AT&T INC.
JUNE 30, 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
Decreased operations and support expenses in the second quarter were due to merger synergies and efforts to automate and
digitize our support activities. These reductions were mostly offset by annual content cost increases and an increase in
amortization of deferred customer fulfillment cost.
Increased operations and support expenses for the first six months of 2017 were primarily due to annual content cost
increases, deferred customer fulfillment cost amortization, and impacts of storms and flooding on the West Coast that
occurred earlier in 2017. Offsetting these increases were the impact of our ongoing focus on cost efficiencies and merger
synergies, as well as workforce reductions and lower advertising costs.
Depreciation expense decreased $31, or 2.1%, in the second quarter, and $100, or 3.4%, for the first six months of 2017.
The decreases were 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. These decreases
were offset by ongoing capital spending for network upgrades and expansion.
Operating income increased $13, or 0.8%, in the second quarter and $24, or 0.7%, for the first six months of 2017. Our
Entertainment Group segment operating income margin in the second quarter increased from 13.0% in 2016 to 13.1% in 2017,
and for the first six months increased from 12.8% in 2016 to 12.9% in 2017. Our Entertainment Group segment EBITDA margin
in the second quarter decreased from 24.7% in 2016 to 24.6% in 2017, and for the first six months decreased from 24.5% in
2016 to 24.3% in 2017.
Consumer Mobility
Segment Results
Second Quarter Six-Month Period
2017 2016 PercentChange 2017 2016 PercentChange
Segment operating revenues
Service $ 6,528 $ 6,948 (6.0 )% $ 13,137 $ 13,891 (5.4 )%
Equipment 1,263 1,238 2.0 2,394 2,623 (8.7 )
Total Segment Operating Revenues 7,791 8,186 (4.8 ) 15,531 16,514 (6.0 )
Segment operating expenses
Operations and support 4,520 4,680 (3.4 ) 9,048 9,592 (5.7 )
Depreciation and amortization 871 932 (6.5 ) 1,744 1,854 (5.9 )
Total Segment Operating Expenses 5,391 5,612 (3.9 ) 10,792 11,446 (5.7 )
Segment Operating Income 2,400 2,574 (6.8 ) 4,739 5,068 (6.5 )
Equity in Net Income of Affiliates - - - - - -
Segment Contribution $ 2,400 $ 2,574 (6.8 )% $ 4,739 $ 5,068 (6.5 )%
30
AT&T INC.
JUNE 30, 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 following tables highlight other key measures of performance for the Consumer Mobility segment:
June 30, Percent
(in 000s) 2017 2016 Change
Consumer Mobility Subscribers
Postpaid 26,290 27,862 (5.6 )%
Prepaid 14,187 12,633 12.3
Branded 40,477 40,495 -
Reseller 10,182 12,869 (20.9 )
Connected devices 1 1,047 896 16.9
Total Consumer Mobility Subscribers 51,706 54,260 (4.7 )%
1 Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.
Second Quarter Six-Month Period
2017 2016 PercentChange 2017 2016 PercentChange
(in 000s)
Consumer Mobility Net Additions 1, 4
Postpaid 91 72 26.4 % 25 68 (63.2 )%
Prepaid 267 365 (26.8 ) 549 865 (36.5 )
Branded Net Additions 358 437 (18.1 ) 574 933 (38.5 )
Reseller (363 ) (446 ) 18.6 (951 ) (824 ) (15.4 )
Connected devices 2 86 (1 ) - 105 (27 ) -
Consumer Mobility Net Subscriber Additions 81 (10 ) - % (272 ) 82 - %
Total Churn 1, 3, 4 2.15 % 1.96 % 19 BP 2.29 % 2.04 % 25 BP
Postpaid Churn 1, 3, 4 1.09 % 1.09 % - BP 1.16 % 1.16 % - 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 $395, or 4.8%, in the second quarter and $983, or 6.0%, for the first six months of 2017.
Decreased revenues reflect declines in postpaid service revenues due to customers migrating to our Business Solutions
segment and choosing unlimited 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 $420, or 6.0%, in the second quarter and $754, or 5.4%, for the first six months of 2017. The
decreases were largely due to the migration of subscribers to Business Solutions and postpaid customers continuing to shift
to discounted monthly service charges under our unlimited plans. Revenues from postpaid customers declined $496, or 9.9%,
in the second quarter and $1,003, or 9.9%, for the first six months of 2017. Without the migration of customers to Business
Solutions, postpaid wireless revenues would have decreased approximately 5.4% for both the second quarter and the first six
months of 2017. The decreases were partially offset by higher prepaid service revenues of $201, or 14.7%, in the second
quarter and $440, or 16.5%, for the first six months primarily from growth in Cricket and AT&T PREPAID SM subscribers.
31
AT&T INC.
JUNE 30, 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
Equipment revenue increased $25, or 2.0%, in the second quarter and decreased $229, or 8.7%, for the first six months of
2017. The increase in the second quarter equipment revenues resulted from higher handset sales and upgrades, a substantial
improvement over the first quarter. 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 $160, or 3.4%, in the second quarter and $544, or 5.7%, for the first six months
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 for the second quarter were primarily due to increased operational efficiencies
and lower marketing and advertising costs resulting from the timing of scheduled ad campaigns and integrated advertising.
These decreases were partially offset by increased equipment costs due to higher volumes of wireless equipment sales and
upgrades.
Decreased operations and support expenses for the first six months were primarily due to lower volumes of wireless
equipment sales and upgrades, which decreased equipment and selling and commission costs, and lower marketing and
advertising costs resulting from the timing of scheduled ad campaigns and integrated advertising.
Depreciation expense decreased $61, or 6.5%, in the second quarter and $110, or 5.9%, for the first six months of 2017. The
decreases were primarily due to fully depreciated assets, partially offset by ongoing capital spending for network upgrades
and expansion.
Operating income decreased $174, or 6.8%, in the second quarter
- More to follow, for following part double click ID:nRSW8233OdRecent 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