For a while, AT&T (T) used large stock buybacks and conservative capital spending to prop up its earnings and free cash flow per share to offset the impact of stiff wireless competition and plummeting wireline voice revenue. But starting with last year's $49 billion DirecTV purchase and now continuing with its $85.4 billion deal to buy Time Warner (TWX) , Ma Bell has decided its best bet to lower the impact of telecom sales pressures is to make giant acquisitions involving companies in adjacent pay-TV and media markets.
But those adjacent markets have their own long-term issues. And even after accounting for the acquisitions and various synergies they provide, telecom headwinds are likely to remain a big problem.
A look at AT&T's third-quarter results, released in tandem with news of the Time Warner deal, helps explain why the company is so intent on cutting its telecom dependence. Business Solutions revenue, which covers mobile and wireline services provided to businesses, rose just 0.4% annually to $17.8 billion, while Consumer Mobility revenue fell 5.9% to $8.3 billion. Entertainment Group revenue, which covers pay-TV and consumer broadband services, saw revenue rise due to the closing of the DirecTV deal in the year-ago quarter.
Subscriber losses were widespread. Mobile postpaid phone subscribers fell by 268,000 sequentially to 65.3 million, and were down by over 1.4 million relative to the year-ago period. AT&T also lost 315,000 mobile reseller subs relative to Q2. Business wireline voice connections fell by 280,000 sequentially to 8.65 million, and business wireline broadband connections fell by 18,000 1.44 million.
In the Entertainment Group, pay-TV and broadband subs respectively fell by 3,000 and 5,000 sequentially to 25.3 million and 14.2 million, and wireline voice connections fell by 282,000 to 11.5 million. Larger pay-TV and broadband losses were recorded in Q2.
There are admittedly some bright spots -- 1.3 million mobile "connected devices" were added in Q3, as were 304,000 prepaid phone subs (generally less lucrative than postpaid subs). But subscriber losses are clearly widespread, thanks to competitive threats and secular trends that aren't going away anytime soon and in some cases could intensify.
