AT&T slumps after bleeding subscribers as it focuses on debt
AT&T lost more U.S. wireless and TV subscribers than anticipated last quarter as the phone giant retreated from promotions while working on reducing debt stemming from its Time Warner takeover.
The loss in net wireless subscribers amounted to 204,000 in the first quarter, mainly due to a drop off in tablets. AT&T also lost 627,000 TV customers. Analysts predicted declines of 50,000 and 389,000, respectively.
For now AT&T is sacrificing subscribers to manage the balance sheet, a strategy that has its risks because monthly phone and TV customers generate cash flow that supports dividends and buybacks in the long term. The Dallas-based company, owner of DirecTV, spent $85 billion on Time Warner last year to get must-see content as more customers ditch conventional pay TV for streaming alternatives like Netflix. But before AT&T can invest in its assets, it’s focused on debt that ballooned to $180 billion when the deal closed.
The TV business has been bleeding customers: It has now lost almost 1.3 million subscribers over just two quarters out of a total of 23.9 million in the U.S. Executives said on a conference call that it will likely get worse. AT&T attracted DirecTV customers with heavy promotions two years ago, and now has 1.6 million subscribers who are paying a lower price. Those agreements will expire this year and cause more cancellations, the company said.
The wireless business has been faring slightly better. While the company lost tablet subscribers, AT&T added 80,000 regular monthly phone subscribers, the first gain for a first quarter in five years.
Still, AT&T is facing industrywide challenges, as wireless customers hang on to their phones longer than ever. Only 3.5 percent of AT&T customers upgraded their phones last quarter, the lowest replacement rate ever. Verizon hit a similar low last quarter.
On the balance sheet front, AT&T said Wednesday that it reduced net debt by $2.3 billion during the quarter to $169 billion. It is selling assets like a Hulu investment and office properties including 30 Hudson Yards in New York to help reach its goal of $150 billion at the end of the year.