AT&T posted a surprise loss of subscribers last quarter, just one day after archrival Verizon Communications registered strong results.
AT&T, which was coming off five straight quarters of wireless customer gains, was hit hard by dwindling tablet subscriptions. The devices have become less popular, and many consumers don't see a need to keep paying monthly connection fees for them. With the rise of online video services like Netflix and Amazon, AT&T also has seen a troubling erosion of its pay-TV customer base.
Third-quarter profit amounted to 90 cents a share, excluding some items, missing analysts' estimates of 94 cents.
The Dallas-based company reported a loss of 232,000 regular monthly wireless subscribers. Analysts expected a gain of 89,000 customers. The big factor was the loss of 420,000 tablet customers in the quarter. Excluding tablets and other devices, AT&T added 69,000 regular monthly phone customers.
AT&T also saw video subscriber growth stall after three sequential quarters of gains. The company lost 297,000 TV customers, a considerable disappointment to analysts who had predicted a gain of 53,000. Subscriber growth at DirecTV Now, AT&T's online TV service, has helped cushion the steady decline of satellite TV customers in the past several quarters, said Kevin Roe, an analyst with Roe Equity Research.
"That has been largely working, until now," Roe said.
Subscriber pressure contributed to AT&T's decision to branch out. It transformed its business this year by acquiring Time Warner, including popular media properties like HBO and CNN, turning the former Ma Bell into a media conglomerate. Still, the payoff from that $85 billion deal, which closed in June, remains a ways off.
Verizon, meanwhile, passed on megadeals in favor of focusing on its core business. It posted surprisingly strong earnings and wireless-subscriber gains Tuesday, highlighting the contrasting strategies of the two phone giants.
Investors will be looking for signs that AT&T can turn the Time Warner merger into opportunities to sell more advertising and keep customers loyal. The business contributed 5 cents to earnings last quarter, but the synergies of the deal will take longer to bear fruit.
Meanwhile, you can expect the pay-TV side of the business to have some continuing challenges, said Walt Piecyk, an analyst with BTIG.
"It's tough to make money in the video business, especially when Google is charging $40 for YouTube TV," Piecyk said. And extra hard as people come off discounted price plans. "The challenge will be whether they can keep those customers when there are cheaper, skinnier offers available in the market."