While cord cutting continues to hurt traditional pay-TV providers, AT&T (T) - Get Report said that almost half of its traditional video subscriber losses are involuntary and do not reflect customers simply fleeing pay TV. The telecom and pay-TV company expects the subscriber losses to ease in the fourth quarter -- but that doesn't mean that purposeful cord cutting is going away.  

AT&T CFO John Stephens told investors in a call after the close on Tuesday that almost half of its nearly 390,000 video subscriber losses in the third quarter were driven by either the telecom itself, or mother nature. Stephens said that AT&T is tightening its credit policies and cutting off delinquent subscribers, and that hurricanes also hurt the video business. 

Shares of the telecom dropped 3.5% to $33.62 on Wednesday following the report, in which AT&T met earnings expectations but came in below revenue forecasts.

AT&T is feeling the pain from a policy shift in the second half of 2016 in which it allowed customers with weaker credit to postpone upfront payments for satellite dish installation, JPMorgan analyst Phil Cusick suggested in a Wednesday report. "That doesn't seem to have worked out, and the company is now charging off many of those customers," he wrote, estimating that 95,000 of the subscriber losses in the quarter come from tightened credit.

The biggest storm-related losses likely came in Puerto Rico, Cusick wrote, where AT&T has an estimated 200,000 subscribers. "With [roughly] 75% of the island still without power we are surprised that those losses aren't worse," he noted.

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Collectively, Cusick expects the traditional pay-TV industry will lose 859,000 subscribers in the third quarter, an increase from his prior forecast of 851,000. More data comes on Thursday morning, when Comcast (CMCSA) - Get Report and Charter (CHTR) - Get Report report their earnings. Dish (DISH) - Get Report has not set its third-quarter earnings date yet, but its report will provide insights into the satellite TV market.

Data from eMarketer reflects the continuing decline in pay television. The number of U.S. households with cable will fall 0.9% to 53.8 million in 2018, the firm projects. Satellite will experience  a steeper 2.9% drop to 30.7 million households, eMarketer suggests, while pay-tv from the telecoms will drop 8.1% to 7.9 million households.

DirecTV's third-quarter subscriber losses are a bad sign, noted Craig Moffett of MoffettNathanson. "For the first time in its 23-year history, DirecTV's subscriber base is now smaller than it was a year ago," Moffett wrote. DirecTV lost 251,000 subscribers in the third quarter, compared to a gain of 323,000 in the same period last year. "A quarter ago, we noted that it is clear that the business has now entered a secular decline," Moffett noted. "This quarter, it is clear that the secular decline is gathering (downward) momentum."

DirecTV Now is one of the few bright spots. The streaming package of cable channels gained nearly 300,00 subscribers in the quarter, and has about 800,000 users. 

Just about 10% of DirecTV Now's base are former DirecTV satellite or U-Verse land-line pay-TV subscribers, Stephens told investors. Roughly 700,000 of its streaming subscribers are "new to AT&T," he said, and came from a rival or are new subscribers to cable or satellite TV. 

AT&T's unlimited wireless subscribers can add DirecTV Now to their plan for $10 a month, while the streaming service costs $35 on its own. David Barden of Bank of America suggested on AT&T's call that the content alone costs about $30 a month. Stephens responded that the bundle is accretive, though, because it helps AT&T hold ont valuable wireless subscribers, and also sell family plans.

Even if AT&T is right, though, investors may not see the payoff soon, Cowen & Co. analyst Colby Synesael suggested in a report. "While we appreciate the value of the video bundling strategy as a potential differentiator and churn buster, the outsized traditional video erosion (industrywide) suggests it will be a long time before such a strategy proves out," Synesael wrote.

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