Cutting the cord is painful.
While AT&T Inc. (T) showed signs of cord cutting in the third quarter, CFO John Stephens told investors on a Tuesday, Oct. 24, earnings call that pressures on its traditional pay-TV business would lessen in the fourth quarter. While AT&T met forecasts for earnings, the company undershot expected revenue in a report after the market close.
The telecom earned 74 cents per share, in line with forecasts of analysts surveyed by FactSet. Sales of $39.7 billion, however, were below expectations of $40.1 billion. Shares of the telecom dropped 1.46% to $34.35 after hours. The company's shares fell 1.1% during the regular session.
"This was an unprecedented quarter when it comes to natural disasters," AT&T CFO John Stephens told investors. The telecom said that damage from hurricanes in the U.S. and earthquakes in Mexico and higher interest expense for prefunding debt for the purchase of Time Warner Inc. (TWX) lowered earnings.The purchase of Time Warner is ready to close once the Department of Justice signs off, Stephens said. Brazilian antitrust regulators approved the deal last week.
AT&T already had warned that the quarter would show signs of cord cutting and said Tuesday that it lost nearly 390,000 traditional pay-TV subscriptions.
The carrier expected the video losses to ease in the fourth quarter, Stephens said. Some of the reductions are from storms. The video base also has declined because AT&T has tightened credit policies, he added.
AT&T's DirecTV Now added nearly 300,000 subscribers in the quarter, pushing its total count to nearly 800,000. Some of the users are paying just $10 a month as part of a wireless bundle, while one analyst suggested during the question-and-answer session that the streaming services costs about $30 a month. Stephens said that the value of the wireless subscribers that it retains is worth more than the discount.
Concerns about cord cutting have been mounting in the third quarter. Verizon Communications Inc. (VZ) reported a third-quarter loss of 18,000 net FiOS video subscribers on Thursday, while Comcast Corp. (CMCSA) said in early September that it anticipated losing 100,000 to 150,000 video subscribers in the third quarter. "Given cable and [Verizon]'s recent commentary, the trend in linear video has become a clear focus for investors," Wells Fargo Securities LLC analyst Jennifer Fritzsche wrote in a research report.
AT&T's wireless service revenue of $14.5 billion was down 2.8% year over year. The carrier lost 97,000 net postpaid phones.
Verizon showed steeper declines, with wireless services revenue dropping 5.1% from a year ago to $15.8 billion. The telecom said that wireless services revenue trends are improving and would return to growth in 2018.
T-Mobile US Inc. (TMUS) increased its wireless services revenue 7% to $7.6 billion in the third quarter.
Stephens called for Washington to push through tax cuts.
"Tax reform is the catalyst we need to spur investment," he said, while generally lauding the Trump administration's light regulatory approach. "This is an opportunity that we can't let slip through our fingers," he said regarding reductions to corporate taxes.
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