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Sarah Tew/CNET
AT&T finds itself in the middle of a full-blown wireless price war.
The nation’s second largest wireless carrier by subscriber base said Tuesday that it added 1.9 million net new connections, but that its rate of service cancellations rose as consumers looked around for the best deals.
AT&T has been attempting to expand into different areas as it attempts to diversify itself away from its core business of selling wireline and wireless phone and Internet to consumers. AT&T, like Verizon, faces increased competition in wireless as reinvigorated rivals T-Mobile and Sprint get aggressive with promotional programs that offer more data at lower prices. T-Mobile earlier this month reported another quarter of impressive subscriber growth, while Sprint boasted it had swung back to growth after several quarters of customer losses.
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AT&T last month warned that its turnover rate would jump in the fourth quarter despite continued growth.
“Wireless challenges evident,” Jefferies analyst Mike McCormack wrote in a research note.
Verizon last week reported adding 2.1 million net new connections in the fourth quarter, although its rate of customer defections also rose as it chose not to compete on price in some situations. Its profitability also eroded, suggesting Verizon is no longer resistant to the erupting pricing war.
AT&T has been the most aggressive in expanding into new areas, signing up wireless deals with carmakers such as General Motors and Audi, providing home security and automation services and providing cellular connections to non-smartphone devices such as tablets and smartwatches.
The bet appears to have paid off for AT&T. Out of the 1.9 million new additions, connected devices made up 1.3 million, including 800,000 connected cars. On the traditional phone side, AT&T signed up a net 854,000 customers who pay at the end of the month.
Its customer turnover rate, however, inched up to 1.22 percent from 1.11 percent a year ago.
AT&T CEO Randall Stephenson defended the rate, noting that it came during one of the most intensely competitive quarters in history. It was at the same level two years ago, the first time all of the national carriers were able to sell a new iPhone.
“That’s pretty good performance,” Stephenson said on an investor conference call Tuesday.
The fourth quarter was a particularly competitive period with promotions emerging seemingly every week. In December, T-Mobile launched a data rollover plan, which AT&T followed earlier this month. Sprint last quarter also touted its promotion promising to cut Verizon and AT&T bills by half.
AT&T posted a net loss of $4 billion, or 77 cents a share, a result of rising pension costs as retirees live longer. Excluding one-time items, it posted earnings per share of 55 cents. Its revenue rose 3.8 percent to $34.4 billion.
That compares with analysts’ estimates for revenue of $34.27 billion and per-share earnings of 54 cents, according to Thomson Reuters.
AT&T shares rose 1.9 percent to $33.42 in after-hours trading.
AT&T hopes to boost customer growth by tapping into the Mexico market. AT&T closed its $2.5 billion acquisition of Mexican carrier Iusacell earlier this month, and said it plans to buy Nextel Mexico. Also on its plate is the $48.5 billion acquisition of satellite TV provider DirecTV, which is expected to close later this year.
A new AT&T
Beyond expanding in mobile, AT&T is looking at a major transformation over the next year. Its various acquisitions will position the company for a radical transformation, according to Stephenson.
“As we exit 2015, we’re going to be talking about a very different business and a very different company,” he said.
Stephenson used the quarterly conference call as a chance to set the stage for what the new AT&T will look like 12 months from now. The company is primarily dependent on its wireless business for growth, but the DirecTV and Mexican deals will change that dynamic.
By the end of 2015, the top revenue driver for AT&T will be selling fixed line and wireless services to businesses, followed by television and broadband services to consumers, he said. The mobility business will be third, and the last will be its international video and mobility business, which he noted would be the fastest growing part of the company.
Wall Street, however, downplayed the move, saying it wouldn’t meaningfully shift the business. “It is the same pie carved up in a slightly different way,” said Jonathan Chaplin, an analyst at New Street Research.
He also hinted at new businesses, including a potential over-the-top mobile video service that would be streamed directly to smartphones and tablets.
“We feel very good about where we’re going in 2015,” he said.
Updated at 2:43 p.m. and 3:10 p.m. PT: To add executive, analyst comments and additional background.
