AT&T Inc., the second-largest U.S. wireless carrier, missed profit estimates and cut its sales forecast as promotions and price cuts took a toll.
Third-quarter earnings, excluding some items, were 63 cents (U.S.) a share, below the 64-cent average of analysts' estimates compiled by Bloomberg. The company reduced its 2014 revenue growth forecast to a range of 3 per cent to 4 per cent, partly because of fewer-than-expected instalment plan sign-ups. That was down from a previous projection of about 5 per cent.
To help offset slower growth and increased competition in wireless, AT&T is pushing into new areas like home security and mobile Internet service for cars. It's also awaiting regulatory approval for the $48.5-billion takeover of satellite-TV provider DirecTV and has been exploring expansion in Latin America.
"It's purely a pricing battle right now," Colby Synesael, an analyst with Cowen & Co., said in an interview before the earnings were released. "AT&T wants us to focus on new growth areas like connected home and connected car, but they are going to have to respond to pricing pressure to protect their subscriber base."
For example, Sprint Corp., which aggressively started cutting prices in recent months, announced a new family-plan offer earlier Wednesday for one gigabyte of data for only $20 a month. That's more than triple the amount of data that $20 gets you at AT&T.
In late trading, AT&T shares fell 1.6 per cent to $33.94 at 4:32 p.m. New York time.
Customer Additions AT&T added 785,000 monthly subscribers, short of the average estimate of 789,000 based on a Bloomberg survey of 10 analysts. The new customer gains compared with Verizon Communications Inc.'s 1.52 million additions.
AT&T signed up about 434,000 tablet subscriptions and 466,000 smartphone lines, compared with Verizon's 1.1 million new tablet users and 457,000 new phone users.
Tuesday, Verizon missed profit estimates as more new subscribers opted for phone discounts instead of accepting financing for full-priced devices. AT&T is similarly being hit by fewer-than-expected customers signing up for new phone-financing plans.
AT&T's third-quarter sales rose to $32.96-billion, the company said in a statement, compared with the $33.21-billion average of analysts' estimate.
The reduction in its full-year revenue forecast was driven by the sale of landline assets closing earlier than expected and the completion of the sale of its stake in America Movil SAB. Also, the company adjusted its outlook because of fewer customers signing up for or upgrading to instalment plans and more subscribers bringing their own device instead of buying one through AT&T.
In the third quarter, 7 per cent of customers on smartphone plans brought their own devices instead of buying one from AT&T. That represents a missed opportunity for sales of as much as $650 for each of those customers – the price of high-end devices like Apple Inc.'s iPhone. When AT&T sells a smartphone on an instalment plan, it gets to book all that revenue immediately even though it won't collect payments till later.
AT&T's wireless-service profit margin, adjusted for integration costs, was 43.1 per cent, up from 42 per cent a year ago. Analysts had projected a service margin of 42 per cent, based on a Bloomberg survey of nine estimates.
The average customer bill, excluding instalment payments for devices, fell 8 per cent from a year earlier to $62.45. Including instalment payments, the decline was 3.4 per cent from a year earlier to $65.63. That did represent a 2-per-cent gain from the second quarter.
DirecTV Plan In AT&T's landline video-and-broadband business, called U– verse, the company added 601,000 Internet users and 216,000 video subscribers.
Aiming to build its video business, AT&T agreed in May to buy El Segundo, Calif.-based DirecTV for $48.5-billion. As part of the deal, AT&T will gain stakes in satellite-TV businesses in Mexico and Brazil, opening the possibility for more acquisitions.
AT&T said earlier Wednesday that it still expects the DirecTV deal to close in the first half of next year. The U.S. Federal Communications Commission stopped the clock on the deal review today to resolve disputes over who can see programming contracts, creating the risk that the takeover may take longer to complete.