AT&T reported solid customer growth for the second quarter, boosted by strong postpaid subscriber additions, through it saw its financial performance impacted by the robust adoption of its device financing and shared data plans.
The carrier said it added 634,000 total connections to its network during the quarter, which was just a touch more than 632,000 connections added last year. The most recent growth was led by postpaid subscriptions, which counted more than one million net additions, or nearly double what the carrier posted during the second quarter of last year. However, a steep decline in direct prepaid net additions and “connected devices” resulted in the carrier’s flat year-over-year growth.
AT&T explained that its prepaid service was impacted by customer churn connected to its acquisition of Leap Wireless and resulting re-launch of prepaid services under the Cricket brand. As part of that process, AT&T is looking to migrate Cricket customers from Leap’s legacy CDMA operations to AT&T Mobility’s GSM/LTE-based network. The carrier also noted that connected devices were impacted by “session-based tablet migration,” or basically prepaid tablet customers that stopped signing up for cellular data buckets.
AT&T also continued to bleed wireless wholesale customers, though at a slower year-over-year rate, which the carrier said was due to its ongoing transition of those customers off of its legacy 2G operations. AT&T has said it plans to shutter its GSM-based 2G operations by 2017, in a move that is expected to free up spectrum resources for its LTE network and have a significant impact on some enterprise verticals.
By comparison, AT&T Mobility rival, Verizon Wireless, this week said it added 1.441 million net postpaid connections and lost 14,000 direct prepaid customers during the second quarter.
Helping to boost AT&T Mobility’s postpaid growth was a significant dip in customer churn, which dropped from 1.02% last year to just .86% this year. Citing the Leap integration, overall churn increased from 1.36% during the second quarter of last year to 1.47% this year.
AT&T attributed some of the improvement in postpaid churn to growing uptake of its Mobile Share and Mobile Share Value plans, which similar to old-school family plans tie multiple lines into a single plan. AT&T said adoption of those plans has tripled year-over-year, hitting 14.6 million accounts with an average of three devices per account. The downside to these plans is that average revenue per user decreased 7.7% year-over-year.
In connection with AT&T Mobility’s Next device financing plan, which accounted for more than half of all postpaid smartphone gross additions and upgrades during the latest quarter, the carrier’s financial revenue mix shifted. Wireless service revenues decreased 1.4% year-over-year to $15.1 billion, while equipment revenues surged 45% to $2.8 billion.
“As customers upgrade with AT&T Next, phone-only ARPU with AT&T Next monthly billings is expected to increase,” the carrier explained. “At the same time, the company has lower postpaid churn which drives higher customer value and improved customer satisfaction scores.”
AT&T explained that these forces impacted its wireless operating income service margins, which dropped from 27.1% during the second quarter of 2013, to 24.1% this year. Wireless earnings before interest, taxes, depreciation and amortization margins also dropped from 37.7% to 35.5% over the same time period.
AT&T also reiterated plans to spend $21 billion on capital expenditures across the company this year, with $6 billion spent during the second quarter on top of $5.8 billion spent during the first quarter. RCR Wireless News recently reported that sources claimed AT&T was already cutting capex spending on some projects as it looks at more efficient spending models tied to software-defined networking initiatives like its Domain 2.0 project.
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AT&T shows strong postpaid growth, finances impacted by Next, Mobile Share
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