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AT&T Loses Record Number of Traditional TV Subscribers in Q2, Drops 156,000 DirecTV Satellite Customers

Telco says 491,000 DirecTV Now over-the-top subscribers signed up within seven months of launch

AT&T’s pay-TV business continues to sink, as the telco lost a record 351,000 traditional video customers in the second quarter — with the internet-delivered DirecTV Now over-the-top service failing to fully offset the losses.

Meanwhile, AT&T’s $85 billion bid to acquire Time Warner is still on track to close by the end of 2017, according to CFO John Stephens. The deal is currently being reviewed by the Department of Justice, he said on AT&T’s earnings call Tuesday.

“Our merger integration team is nearly complete,” he said. “Our goal is to hit the ground running” when the deal closes.

According to a Bloomberg report earlier this month, AT&T plans to form a media division that includes Time Warner headed by John Stankey, who currently is CEO of the telco’s entertainment group. Asked about the management structure post-merger, Stephens said chairman and CEO Randall Stephenson (who wasn’t on the call) and Time Warner chief Jeff Bewkes “are working that process out, and I’ll definitely leave that to them… Oftentimes stories are very premature.”

In Q2, historically a seasonally weak period for the pay-TV business, DirecTV’s U.S. satellite division lost 156,000 customers sequentially, dropping to 20.86 million, compared with a gain of 342,000 in the year-earlier quarter. AT&T’s U-verse lost 195,000 subs in the quarter, which was actually an improvement over the 391,000 it lost in Q2 of 2016.

AT&T’s pay-TV business experienced an unexpectedly higher amount of “involuntary churn” in Q2, according to Stephens, which refers to customers who had their accounts canceled (for example, for nonpayment). The company also is seeing TV sub losses in areas it doesn’t have fiber networks deployed, where cable competitors can bundle broadband and TV.

AT&T touted that it gained 152,000 DirecTV Now customers in Q2, after adding just 72,000 in the first quarter of 2017. Overall, it had signed up 491,000 DirecTV Now subs as of the end of June, after the OTT service launched seven months ago.

Half of DirecTV Now’s customers switched from another pay-TV service — mainly from competitors, Stephens said on the earnings call. The other half did not previously subscribe to pay-TV service at all, he said.

For the first quarter of 2017, AT&T reported a loss of 233,000 U-verse TV subs and no net change in DirecTV satellite customers. The telco did not report the number of DirecTV Now customers.

Despite the decline in TV subscribers, AT&T video entertainment revenue increased 2.1% year over year, to $9.15 billion for Q2.

AT&T’s consolidated revenue for the second quarter totaled $39.84 billion, in line with Wall Street estimates. Q2 revenue fell 1.7% versus the year-ago period, which the telco said was primarily due to declines in legacy wireline services and consumer mobility. AT&T reported earnings per diluted share of 79 cents, beating analyst consensus estimates of EPS of 74 cents.

On the wireless side, AT&T reported 2.3 million total net adds with gains in postpaid, prepaid and connected devices. Total consumer wireless subscribers in the U.S. declined 4.7% year over year, to 51.7 million. AT&T’s domestic wireless unit revenue declined 2.3%, to $17.52 billion, while operating income dropped 0.2%, to $5.33 billion.

Stephens said on the call that AT&T is seeing the fruits of the strategy of bundling TV and wireless. The company said it has 19.8 million wireless subscribers who also are TV customers, up 31% since the close of the DirecTV acquisition in 2015.

Meanwhile, AT&T said its 5G Evolution network tests are under way in Austin, Texas, and Indianapolis, and has previously announced plans to reach more than 20 markets by year-end including Atlanta, Boston, Chicago, Los Angeles, Nashville, and San Francisco. The 5G wireless technology provides twice the speeds of 4G LTE, AT&T says.

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