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AT&T Drops 233,000 TV Subscribers as DirecTV Satellite Customers Remain Flat in Q1

Telco spent $41 million related to Time Warner merger in first quarter

DirecTV’s U.S. customer base remained unchanged in the first quarter of 2017, while AT&T’s U-verse TV service continued to shrink — dropping 233,000 subs in the period.

DirecTV had 21.012 million domestic subs as of the end of March, flat sequentially, compared with 328,000 net adds in the year-earlier period. U-verse TV stood at 4.02 million subscribers, down 23% year over year. According to AT&T, the growth of the DirecTV Now over-the-top pay TV package, launched last fall, helped to offset the declines on the traditional pay-TV side (but it didn’t disclose how many DirecTV Now customers it gained in Q1).

AT&T CFO John Stephens, on a call Tuesday with analysts, cited competition from cable rivals and other OTT services for the ongoing pay-TV slide and said DirecTV was particularly hurt in areas where AT&T doesn’t offer broadband. He said the telco is taking steps to address the segment including looking to increasingly bundle satellite TV with wireless, and added that it will be “more aggressive” in marketing DirecTV Now in the second half of 2017.

The DirecTV Now OTT product is cannibalizing DirecTV’s satellite business to some extent, “but it’s fairly nominal,” CEO Randall Stephenson said on the call.

AT&T also disclosed that it spent $41 million on costs related to its pending $85 billion acquisition of Time Warner, which has yet to receive approval from the U.S. Department of Justice. During Q4, AT&T said it spent $47 million related to the Time Warner deal. Stephenson told analysts AT&T continues to expect the Time Warner deal to close by the end of 2017, citing progress including the European Union’s recent OK of the deal.

Overall revenue for the first quarter totaled $39.37 billion, short of analyst estimates of $40.57 billion, with the telco blaming record-low equipment sales in wireless. The company posted earnings per share of 74 cents, in line with Wall Street forecasts.

In the critical wireless segment, AT&T lost 191,000 postpaid phone subscribers, compared with analysts projections of a drop of 245,000, as competition in the quarter ratcheted up with service providers fighting for share with new unlimited-data plans. It was the first time AT&T has lost wireless customers. Stephens called out AT&T’s bundling of HBO for no extra cost with the Unlimited Plus wireless plan as helping cut subscriber churn.

Verizon last week reported a net drop of 289,000 postpaid wireless subscribers for Q1 — also the carrier’s first-ever loss in the segment — while T-Mobile gained 914,000 postpaid customers in the period, beating Wall Street expectations.

Earlier Tuesday AT&T announced plans to roll out pre-standard 5G wireless networks in over 20 major metro areas by the end of 2017, starting in Austin, Texas, this week. The 5G networks provide twice the speeds of 4G LTE, according to the telco, and gives AT&T a credible replacement service for cable broadband, Stephenson said. It’s worth noting that Comcast is gearing up to launch a Verizon-powered mobile service this year, sold as a bundle with other Xfinity services.

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