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AT&T Warns Investors of Heavy Q3 DirecTV Subscriber Losses

AT&T will report heavy subscriber losses at DirecTV in its third-quarter earnings later this month, bleeding that the telco giant chalked up to heightened competition in the pay-TV arena and the wallop of the summer hurricane season.

In a Securities and Exchange Commission filing late Wednesday, AT&T said it would post a net loss of 90,000 traditional video subscribers for the quarter, offset by the addition of nearly 300,000 subscribers to its DirecTV Now streaming service. AT&T reports its third-quarter earnings on Oct. 24.

As MoffettNathanson analyst Craig Moffett observed, the net loss means DirecTV is losing about 390,000 traditional subscribers — customers that had been paying at a higher rate than the low-cost DirecTV Now service. Moffett chalked it up to consumers moving away from the traditional big pay-TV bundle.

“It should be clear that DirecTV, like all of its cable peers, is suffering from the ravages of cord-cutting,” Moffett wrote.

The analyst also noted that the steep decline in traditional subs means that it is “all but unthinkable” that AT&T will make an effort to acquire DirecTV’s satellite TV rival Dish Network. Moffett also projects heavy video losses for Dish Network.

“It is becoming increasingly clear that the wheels are falling off satellite TV,” he wrote.

The hurricanes that battered the southeastern U.S. and earthquakes in Mexico took a toll on AT&T’s wireless and video services, the company said.

AT&T warned that the drop in traditional video subs will hurt its revenues and margins. Adjusted consolidated operating income for its entertainment group will be flat year-over-year. But AT&T reiterated in the filing its full-year guidance of mid single-digit earnings growth and free cash flow of around $18 billion.

The subscriber losses at DirecTV underscore AT&T’s desire to diversify its holdings by adding Time Warner’s studio and networks to its portfolio, even though the earnings power of TW’s cable networks is also impacted by the erosion of the traditional pay-TV bundle. AT&T and Time Warner are said to be expecting formal word from the Justice Department on its review of the $85.4 billion merger by mid-November.

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