Meanwhile, DirecTV’s traditional satellite service continued to slip: It lost a net 147,000 customers in the fourth quarter of 2017, the third straight quarter the sub base declined. AT&T’s U-verse TV service also continued to shed customers, dropping 60,000 subs in Q4.
As of the end of 2017, AT&T had 25.2 million video subscribers in the U.S., down 1.1% versus 25.5 million a year earlier (and a decline from 25.08 million at the close of Q3 2017). AT&T released the numbers in reporting Q4 2017 results.
DirecTV Now represents “a video product we are convinced will give us growth” over the next three years as legacy pay-TV services decline, chairman and CEO Randall Stephenson told analysts on AT&T’s earnings call Wednesday. “We’re very bullish on video.”
The telco cited competition from traditional pay-TV rivals and over-the-top video services for the decline in DirecTV satellite and U-verse TV subs in Q4. That comes after AT&T had told analysts it expected the traditional pay-TV segment to show positive growth in the last three months of 2017. AT&T is pushing DirecTV Now because customer-acquisition costs for the OTT service are far less than traditional pay TV.
In the spring of 2018, AT&T plans to launch the next generation of its OTT platform, which will include cloud DVR, a third concurrent stream for DirecTV Now (up from two currently), and user-interface enhancements, according to Stephenson. Before the end of 2018, AT&T plans to launch a “home-centric” version of the OTT service, with an in-home connected-TV set-top.
DirecTV Now gained 368,000 net subs in Q4 of 2017 — its best quarter to date — adding to 787,000 subs at the end of Q3. AT&T launched DirecTV Now in late 2016, experiencing some early technical glitches.
Separately, AT&T’s deal to acquire Time Warner remains on hold pending the outcome of the Justice Department’s lawsuit to block the deal. The DOJ has argued the transaction would be anticompetitive, and the case is set to go to trial March 19.
“We were obviously surprised when the U.S. government tried to block the merger,” Stephenson told analysts. He said AT&T expects to prevail in the court case, reiterating the company’s point that Time Warner is a vertical acquisition with businesses that don’t compete with AT&T’s other units.
Stephenson added, “We remain very confident that we’ll complete this merger.”
Overall, AT&T financial results beat Wall Street expectations. The company reported Q4 revenue of $41.7 billion, down 0.4% year over year because of declines in legacy wireline, wireless service and U.S. video revenue.
AT&T’s Q4 net income was $19 billion, versus $2.4 billion for Q4 2016, reflecting a massive benefit from the Tax Cuts and Jobs Act 2017. Adjusted earnings per diluted share were 78 cents compared with 66 cents in the year-earlier quarter.
Revenue in the AT&T Entertainment Group, which includes DirecTV, broadband and wireline voice, dropped 3.5% in Q4, to $12.7 billion. The company posted total wireless revenue of $19.2 billion, up 2.5% year over year on equipment sales growth; of that, the U.S. consumer wireless segment generated revenue of $8.3 billion, down 1.7% on lower service revenue.