Company / division: AT&T
DirecTV Now Struggling to Grow, Says Bloomberg (May 26, 2017)
AT&T-Straight Path Deal Becomes Verizon-Straight Path Deal (May 11, 2017)
★ AT&T Reports TV and Wireless Subscriber Losses in Q1 2017 (Apr 25, 2017)
AT&T reported Q1 2017 results today, and it looks to have been a grim quarter across its consumer business. It reported net adds of 2.1 million, but in reality saw a drop of 641k subscribers in the quarter due to the disconnection of 2.3 million subscribers as it decommissioned its 2G network and a removal of 400k reseller subs due to an unspecified “true-up” of its reporting. On the TV side, AT&T lost a total of 233k subscribers, a worsening of the past trend, which had been close to zero on a net basis between significant U-verse losses and good DirecTV gains. Those losses mostly came from those customers taking standalone DirecTV service without a bundle, and that’s worrying because although AT&T has been offering wireless-TV bundles since the merger closed, it can’t offer a national broadband-TV bundle, which is the one consumers mostly care about. That, in turn, is going to make it hard to turn that trend around, especially given that AT&T is already offering strong incentives for customers to bundle TV with wireless, including a $25 bill discount for TV and free HBO.
On the wireless side, connected devices (such as connected cars) continue to be the salvation for its overall subscriber numbers, because its postpaid business actually shrank in the quarter for the first time ever (as did Verizon’s), while its reseller numbers dropped like T-Mobile’s (possibly because big MVNO Tracfone disconnected 1.3m subs in the quarter). The re-introduction of unlimited plans was, however, a hit, with around 4.4 million new subscribers since the change, a more than 50% increase in that base. However, AT&T characterized its position now as being more or less the same competitively as at the beginning of the quarter, suggesting it doesn’t see any kind of permanent lift from the change. Financially, things overall were a little better – AT&T has been holding costs down in wireless which has allowed its margins to expand despite revenue challenges, and although equipment revenue is dropping rapidly due to much lower phone upgrade rates, that’s effectively zero-margin revenue anyway.
AT&T Starts Using 5G in Marketing for LTE Services (Apr 25, 2017)
AT&T announced today that it’s bringing what it calls 5G Evolution to over 20 metro areas by the end of the year, starting with Austin. However, as I’ve said before, 5G itself hasn’t been standardized yet, so the best anyone can claim to have today is pre-5G technology. But what’s more worrisome about this AT&T announcement is that it’s actually using that 5G Evolution brand as an umbrella term that includes some technology that has nothing to do with 5G, notably the faster LTE technology in the new Samsung Galaxy S8 and S8+. What we’re starting to see is the same marketing-led muddying of the water over a new wireless generation we saw with 4G a few years back, when Sprint, T-Mobile, and AT&T all used the term 4G to describe non-standard 4G network technologies (WiMAX and HSPA+ specifically). We’ve also already seen the gigabit LTE label thrown around, and though it’s technically accurate in terms of maximum throughput, it’s likely to disappoint consumers who actually use it. While carriers might want to steal a march on competitors, this does nothing for consumers, who will likely require significant education when real 5G does launch without being further confused by labeling non-5G technology with a 5G-related moniker. It also means that when 5G does launch, consumers will wonder what they’ve been using all this time, making it hard to develop strong marketing messages around real 5G. I’m hoping this doesn’t spread, but past experience suggests it will.
The FCC recently held an auction of spectrum to be freed up by broadcasters and made available for wireless services, in the 600MHz band, which is well suited to long-distance and in-building coverage. T-Mobile was the only wireless carrier among the big winners, with the two largest carriers having cleaned up in the previous auction, and a cash-constrained Sprint sitting this one out too (AT&T did win licenses worth $900 million, but T-Mobile spent $8 billion). The other big bidders were DISH, which spent nearly as much as T-Mobile ($6.2 billion), and Comcast, which recently announced its wireless service based on Verizon’s network but could eventually launch its own network. Though T-Mobile has always crowed about how much spectrum it has per customer, that was always more of a reflection of its smaller number of customers rather than a massive spectrum trove, and it lacked low-band spectrum. It has now made big strides in solving that problem, and plans to put at least some of that spectrum to work right away (though much of it will be unavailable for several years while the broadcasters go through the process of vacating it, with much of that unavailable spectrum covering the densest markets). It’s also worth noting that no phones in the US today support the 600MHz band – that support is likely to come early next year with a new Qualcomm modem, so even if T-Mobile does put a third or so of its new spectrum to work this year, it won’t do anyone any good until then. So, if you’re a US wireless customer today, none of this makes any difference for now, and it’ll only make much of a difference a year or several down the line if you’re a T-Mobile customer (or in limited cases an AT&T customer). Or as and when Comcast and DISH decide to put that spectrum to use.
Though 5G standards haven’t been finalized yet, it’s already clear that some major networks will be running in much higher frequency bands than previous generations of technology, and specifically in what’s known as the millimeter-wave bands between 30 and 300GHz, mostly in the lower part of that range. As such, spectrum in those bands has suddenly become much more valuable, and companies are starting to snap it up. AT&T already bought some earlier this year and now is spending $1.6 billion to buy up a holding company which owns a decent chunk of it. Straight Path hadn’t actually been putting it to use as required by its purchase contract, and so has been forced by the FCC to hand it over to someone else, precipitating a sale process. Given how little spectrum is available generally, this is a decent price for an increasingly valuable asset, and it will likely increase interest in other holders of higher-frequency spectrum, including DISH. We’re still very early in the 5G rollout phase, but we’re going to see lots more purchases like this (including some of actual businesses rather than mere holding companies) over the next couple of years as the big existing players and some new entrants line up 5G spectrum.
AT&T hasn’t bought Time Warner yet, but that’s not stopping it from doing deals involving Time Warner properties, including this new promotion with HBO. AT&T had already been using HBO as a lure for driving DirecTV Now subscriptions, as it’s bundled the channel first at a discounted rate and then free for subscribers. But now AT&T is also giving away HBO for free to its higher-tier unlimited wireless data customers. Though the merger hasn’t closed yet, there’s a good chance that future prospect has been part of the companies’ closer relationship on this side recently, and it’s easy to imagine more of this kind of thing should the deal go through. It’s never made sense that AT&T would seek to limit distribution of Time Warner content following the merger because that would be counter-productive for the content business even if it benefited wireless subscriber numbers. But zero rating and bundle discounts make a lot more sense, as they lock customers into a much higher total spend and likely lower churn at a fairly low customer acquisition cost, and of course once TW is part of AT&T the cash cost of deals like this will be minimal. And AT&T’s real goal with the merger isn’t so much synergies from owning content and distribution as it is simply owning content, because that’s where the real value is long term.
AT&T wins FirstNet network contract – RCR Wireless News (Mar 30, 2017)
This contract has been in the works for an extremely long time, and even now the award was almost derailed by a lawsuit from a losing bidder. The concept of FirstNet arose out of incidents like the 9/11 terrorist attacks, in which general purpose communication networks were knocked out or overwhelmed and first responders were left without interoperable means to communicate with each other. AT&T has therefore won the contract to build a national communications network for first responders alongside the traditional mobile network it operates. That’s worth a good chunk of money up front but should also lead to a decent revenue stream over the long term too – and it had better, because AT&T is apparently going to be spending $40 billion to build and maintain the network over the next 25 years.
In my first piece about the UK backlash against YouTube by advertisers last week, I said that I saw no reason why the trend shouldn’t spread to the US, because the same issues applied here too. Now we’re starting to see signs that – despite YouTube’s somewhat vague reassurances earlier this week that it would do better – US advertisers are indeed beginning to jump on the bandwagon too. And the first big name is AT&T, one of the biggest advertisers in the US, and that’s likely to lead to more. As I’ve said in previous pieces on this topic, this is a thorny issue for YouTube, which can’t simply remove all ads from more obscure videos. Even its existing standards for which videos are suitable for advertisers are sometimes controversial, as this Guardian piece suggests, so going further down that road is likely to alienate at least some smaller creators, and of course have implications for Google’s revenue as well. At least some financial analysts are already downgrading Alphabet on that basis, and if this continues to snowball I’ve no doubt we’ll see more of that. Update: this story is moving fast: Verizon, Enterprise, and GSK have also joined in.
via USA Today
After Google Phone Fizzles, Huawei Turns to AT&T for U.S. Expansion — The Information (Mar 21, 2017)
Based on the headline, I thought this was about Huawei finally being able to sell phones through AT&T’s postpaid business, because that’s the holy grail for Chinese manufacturers, and remains stubbornly unavailable to them at AT&T or any other major US wireless carrier. Where the Chinese vendors have had some success is in the prepaid business, and AT&T currently carries several ZTE phones on its GoPhone prepaid brand, as well as one Huawei phone in a partnership with Walmart. However, what’s actually happening here is that AT&T is certifying Huawei’s own chipset for use on its network, which is really just a possible first step to getting more Huawei phones onto AT&T store shelves. Huawei’s lack of brand awareness in the US continues to be its single biggest challenge – something that hasn’t really changed over the years. I remember having conversations about this with Huawei executives at CES at least six years ago. Until that changes, there’s very little incentive for AT&T to give over shelf space reserved for familiar brands consumers recognize to a relative unknown like Huawei.
via The Information
CTIA, which is the industry association that represents the largest US wireless carriers, is arguing before the FCC that it shouldn’t be subjected to new rules on sharing data it collects on its users. The carriers have argued that Google and other online service providers aren’t subject to the same rules (those companies are regulated primarily by the FTC rather than the FCC) and so for consistency’s sake the carriers should be treated the same way. This is really about a technical definition of the word “sensitive” – clearly the kind of data being talked about here is indeed enormously sensitive, but the real question is how disclosure of that data is regulated. This matters because, for example, AT&T as a fiber broadband carrier in certain parts of the country has offered a service discount for customers who consent to tracking of their web browsing history and so on, something which it argues Google does all the time without explicitly asking for users’ permission to do. What the carriers are arguing here is that it should be allowed to continue to do this kind of thing without having to ask users to opt in first. The carriers look likely to win given the current hands-off policy stance of the FCC, which means more erosion of user privacy for users, but the proper approach would be for the FTC and FCC to work together to craft a set of consistent rules that would apply to all players that get access to similar data, rather than each regulating in a vacuum.
via Ars Technica
Depending on your perspective, this is either the broadband industry’s dirty little secret, or a natural consequence of the investment characteristics of fiber broadband. What’s happening here is that broadband providers like AT&T tend to invest the most in broadband infrastructure in areas where they’re likeliest to see a return on that investment, in other words those areas where takeup is likely to be highest, which in turn are disproportionately going to be more affluent. In the past, some cities have required universal coverage as part of franchise agreements to avoid this kind of redlining, but that has changed in recent years, at least in part because of Google Fiber. Google’s big innovation in deploying fiber was to encourage municipalities to bend over backwards to get the service, which turned the usual model of cities extracting concessions from providers on its head. AT&T then said to the same cities that it was happy to deploy fiber on the same basis if it was offered the same inducements and benefits, thus enabling its rapid deployment of fiber-to-the-home infrastructure in recent years. This FTTN infrastructure predates that model, but we’re going to see a lot more of this redlining in the years to come, and cities only have themselves to blame if they allow companies to operate in this way. Meanwhile, this ability to redline is the single biggest driver of faster broadband deployment in the US today, even if access to that faster broadband remains very uneven.
This is an interesting but not altogether unexpected step. There’s an analogy here to Amazon’s discounted Echo-only music service, which takes advantage of the same limitations to offer a lower price for something that would normally cost more. GM is now offering $20 for unlimited data, which is the same as it used to charge for 2GB of in-car WiFi data. AT&T continues to sell in-car connectivity to carmakers at a rapid rate – about a million subs per quarter – but these subs are mostly extremely basic at the outset, covering just in-car telematics for a few dollars a month. Only if subscribers actually start buying the additional features such as OnStar and this kind of in-car WiFi does AT&T start to generate a more meaningful revenue per user, so being more aggressive about the pricing, especially as AT&T reintroduces unlimited plans for its own services, makes a lot of sense. And of course since GM gets a cut, it’s strongly incentivized to sell these services too.
I think there’s actually more going on with these new plans than most of the coverage I’ve seen suggests. Firstly, the unlimited plan AT&T currently sells is going away as an option for new customers, so these two new plans are AT&T’s unlimited offer going forward. Secondly, I suspect it’s also going to lead with these over its tiered data plans going forward, even though those tiered plans will remain available for at least a while. What’s really happened here is that AT&T jumped in quickly by opening up its existing unlimited offer two weeks ago when Verizon opened that can of worms, but this is the offer it really wants to put in the market from here on out. And that’s important, because when AT&T opened up its offer, that had two implications: no more benefits from bundling AT&T and DirecTV service, which had been an important driver of net adds for DirecTV, and a cap on revenue per user for those switching to unlimited. These new deals restore the benefit for bundling with DirecTV (it’s now a $25 bill credit every month), and provide a structure which allows for an up-sell over time between two tiers of unlimited service. That allows AT&T to continue to differentiate on its unique selling point, which is wireless-TV bundles, while also creating the idea that all unlimited isn’t created equal. For now, there’s basic unlimited with SD video and a 3Mbit/s speed cap, and then premium unlimited with tethering, the bundle discount, and HD video. That opens the door to other unlimited tiers or options down the line as well, and therefore increasing ARPU over time. I do think competitors are going to aim at that 3Mbit/s speed cap in their advertising, and if you look at the details of these plans they’re still overly complex, but these new plans should definitely help AT&T sell both more wireless and TV subs.
5G Schedule Moves Up to 2019 – PCMag (Feb 27, 2017)
As I expected, 5G seems to have been a big theme at MWC this year, with lots more marketing type announcements but also some actual products being announced, albeit ones which should technically be described as pre-5G. The headline here is a bit funny, because of course it’s in these companies’ interests to suggest 5G is more imminent than previously thought, but it’s not up to them how quickly the technology gets deployed – that’s entirely up to the carriers, and I’m still very skeptical that we’ll see 5G available to more than a handful of locations before 2020 in the US (or probably anywhere else). And of course the idea that Qualcomm’s 5G modem would premiere in an iPhone seems laughable – Apple has been deliberately slow to adopt both previous wireless generations (3G and 4G), because the early trade-offs between performance and battery life make early entry unappealing. I don’t see that changing with 5G. But as a previous piece suggested, 2017 is going to be the year of pre-5G commercial trials, which is an important step along the path to eventual mainstream rollout and adoption.
AT&T Expands Access to Unlimited Data (Feb 16, 2017)
Well, that didn’t take long at all – at the beginning of this week neither of the two largest US wireless carriers offered unlimited data plans to all customers, and by the end of the week both will. This has financial implications for both carriers, though they’re hard to predict – both have had unlimited customers before but have been slowly weaning them onto tiered data plan, and taking the limits off again could lead to dramatically higher usage especially if many users switch to these new plans, which are fairly aggressively priced. At AT&T, though, there’s another impact, which is that it has been using unlimited data as a marketing strategy to drive DirecTV subscriptions, because that was the only way to get on one, but that will now go away, so we may see lower DirecTV net adds going forward (AT&T added 1.2 million of these bundled subs in Q4, and had almost 8 million at the end of the year). Next quarter’s earnings season for the wireless carriers will be very interesting – it’s going to be one of the hardest ones to predict in a long time.
Tracing AT&T’s Capital Expenditures Over Time – Hal Singer (Feb 10, 2017)
One of the most pervasive stories out there about net neutrality is that, despite threats from the big telcos to reduce investment if it was made law, they have in fact increased spending since NN rules were introduced. This analysis looks at AT&T specifically and argues that its capex has actually gone down over the last three years if you back out the extra investment from its ownership of DirecTV and Mexican wireless assets. AT&T is complex because it no longer breaks out its wireline and wireless capex, but the headline picture here is certainly different from what you’ll see in most coverage of this issue.
via Hal Singer
T-Mobile likes OpenSignal, Speedtest.net, and other network testing services and apps which rely largely on reporting from users’ devices, as opposed to the industry’s traditional reliance on professional testing services like RootMetrics. And the reasons are obvious: T-Mobile consistently puts in a much better showing in these reports than it does on the ones used by the rest of the industry. On the basis of this OpenSignal report, it looks like T-Mobile is basically tied with Verizon for the network available in most places and at the highest speeds nationally. That totally flies in the face of the reporting done by the professionals (see this RootMetrics report for H1 2016), and also goes against official coverage numbers from the other carriers.T-Mobile reasonably make the claim that the OpenSignal results are from real people actually using its networks throughout the country, not from testers only going to certain places, but self-selecting surveys of any kind are always unreliable. The reality is that T-Mobile has caught up a ton over the last few years with the two big carriers, but it’s still behind in coverage and quality, and you’ll see far more people complaining about their T-Mobile coverage than AT&T and Verizon customers do. Perception also lags reality – T-Mobile still has a reputation for poor coverage and quality even as the true gap with the big guys narrows.
AT&T Reports Fourth-Quarter Results – AT&T (Jan 25, 2017)
AT&T is the second of the big US carriers to announce its Q4 results, after Verizon earlier this week. On balance, AT&T’s results look a little better, with the lowest postpaid phone losses in a long time, and decent overall TV growth, mostly thanks to DirecTV Now. AT&T is executing on what I’ve called its ampersand strategy, with 7.9m subs now taking a DirecTV-AT&T mobile bundle with unlimited data. This strategy is also the underpinning of the Time Warner merger, which AT&T apparently still expects to close later this year. AT&T continues to report stronger growth in connected devices – everything that isn’t traditional phones and tablets sold to businesses or end users – than any of the other carriers, and that growth has really helped offset some of the weakness in the phone business in recent years, as has its prepaid growth, mostly under the Cricket brand. Overall, AT&T is still pretty well positioned when it comes to US wireless competition.