Fiber Fuels AT&T's Broadband Results in Q4

AT&T's broadband results in Q4 were a mixed bag as the company continued to shed DSL customers even as it expanded the number of customers taking service on the company's expanding fiber footprint.

AT&T Inc. (NYSE: T) shed 32,000 total broadband subs in Q4, adding 6,000 "IP" broadband subs while losing another 38,000 DSL customers. AT&T ended 2018 with 13.72 million IP broadband subs, and just 680,000 DSL subs.

Aided by its fiber buildout, revenues for AT&T's overall broadband business grew about 6% year-over-year.

AT&T ended 2018 with about 11 million residential "locations" passed by fiber, and is on track to boost that to 14 million later this year. With business locations factored in, AT&T is on pace to have its fiber network pass some 22 million locations.

Speaking on today's earnings call, Randall Stephenson, AT&T's chairman and CEO, called the company's fiber build "foundational" to AT&T's 5G deployment.

In 2018, AT&T added more than 1 million broadband customers to its fiber footprint, and about 250,000 in Q4 alone.

AT&T has seen 40% penetration in its fiber markets after 18 months, jumping to about 50% after three years. "There's a lot of growth left in converting and growing total [broadband] customers," said John Stephens, AT&T's senior EVP and CFO.

Update: AT&T's broadband sub results disappoint
Still, the 6,000 IP broadband adds were a "surprisingly weak" and a "shock," given AT&T's fiber footprint expansion, and was well off consensus expectations of 82,000 adds, and below the gain of 95,000 a year ago, MoffettNathanson LLC analyst Craig Moffett said in a research note. The irony was that the 38,000 DSL sub losses were lower than the expected 62,000, and somewhat softened the blow, he said.

"It must be judged a disappointment that AT&T is still losing net broadband subscribers (-32K) given the expansion in their fiber-to-the-home buildout of the past few years," Moffett added.

Looking ahead, AT&T expects to use standards-based 5G as a replacement product for fixed broadband within three to five years, Stephenson said.

AT&T said it's also seeing some success with pay-TV bundles in its fiber footprint. However, the overall pay-TV picture for AT&T was rough in Q4 as customers on promotional and discounted offers churned away.

New pay-TV focus: Profits over promotions
AT&T lost 658,000 total subscribers in Q4, including 403,000 DirecTV satellite TV customers and 267,000 subs for DirecTV Now, the company's OTT-TV service.

With much of its heavy promotional activity behind it (the average revenue per user for DirecTV Now rose by $11 on a sequential basis in Q4), AT&T is now focusing on higher-margin, more profitable video subs as it attempts to get its broader Entertainment Group to an EBIDTA-positive level.

For more about AT&T's Q4 results and the company's video-related plans, please check out the story posted at our sister site, Light Reading. (See AT&T's Pay-TV Biz Takes Big Hit as Promotional Subs Flee .)

— Jeff Baumgartner, Senior Editor, Light Reading