AT&T has lowered its annual revenue growth outlook to 3-4 percent, from 5 percent previously. The company blamed the downgrade on divestments, such as its Connecticut wireline assets sold to Frontier, an exit from low-margin wireline wholesale businesses and fewer customer additions for AT&T Next, its handset upgrade programme.
For the third quarter, the US operator posted revenues up 2.5 percent year-on-year to USD 33.0 billion. Operating profit fell to USD 5.4 billion from USD 6.2 billion a year ago, hurt by higher costs for the integration of Leap and Alltel and the proposed takeover of DirecTV. Excluding these costs, the operating margin was 17.2 percent.
Net profit fell to USD 3.0 billion or 58 cents a share, from USD 3.8 billion or 72 cents a share a year ago. Adjusting for USD 0.03 of the previously mentioned merger and integration-related expenses and USD 0.02 of costs for early debt redemption, EPS was USD 0.63, compared to USD 0.66 in the year-ago quarter. Cash from operating activities totaled USD 8.7 billion in the third quarter, and capital expenditures reached USD 5.2 billion.
Wireless revenues were up 4.9 percent year over year to USD 18.3 billion, as a 44 percent increase in hardware sales, driven by installment plans, offset flat service revenues. The increased installment sales on AT&T Next and more customers adopting Mobile Share Value Plans without a device put pressure on ARPU. Postpaid ARPU was down 8.0 percent year-on-year but increased 0.3 percent compared to Q2. Higher equipment costs, network systems expenses and marketing costs led to a drop of 2.3 percent in wireless operating profit to USD 4.5 billion.
AT&T still added a net 2 million new mobile customers in the quarter. This included 785,000 postpaid subscribers, more than twice as many as in the year-ago third quarter. Connected device net adds totaled 1.275 million, including more than 500,000 connected cars, while prepaid lost 140,000 subscribers, primarily due to declines in session-based tablets and Cricket subscribers. The company also had a net gain of 87,000 reseller subscribers. Postpaid net adds included 466,000 smartphones. In total, AT&T added a net 530,000 smartphones in the quarter and 342,000 tablets.
Wireline revenues reached USD 14.6 billion, down 0.4 percent from the year-earlier quarter. Consumer revenues rose 3.0 percent to USD 5.7 billion, led by 23.8 percent growth from U-verse services. Business revenues fell 2.0 percent to USD 8.7 billion. Wireline operating profit totaled USD 1.3 billion, down 17.2 percent versus the third quarter of 2013, primarily due to U-verse content cost increases, declines in legacy services, success-based growth costs and expenses incurred as part of Project VIP.
U-verse broadband added 601,000 subscribers in the quarter, to reach a total of 12.1 million. Overall, total wireline broadband subscribers increased by 38,000 in the quarter. U-verse TV added 216,000 subscribers to reach nearly 6.1 million in service.