Like most companies, AT&T (NYSE: T) was negatively affected by the COVID-19 pandemic during the second quarter. The closings aimed at slowing the spread of the disease not only made it difficult to do business with consumers; It was also difficult to obtain the supplies, equipment and personnel necessary to provide business-oriented services. Investors more or less knew this would be the case.
However, AT&T’s second-quarter numbers were even weak in areas where they should have been decent. That is television, internet and wireless for consumers. With millions of people effectively trapped in the home, video entertainment has never been so marketable. Likewise, with millions of employees now working at home, reliable broadband service has never been so crucial. And the cell phones? There is nothing about the coronavirus outbreak that can affect its use.
Perhaps the company’s struggles go beyond the COVID-19 headwind.
Image source: Getty Images.
Disappointing numbers
Unsurprisingly, AT&T’s WarnerMedia arm struggled during the three-month period ending last month. With theaters largely closed all the time, here and abroad, his film business was largely out of control. The anime Scoob! Flick was a successful direct-to-consumer (streaming) release, but there’s only so much a studio can do to make up for the unexpected closure of movie theaters.
Except that WarnerMedia’s weak point wasn’t exactly the Warner Brothers movies. Its Home Box Office (HBO) arm experienced a 5% drop in revenue, while its Turner division’s top line fell 12%. A loss of ad business made up a large part of that setback, but not all, and certainly not for HBO’s top line. That split is tied to cable subscriptions, and should have been augmented by HBO Max’s release in late May. Cutting the cord is still a headache.
That said, AT&T appears to be the biggest victim in the last quarter of the cord-cutting movement. Between DirecTV, the U-Verse cable, and streaming options, including AT&T TV, the company dumped (in net terms) 954,000 paying customers. Video entertainment revenue fell 12%, from $ 8 billion in the same quarter last year to just under $ 7 billion in the last quarter.
It is remarkable simply because people have never consumed more television media in their lives than in the past few months. They just watched a lot less television provided by AT&T.
The telecommunications giant’s broadband service also suffered in the last quarter, at a time when high-speed Internet was a vital line for the outside world. The loss of 102,000 broadband users led to a slight drop in revenue, although in its defense 159,000 AT&T broadband customers were considered technically terminated even though they are still receiving the service. AT & T’s commitment to keeping subscribers directly affected by COVID-19 connected to the web kept them online. Both companies could have had more significant revenue if AT&T had failed to impose higher prices on their paying customers.
Even her wireless service showed strange weakness during the second quarter, under the circumstances. While its total number of served connected devices grew to an impressive 171.4 million, its total number of actual postpaid customers went from 75.5 million as of the second quarter of 2019 to 74.9 million in the last quarter. That was also less than the 75.1 million postpaid customers AT&T served at the end of the first quarter. The growth of prepaid customers did not compensate for this wear and tear, and the reduction in revenue per user translated into a slight pause in mobility revenue. And again, that’s at a time when coronavirus blocks make it difficult to purchase from an alternative service provider. Enough consumers found the way.
This is how the revenues of each of the company’s key units were broken down in the last quarter, compared to the second quarter of 2019 and the first quarter of 2020.
| Qtr. Completion 06/30/19 | Qtr. Ending 03/31/20 | Qtr. Completion 06/30/20 | Change (YOY) | Change (QOQ) | |
|---|---|---|---|---|---|
| Entertainment video | $ 8,035 | $ 7,395 | $ 6,976 | (13.2%) | (5.7%) |
| Internet of high speed | $ 2,109 | $ 2,109 | $ 2,092 | (0.8%) | (0.8%) |
| Mobility service | $ 13,824 | $ 13,968 | $ 13,669 | (1.1%) | (2.1%) |
| Mobility equipment | $ 3,468 | $ 3,434 | $ 3,480 | 0.3% | 1.3% |
| Business services | $ 6,607 | $ 6,332 | $ 6,374 | (3.5%) | 0.7% |
| Turner | $ 3,410 | $ 3,162 | $ 2,988 | (12.4%) | (5.5%) |
| Homemade box office | $ 1,716 | $ 1,497 | $ 1,627 | (5.2%) | 8.7% |
| Warner Bros. | $ 3,389 | $ 3,240 | $ 3,256 | (3.9%) | 0.5% |
AT&T quarterly financial and operating trends report data. All dollar figures are in millions. YOY = year after year, QOQ = quarter after quarter
Perhaps most alarming of all, the highly anticipated HBO Max was touted as a way to make some of AT & T’s phone and cable plans more sticky by including free access to the service, if only for a limited time. Consumers didn’t seem to nibble. The company says 4.1 million subscribers signed up for HBO Max a month after it launched on May 27, which is impressive … sort of. Only 3 million were retail subscribers. The other 1.1 million (more or less) were considered wholesale subscribers who already had another AT&T service. In perspective, IMA Research estimated that Walt disney‘s (NYSE: DIS) The Disney + streaming service had 15 million subscribers in the first five days. Many were taking a free Disney + test drive, but most seemed to sign up. Disney reported in early February that when its fiscal first quarter ended in December, about a month after its launch, Disney + had 26.5 million paying customers. And unlike AT&T, Walt Disney also didn’t have to combine that service with another to make it more marketable.
The crux of the problem
AT&T business-oriented services get a pass. Warner’s film business is also a good thing, as the premium on-demand film business is relatively new to everyone; No one could have foreseen the massive closure of movie theaters. But its consumer wireless, broadband and television arms should have held their ground in the last quarter. They couldn’t even do that, posing a general question: What went wrong?
The company may be facing more than one stumbling block. But I will repeat the two biggest ones I have mentioned before. One of them is the price, in particular of its video services. The other is packaging, or the way your TV services are combined with other AT&T services. Many AT&T customers already qualify for free access to HBO Max and don’t know it, while newcomers are confused about how to come to an agreement.
However, the price and premise of the bundle also apply to the company’s non-television products, that is, wireless and broadband. AT&T services aren’t bad, but customers clearly find something more compelling. Price and perceived value can be the big factors. Don’t be surprised to see more of the same kind of poor results until AT&T simplifies your bundling and ultimately makes your products more affordable the way consumers really want to buy them.
