Tuesday, October 17, 2017

AT&T Tries to Downplay Its Cordcutting Problem -

AT&T is attempting to downplay concerns that the company's subscriber base is being eroded by cord cutting. The company began telling investors last week they should expect major subscriber losses this quarter, thanks to both competition and the rash of major Hurricanes in the Sourheast. AT&T's expected to lose 390,000 DirecTV and IPTV customers during this quarter. And while the company added 300,000 new users to its DirecTV Now streaming platform, those users pay significantly less money -- and the company still saw a net 90,000 TV subscriber loss.

That's notably worse than the net loss of 351,000 "traditional" video subscribers the company saw the quarter earlier, and not really the results many expected after AT&T spent countless billions on megamergers to purportedly help it better compete in the TV space.

AT&T stock took a beating on the news late last week, as investors began to question AT&T's video strategy. The company spent $70 billion to acquire a satellite TV provider on the eve of the cord cutting revolution, and another $85 billion to acquire Time Warner (the deal is expected to be formally approved sometime in the next month). But much of that money could have been spent to upgrade AT&T's lagging fixed-line broadband network, the slow speeds from which are driving many of these users to faster cable in the first place.

Granted, AT&T's failure to invest in its residential broadband network - and the slow but steady erosion due to cord cutting - isn't brought up by the company in a 8K filing with regulators.

"The video net losses were driven by heightened competition in traditional pay TV markets and over-the-top services, hurricanes and our stricter credit standards," AT&T said. "The decline of traditional video subscribers negatively impacts our Entertainment Group revenues and margins, resulting in an adjusted consolidated operating income margin that will be essentially flat versus the year-ago third quarter."

Granted, some form of losses here are unavoidable. The traditional cable TV cash cow won't be around for ever, and the reality is that more competition means an end to refusing to compete on price. That message hasn't gotten yet through to executives at companies like Charter, who seem to think that endless rate hikes are somehow sustainable in the growing face of alternative streaming options.

AT&T deserves some credit for at least trying to adapt to the changing market with the launch of DirecTV Now, which has overcome many of its early technical headaches and has begun to slowly build momentum in the market. Still, DirecTV Now has yet to become profitable, meaning that even with adaptation traditional pay TV providers are in for a very rocky foreseeable future.

AT&T is expected to release its full third quarter earnings report on October 24.

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