[Via Satellite 01-28-2016] AT&T is planning to incorporate video capabilities from the recent acquisition of DirecTV into more service offerings, finding that satellite, when bundled with other services, is drawing the attention of more customers. AT&T closed the acquisition of DirecTV during the summer of 2015, and is on track to deliver at least $2.5 billion in annual synergies by 2018, according to company Chairman and CEO Randall Stephenson. As AT&T further grafts DirecTV products into its service offerings, Stephenson said satellite would shape the company into a more comprehensive telecommunications provider.
“We can now deliver the best entertainment packages over traditional linear TV or streamed over the Internet to essentially any mobile device,” Stephenson said Jan. 26, during AT&T’s fourth quarter 2015 earnings call. “A couple of weeks ago we launched a nationwide solution that combines any of our TV entertainment packages with unlimited mobile data so our customers can now stream their video without incurring overage charges. And this is only our first move. You’re going to see the offers and the customer experience continue to get better and better as we move through 2016.”
Stephenson described DirecTV as accelerating AT&T’s TV Everywhere capabilities. DirecTV had 214,000 net additions, compensating for a slight decline of 26,000 in AT&T’s total video subscribers. AT&T added 192,000 total IP broadband subscribers as well during the quarter. Stephenson said AT&T intends to launch several new video entertainment packages this year, including more opportunities to bundle different services. This could encourage customers of one service to add another from the company.
“We are seeing an increase in satellite customers in our wireline footprint bundling broadband with their video service, Stephenson said, adding that sales of satellite and broadband services together increased by 60 percent from the end of the third quarter this year. “It’s still early, but we see a lot more opportunity to use video to drive sales and lower churn for all of our services,” he added.
UBS Analyst John Hodulik expects more of these synergies to come to fruition in AT&T’s next quarter.
“Satellite TV gross adds continue to ramp and management expects net video subs to grow starting in [the first quarter]. This growth should accelerate as the company is able to install bundled video and broadband customers with a single truck roll by mid-year,” Hodulik wrote in a Jan. 27 research note.
AT&T brought in $42.1 billion in consolidated revenues for the fourth quarter, growing more than 22 percent compared to fourth quarter 2014, thanks mainly to DirecTV. The satellite acquisition also boosted Earnings Before Interest, Taxes, Depreciation and Amortization (EBIDTA) margins to 22.1 percent
“We believe near-term financial benefits from the DirecTV transaction outweigh the longer-term risks from secular pressure on pay-TV video subscriptions. AT&T has a strong history of successfully integrating large acquisitions, with the upside accruing directly to shareholders in the 12 months following the transaction. We expect the purchase of DirecTV to be no different,” Hodulik added.
In Latin America, currency depreciation continued to impact revenues, margins and Average Revenue Per User (ARPU), given the ongoing economic struggles in Brazil and Venezuela. John Stephens, senior executive vice president and Chief Financial Officer (CFO) said AT&T was still able to generate modest positive cash flow despite these conditions.
“Management provided solid guidance for 2016 that includes double-digit revenue growth and [Earnings Per Share] EPS growth in the mid-single digits or better,” William Breen, Chartered Financial Analyst (CFA) at William Blair wrote in a Jan. 27 research note. “Although AT&T has numerous positive catalysts for 2016, increasing competition within the wireless industry and elevated capital spending lead us to reiterate our market-perform rating.”
AT&T had other highlights during the quarter, including the addition of 26 million devices to its Internet of Things (IoT) network, and a recent deal with Ford to connect an anticipated 10 million cars over the next five years. Stephenson said AT&T’s network covers 355 million people and businesses now in North America, and he expects to cover 385 million people by the end of the year. 2016 marks AT&T’s first full year with DirecTV, and Stephenson stressed that amalgamating different Information and Communications Technology (ICT) will be paramount.
“As you look at our strategy, the core is getting the basic connectivity element right. Because if you want to be an integrated solutions provider, it requires more than anything else, world-class, high-speed, secure connectivity. It can’t be just wireless connectivity, or broadband to the home or business, but all connectivity — wireless, broadband, satellite, [Virtual Private Network] VPN — and it all has to be integrated,” he said.
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