AT&T has again raised its full-year revenue growth forecast, driven by strong demand for its new installment pricing for mobile devices. After forecasting at least 4 percent annual revenue growth at its Q1 report in April, the company now expects around 5 percent growth for the full year. The AT&T Next offer allows customers to buy a new device on interest-free installments, with no upfront fee or contract tie-in. The operator said this is driving equipment revenues, but means it expects zero service revenue or ARPU growth in mobile in the second quarter.
The lower device subsidies means it still expects stable margins for the year, while adjusted earnings per share will grow in the mid-single digit range. AT&T also maintained its outlook for capital expenditures of around USD 21 billion and free cash flow of USD 11 billion in 2014. The operator said its Project VIP network transformation plan, announced in 2012, is ahead of schedule. The LTE network now covers nearly 290 million people, and fibre services will be available to more than 400,000 new business customer locations by the end of the second quarter.
For the second quarter, AT&T forecast postpaid mobile subscriber net adds of over 800,000, postpaid churn of 0.95 percent or lower and approximately 3.2 million smartphones sold on AT&T Next. The installment sales have risen throughout the quarter and now are expected to be approximately 50 percent of total sales. Around half of the company's postpaid smartphone customer base is expected to be on no-device-subsidy Mobile Share Value pricing plans, growing to approximately two-thirds by year-end.
With AT&T Next and Mobile Share Value plans driving a shift towards higher equipment revenue and flat service revenue, the company expects the second-quarter wireless service EBITDA margin to be under pressure compared to a year ago. The margin should remain at over 40 percent in each of the three remaining quarters of 2014.
At the Wireline division, AT&T said U-verse video additions bundled with broadband continue to perform well. U-verse broadband is expected to be "solid" in Q2, even with the usual seasonality and fewer migrations from DSL. The company said the growing consumer preference for buying broadband and pay TV services bundled together reinforces the strategic rationale for its proposed acquisition of DirecTV. However, wireline margins remain under pressure, due to the increase in the cost of content.
AT&T will report second-quarter results on 23 July.
