AT&T reported a further fall in revenues from its communications business in the fourth quarter, as it lost customers across postpaid mobile, fixed voice and TV activities in the past year. Operating profit still improved, thanks to cost reductions, and overall group results were up following the growth at WarnerMedia and acquisitions. AT&T confirmed its outlook for 2019, as it looks to use the content and advertising business to restore growth in its telecom operations.
AT&T confirmed plans for a small reduction in its dividend pay-out, as growth in underlying earnings slows in 2019 to low single digits from 15 percent in 2018, when it benefited from the cut in US corporate taxes. The company also aims to increase capital expenditure slightly in 2019, while growing free cash flow in order to reduce debt taken on for the Time Warner acquisition.
As announced at an analyst meeting in November, the dividend pay-out is targeted at a high 50s percentage of free cash flow in 2019, after a rate of 60 percent in the full year 2018 and 46 percent in Q4. Free cash flow is expected to grow to around USD 26 billion this year, less than the forecast of USD 29.5 billion issued in November 2018. That compares to free cash flow of USD 22.4 billion in 2018 and USD 16.5 billion in 2017. AT&T maintained its target for net debt at 2.5x adjusted EBITDA by the end of 2019, compared to 2.83 at the end of 2018.
Telecom revenues down 4.2%
In the US telecom business, quarterly revenues fell 4.2 percent to USD 37.46 billion, while operating profit grew 11.3 percent to USD 7.64 billion. The growth in profit came entirely from the mobile business, where operating profit was up 27.6 percent to USD 5.46 billion, despite a 2.1 percent fall in revenues.
Mobile service revenue fell 3.0 percent to USD 13.86 billion in Q4, which the operator blamed on accounting changes. On a comparable basis, AT&T said service revenue grew 2.9 percent, as it posted an 8.4 percent year-on-year increase in the number of Sims to just over 153 million. The growth in Sims came largely in connected devices, which grew by another 3.15 million in Q4 to 51.34 million. Postpaid dropped to just 13,000 connections added in Q4, for a total of 76.89 million, down 0.8 percent from the end of 2017. Postpaid churn rose to 1.24 percent, or 1.00 percent for phones only, while ARPU for postpaid phone customers dropped 4.1 percent year-on-year to USD 55.35.
At the pay-TV business, AT&T lost 658,000 customers in Q4, amid continued losses at DirecTV satellite (-403,000) as well as fewer OTT customers at DirecTV Now (-267,000), as various promotional offers came to an end and prices were increased. In total, AT&T had 24.49 million TV subscribers at the end of 2018, down 3.0 percent from a year earlier. Revenues at the entertainment division, which also included fixed broadband services, fell 4.8 percent year-on-year to USD 12.0 billion.
Broadband customers edged up 0.4 percent in 2018 to 14.41 million, but saw a net loss of 32,000 in Q4, due entirely to DSL losses. Voice connections declined by 14.5 percent over the year to 8.55 million.
