AT&T reported a drop in third-quarter revenues and profit, due mainly to the impact of the coronavirus pandemic on its entertainment business. Subscriber numbers showed some signs of recovery, with over 1 million postpaid net adds in the mobile market and broadband growth thanks to subsidised offers during the pandemic. AT&T said it now expects to generate free cash flow of at least USD 26 billion this year and pay out just over 50 percent of that in dividends.
Quarterly revenues fell to USD 42.3 billion from USD 44.6 billion in the year-ago quarter. Especially WarnerMedia (-10%) was affected by the pandemic measures, while mobile service revenues (-0.3%) suffered from lower roaming. Legacy wireline services also continued to erode, and Latin America revenues were hurt by forex pressure. These declines were partly offset by higher mobile equipment sales (+6.4%) and higher advertising revenues as sports broadcasts resumed.
While operating costs were somewhat lower due to the slowdown in media production, operating profit still declined to USD 6.1 billion from USD 7.9 billion a year ago due to Covid-related incremental costs. In total, AT&T estimates the coronavirus crisis reduced EPS by 21 cents, including 2 cents in extra costs and 19 cents from lower revenue. The operator's reported net earnings fell to USD 2.8 billion or USD 0.39 per share from USD 3.7 billion or 50 cents a share in Q3 2019.
After capital expenditure was reduced to USD 3.9 billion and operating cash flow increased to USD 12.1 billion, AT&T was left with free cash flow of USD 8.3 billion in Q3. The company reduced net debt by USD 2.9 billion compared to the end of June, leaving it with leverage of 2.66x adjusted EBITDA at the end of September. Over the full year, capex is still expected at around USD 20 billion.
In the mobile market, AT&T grew revenues 1 percent to USD 17.9 billion thanks to higher equipment sales, while EBITDA was slightly lower at USD 7.7 billion. Subscriber growth rebounded from the slower second quarter, with a total 5.5 million net additions. That included 1.1 million postpaid net adds, with 645,000 new phones, and postpaid ARPU was up slightly from Q2 to USD 49.94. The operator also added 245,000 new prepaid lines, while the remaining growth was new connected devices, which rose to nearly 76 million in total on the mobile network.
In the consumer fixed market, AT&T managed to slow the decline TV subscribers to losses of 627,000, half the number of the year-earlier period. That left the company with just under 17.8 million pay-TV subscribers at the end of the period (including 683,000 OTT customers), down 17.5 percent year-on-year. Pay-TV ARPU improved to USD 130.55 (excl OTT).
Broadband subscribers benefitted from relaxed terms to help people work and learn from home during the pandemic. AT&T added a net 158,000 subscribers, its first growth in six quarters, for a total base of 14.1 million at the end of September. The growth was entirely in fibre, which grew by 357,000 subscribers to 4.7 million.
HBO also showed growth, reaching over 38 million paying subscribers in the US for the linear channel HBO and SVOD service HBO Max combined. That beats AT&T's year-end target of 36 million subscribers. The total includes 28.7 million subscribers for HBO Max, up from 26.6 million at the end of June.
