Wednesday, August 12, 2015

AT&T Expecs Higher Earnings, Cash Flow Next 3 Years

The addition of DirecTV, Iusacell and Nextel Mexico will be directly accretive to AT&T in terms of revenue and earnings, something that does not always happen with transactions so large ($48.5 billion for DirecTV) or small (Nextel Mexico represented a deal less than $2 billion in size).

AT&T said it will earn $2.62 to $2.68 a share in 2015, above the $2.60 analysts had anticipated. Revenue will grow in the double-digit range, the company said.

Moreover, AT&T expects earnings and cash flow to grow over the next three years as well.

Those results are driven by a revenue mix, products, geographies and customer bases that are significantly different.

AT&T expects that, by the end of 2015, its largest revenue streams will be, in descending order: mobility and business solutions (mobile and wireline); entertainment & Internet; consumer mobility; and international mobility and video.

In other words, services sold to business customers has become AT&T’s biggest single revenue stream. Video entertainment and Internet access is the second largest bucket of revenue, followed by consumer mobility.

Mobile services remain a key driver of revenue in all but one of the segments.

The company plans to begin providing detailed reporting on these segments beginning with the third quarter.

AT&T also is operationally a changed company. AT&T now is the largest linear TV provider in the United States and the world, serving more than 26 million subscribers in the United States and more than 19 million customers in Latin America.

AT&T has 132 million wireless subscribers in the United States and Mexico; offers 4G LTE mobile coverage to nearly 310 million people in the U.S. and expects LTE coverage to 350 million people in its North American service area by the end of the year; covers 57 million U.S. customer locations with high-speed Internet; and has nearly 16 million broadband subscribers, the company said.

The three-year view of certain financial metrics now features 2015 double-digit consolidated revenue growth due to the DirecTV acquisition.

From 2016 through 2018, the company expects in each of the next three years consolidated revenue growth in line with GDP growth or better and adjusted earnings per share growth in the mid-single digit range.

The broader trend across the tier-one service provider landscape might soon begin to reflect the importance of business customers, compared to consumer customers.

In the U.S. market, a similar trend has developed for three former rural telcos, each of whom now drives a clear majority of revenue from business customers, not consumers.

Of $4.4 billion in CenturyLink second quarter 2015 revenue, business revenues represented $2.7 billion while consumer revenues were about $1.5 billion. In other words, the business segment represented 61 percent of company revenue.

That is a huge transformation for a firm that once mostly got its revenue from subsidies and consumers.

Since about 2010, both Windstream and Frontier have earned most of their money in the business segment as well, despite the continuing preponderance of consumer accounts.

In its second quarter of 2015, Windstream had revenues of $1.4 billion. Consumer revenues  represented just $314 million--about 22 percent--of total revenues.

Frontier Communications total revenue of about $1.4 billion as well, with consumer revenue of about Total residential revenue was stable at $615 million for the second quarter of 2015, while total business revenue was $621 million. So a bit more than half of revenue was generated by business customers.

Over time, many former incumbent providers are likely to discover that they are best suited to serving customers in the business segment, while other providers take market share in the consumer segment.

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