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AT&T Swings Back to Profit, but Sees Stiffer Competition Ahead

February 02, 2014 | About:
Rahul Chattaraj

Rahul Chattaraj

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AT&T (T) posted strong Q4 results and swung to profit for 2013 with an income of $12.2 billion for the year compared to the $6 billion loss that the telecom carrier suffered a year ago. For the quarter, the mobile operator registered a remarkable $6.9 billion in profit relative to $3.9 billion in loss in the year ago quarter.

While the company is learning to deal with revitalized players, competition with close foe T-Mobile (TMUS) is intensifying as these major players are continuously fighting for more subscribers. As the current mobile market is almost saturated, carriers are trying to woo away customers from rival network.

But AT&T managed to top street expectations by recording $33.2 billion in revenue for the entire year. The growth was driven by its wireless business, TV and internet services.  The company is also happy to record its lowest fourth quarter churn rate of 1.11%.

But things are getting more competitive for the second largest U.S. national carrier.

AT&T’s face off with dearest rival

AT&T has given a conservative outlook for the current year factoring the rising competition and price war from smaller rival T-Mobile. The wireless carrier estimates that earnings per share growth for the current year would be a “mid-single-digit”, which is lower than analyst estimates of around 7%. The revenue is expected to witness a timid rise of 2%-3%. Wireless competition is intensifying in the U.S. market. Smaller national mobile operators Sprint (S) and T-Mobile are taking aggressive steps to fight the likes of the biggies Verizon (VZ) and AT&T.

T-Mobile’s price cut and flexible plan strategy in particular is becoming a reason of serious concern for the Dallas based carrier. T-Mobile’s flexible and budget friendly plans are eating into AT&T’s subscriber base as in the last nine months the carrier added around 2 million customers to its subscriber base. AT&T is feeling the heat which is quite evident from its softer subscriber addition of 566,000 in the fourth quarter, down 27% from last year’s 780,000 additions. Even bigger rival Verizon made solid subscriber gain of 1.6 million contract users in the last quarter.

To cope with the rising competition, AT&T is also offering discounts to its users to fight its contender’s strategy of poaching customers by giving pocket friendly plans. However, dealing with T-Mobile isn’t that easy. The rejuvenated player is going to the extent of paying early termination charge on behalf of any subscriber that needs to pay such fees to Sprint, AT&T or Verizon to switch to T-Mobile. In fact this helped T-Mobile’s Mobile share plans which attracted several connections on the carrier’s network. Now, the carrier boasts of more than 21 million connections on its Mobile share plan.

AT&T’s Next did well

CEO Randall Stephenson rightly pointed out that Next impacted the company’s cash flow since the cost of handset is borne by the company. However, this upgrading plan was necessary to respond to T-Mobile’s Jump offering. Next has had a strong response and accounted for more than 15% of total smartphone sales by the carrier during the quarter. Stephenson says that 2013 was a formative year for the wireless industry as there were several changes and plan launches during the year. Many combinations took place, the most effective one being that of Sprint with Japan based Softbank.

In 2014, AT&T would continue to focus on its LTE deployment and its commitment to over 300 million Americans. The rollout is expected to complete by the summers. The U.S. telecom industry is seeing massive investments with extensive 4G LTE roll out plans.

It would be interesting to watch how the U.S. wireless industry witnesses in 2014, given the aggressive competition from the revitalized T-Mobile and Sprint.


Rating: 3.5/5 (6 votes)

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