T AT&T Inc

By Drew FitzGerald 

AT&T Inc.'s pay-television business continued to hemorrhage customers, adding to pressure as the company readies its own entrant into the increasingly crowded video streaming market.

The Dallas company lost 945,000 satellite and fiber-optic TV subscribers during the last three months of 2019, while its online channel bundle AT&T TV Now shed 219,000 customers.

AT&T vaulted to the top of the pay-TV rankings in 2015 when it bought DirecTV, but that business lost about 4 million subscribers over the past year as many turned to more flexible and less expensive entertainment options.

The company ended 2019 with 20.4 million domestic pay-TV subscribers, dropping behind cable giant Comcast Corp.'s 21.2 million video customers.

John Stankey, the company's chief operating officer, said during a conference call Wednesday that pay-TV subscriber declines will continue this year as more customers with discounted contracts choose to drop service instead of paying higher rates.

"You're going to see continuing improvement in our subscriber trends each quarter as we move through," he said. "But you just can't flip a switch and get there overnight."

AT&T's core mobile phone business fared better, adding 229,000 postpaid phone subscribers while losing 20,000 prepaid phone customers in the fourth quarter. Postpaid customers billed for service at the end of the month are considered lucrative for carriers because they are less likely to switch providers.

AT&T ended the year with more than 93 million domestic wireless connections, excluding connected devices such as tablets and lines sold through resellers.

The company's reported fourth-quarter profit hit $2.39 billion, or 33 cents a share, down from $4.86 billion, or 66 cents a share, over the same period a year earlier. The latest results were weighed down by several one-time accounting write-offs, including the abandonment of legacy copper phone lines in some areas.

Total fourth-quarter revenue fell 2.4% to $46.82 billion.

Shares of AT&T fell 2.5% in morning trading Wednesday. The stock rallied over the past year as the company paid down debt by streamlining operations and selling some assets.

AT&T still earns slightly more than half its overall profit from customers on its wireless network. That business showed little damage from promotions that executives said were more aggressive near the end of the year. Rival T-Mobile US Inc. added 1 million postpaid phone customers in the fourth quarter, while Sprint Corp. reported a 115,000-subscriber loss.

Verizon Communications Inc. is scheduled to post its results on Thursday.

AT&T's network performance improved last year as it used new wireless spectrum licenses to bolster its customers' 4G download speeds, an upgrade the company marketed as "5GE." The company on Wednesday predicted its cellphone customer base will keep growing through 2020 as more customers notice the service improvement.

Revenue from WarnerMedia, a collection of media assets AT&T acquired in 2018, fell 3.3% to $8.92 billion. Gains at HBO and the company's Turner cable channels were eclipsed by revenue declines at Warner Bros. studios. The company said it reaped less cash from licensing fees as it stockpiled content for HBO Max, an on-demand video service AT&T plans to debut in May.

The company plans to market HBO Max later this year with aggressive promotions tied to its wireless data plans, Mr. Stankey said. The stand-alone service will cost $15, the same as traditional HBO but more than Netflix and new entrants. Wireless customers with premium data plans will get the service free.

U.S. cable and satellite companies are struggling with a snowballing cord-cutting problem, though AT&T's 2019 customer losses outstripped declines at cable rivals like Comcast. AT&T has said the DirecTV subscriber losses have been driven by its decision to pull back on aggressive promotions to focus on more profitable customers.

HBO Max will combine the premium cable channel's original TV series with Warner Bros. movies and licensed reruns of popular shows such as "The Big Bang Theory" and "Friends."

It will build on an already valuable base of HBO subscribers, who can switch to the expanded library for free, but faces an increasingly crowded field that includes fresh streaming video services from Apple Inc., Comcast and Walt Disney Co.

The quarterly results come after AT&T reached an October truce with hedge fund Elliott Management Corp. that committed the telecom and media giant to a three-year streamlining plan.

The strategy, some elements of which AT&T executives said were already being considered, included a stock-buyback plan to boost its share price and a plan to cut costs.

The company spent $2 billion to buy back 51 million of its own shares during the fourth quarter and allocated another $4 billion to repurchase shares starting in January. Executives have said the company will continue to boost its share price by reducing the amount of common stock available to the public, though the heaviest buybacks were front-loaded around the beginning of 2020.

The company also agreed to name two new board members while reviewing many of its portfolio of assets, a response to critiques in a letter the investment fund sent in 2019.

AT&T said it reduced its net debt by $7.6 billion in the fourth quarter and more than $20 billion in the full year. It ended 2019 with $151 billion of net debt. The company reiterated its financial targets for 2020, which include 1% or 2% revenue growth with about $28 billion in free cash flow.

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com

(END) Dow Jones Newswires

January 29, 2020 11:59 ET (16:59 GMT)

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