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Cable Operators

AT&T: We’ve Been Stealing Cable Subs

4/26/2009 2:00 AM Eastern

AT&T is boosting its foothold in the pay-TV business at cable’s expense.

More than 60% of the customers who’ve signed up for the phone company’s U-verse services are switching from cable competitors, chief financial officer Rick Lindner said on a conference call with analysts last week.

Despite the strained economy, AT&T posted a net increase of 284,000 U-verse TV subscribers, to stand at 1.329 million at the end of March. Most of those came from competitors, and more than 90% of U-verse TV customers are also taking U-verse Internet service, Lindner said.

“One of the exciting things happening with U-verse is that it’s coming into its own as an integrated platform,” Lindner said. “The potential for U-verse isn’t just in video, but in an integrated set of services.”

The number of AT&T U-verse Internet subscribers tripled in the last year, to 1.3 million at the end of March. The telco added 284,000 net U-verse Internet subscribers in the first quarter and about 75,000 net legacy DSL customers.

In addition, AT&T has now deployed U-verse Voice, voice-over-Internet protocol service in more than 86% of U-verse markets. Lindner said the attach rate for the VoIP service is more than 60%.

“We’re now starting to get a lot of traction behind the U-verse Voice product, and that’s helping offset the consumer-line loss,” Lindner told analysts.

In the first quarter, AT&T racked up 170,000 net U-verse Voice customers, to stand at more than 390,000 VoIP subscribers total.

However, those gains were not anywhere near enough to make up for losses of traditional phone lines. The No. 1 telecommunications provider in the U.S. lost more than 4.2 million consumer landlines in the last 12 months, down 12.3% from a year ago, to 29.969 million.

Overall, AT&T’s first-quarter revenue was $30.6 billion, down 0.6% compared with $30.7 billion in the year-ago period. Net income attributable to AT&T was $3.1 billion, down 9.7% versus first-quarter 2008.

While revenue growth “is now zero or less,” AT&T’s results “show that the company is well-positioned to handle the recession from a cost management perspective, and equally well-positioned to emerge stronger when the recession (eventually) ends,” Sanford Bernstein senior analyst Craig Moffett wrote in a note to investors.

Including satellite customers, AT&T’s total video subscribers stood at 3.5 million at the end of the first quarter, representing 12.6% of households served. AT&T resells DirecTV service across its entire footprint where U-verse TV is unavailable, having dropped Dish Network as a partner in January.

AT&T’s satellite connections for the first quarter declined 27,000, down 1.2% year-over-year to 2.205 million at the end of March.

Wireless continued to be a strong suit, with the company posting 1.2 million net adds in wireless subscribers to reach 78.2 million. The telco activated more than 1.6 million Apple iPhone 3G devices in the first quarter.

AT&T said U-verse TV continued to reach “mid-teens” penetration in areas marketed to for at least 18 months, while the penetration rate overall is now in double digits.

At A Glance
AT&T has steadily increased U-Verse TV momentum:

  Quarterly Net Adds* Total TV Subs*
SOURCE: AT&T
* In thousands
1Q08 148 379
2Q08 170 549
3Q08 232 781
4Q08 264 1,045
1Q09 284 1,329
September