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Carey: Lost AT&T Deal Responsible For Disappointing Sub Growth

11/06/2008 9:43 AM Eastern

DirecTV Group CEO Chase Carey Thursday blamed the suspension of a reselling deal the satellite provider had with AT&T, not the dismal economy, for a slowdown in subscriber growth in the third quarter.

During a conference call with analysts, Carey maintained that the tough economy and competitive environment has had a “marginal” impact on DirecTV, except in areas such as churn and retention spending.

“While the economy, competitive pressures have increased, we feel good about the momentum of our business,” Carey said. “Demand for DirecTV in the fourth quarter is extremely strong, and we’re looking at fourth quarter net-sub adds in the low to mid-200,000s.”

Earlier in the day, DirecTV reported that its third-quarter subscriber growth dropped 35%, with it adding 156,000 households versus 240,000 in the year-ago period.

Carey blamed DirecTV’s subscriber-growth slowdown to the fact that it didn’t have a reselling deal with AT&T during the third quarter. In April AT&T, whose footprint includes BellSouth’s former territory, started to just resell Dish Network’s satellite service as part of a bundle, rather than offering both DirecTV and Dish, as it had been.

“A couple of metrics that were a bit off our expectations were net sub growth and churn,” Carey said. “The net-sub shortfall was really due to the BellSouth region. Quite simply, it’s taken us longer than we expected to mitigate the end of our AT&T bundling relationship in that area. Excluding the BellSouth region, our net-sub growth was actually up a touch year on year. We’re making progress in the BellSouth region, but it’s just taking us longer than we planned.”  

AT&T in September announced that as of Jan. 31 it is switching and will just market and resell DirecTV’s satellite service, no longer offering Dish Network’s video service. 

On the third-quarter call, Carey noted that DirecTV will have its reselling deal with AT&T back in place next year.

“Obviously, we’re now looking forward to the transition in the first quarter when BellSouth comes back in,” he said. “We have to plan the fourth quarter a little bit taking that into account. It doesn’t make a lot of sense to really gear up a whole bunch of initiatives to mitigate for BellSouth, and two months later you’ve got BellSouth back in as a partner.”

The nation’s largest satellite provider said it had 17.32 million subscribers in the third quarter, up 5% from 16.56 million in the year-ago quarter. 

With capital expenses down 31% in part due to lower set-top box costs and an increase in the use of refurbished set-tops, DirecTV’s U.S. cash flow before interest and taxes grew 85% to nearly $600 million in the third quarter.

Now more than 8 million DirecTV subscribers have advanced services, and pay on average about $100 a month, according to chief financial officer Pat Doyle.

September