By Thomas Gryta
AT&T Inc. added 854,000 of the wireless industry's core
customers in the last three months of the year, as profits and
customer retention showed signs of strain from the heightened
competition among the nation's biggest carriers.
The fourth quarter, usually the busiest and least profitable for
wireless companies because of the costs related to phone upgrades,
included strong demand for Apple Inc.'s latest iPhone at a time
when the carrier used promotional deals to battle with rivals for
customers.
With little room for growth in the U.S., where the market is
saturated, AT&T is spreading into new businesses through the
acquisition of satellite television provider DirecTV and deals to
acquire two wireless companies in Mexico. AT&T expects all the
deals to close by midyear.
"We will exit 2015 a very different company," Chief Executive
Randall Stephenson said on a conference call.
The company is also coming to the end of two years of intense
investment to upgrade its wireless and wired networks. The Dallas
telecom giant reiterated that it would spend around $18 billion in
2015, down from about $21 billion in 2014.
Amid all the strategic moves, the company's net income was hit
by an already disclosed $7.9 billion charge for pension-related
costs. For the three months ended Dec. 31, AT&T reported a loss
of $3.98 billion, compared with a profit of $6.91 billion a year
earlier. Revenue rose 3.8% to $34.4 billion.
The level of monthly service cancellations--called churn in the
industry--ticked higher to 1.22% in the fourth quarter from 1.11% a
year earlier, as promotional deals from competitors prompted
customers to jump to deals at rival carriers.
The company warned last month that the cost of promotions would
also hurt the carrier's wireless-service margins, which fell to
34.8% from 37.4% a year ago.
The wireless industry is under pressure from all sides. T-Mobile
US Inc. and Sprint Corp. have been working to take customers from
top carriers AT&T and Verizon Communications Inc. Meanwhile,
Google Inc. is working on offering a wireless service and
Cablevision Systems Corp. said Monday it would offer service
through its network of Wi-Fi hot spots.
AT&T has made its own moves, including moving much of its
customer base to cheaper plans.
This year, AT&T forecast expanding margins, more cash to
cover payment of its dividend and per-share earnings growth in the
low single-digit range. The company plans to give a more detailed
forecast after the DirecTV deal closes, which AT&T expects to
happen in the first half.
AT&T is also involved in the Federal Communications
Commission's $45 billion auction of wireless airwaves and investors
are itching to know how much it is spending. The company declined
to comment, citing the auction's rules, but New Street Research
estimates that AT&T may spend $20 billion to $22 billion.
Meanwhile, AT&T is also moving into Mexico. Since last
reporting earnings, the company is now the country's No. 3 wireless
carrier through its $2.5 billion deal to buy Grupo Iusacell SA, and
Monday it announced plans to buy Nextel Mexico from bankrupt NII
Holdings Inc. for $1.88 billion.
A big question is whether AT&T will try to gain more scale
in buying Mexican wireless assets to be sold by former business
partner Carlos Slim's America Movil.
Mr. Stephenson echoed previous comments from the company about
the uncertainty around the assets that might be sold. He stressed
that AT&T believes it has what it needs to succeed in Mexico
"whether America Movil sells or not."
"We have all we can handle right now in Mexico," he said.
Write to Thomas Gryta at thomas.gryta@wsj.com
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