AT&T reels in subscribers, adding 595K postpaid phones in Q1

AT&T’s focus on growing customers continued to bear fruit, as the first three months of 2021 marked the carrier’s best first quarter for net additions in more than 10 years.

AT&T on Thursday reported 595,000 wireless postpaid phone net additions. That helped drive 823,000 postpaid net additions in the quarter overall. AT&T also grabbed more prepaid customers, with 207,000 net phone adds.

It followed a fourth quarter where AT&T gained 800,000 net postpaid phone accounts, and compared to the first quarter of 2020 which saw 163,000 postpaid phone additions and a net loss of 45,000 prepaid subscribers.

Verizon reported Q1 earnings yesterday, including a loss of 178,000 postpaid phone subscribers.

“Our subscriber momentum is strong, and we’re taking share,” AT&T CEO John Stankey said during the company’s earnings call. He added gross additions are up and AT&T’s average promotional spending to get each of those net adds “is significantly lower than a year ago.”

The carrier ended March with nearly 78 million postpaid subscribers, and around 186 million mobile subscribers overall, including prepaid, resellers and connected devices.

AT&T has been aggressive on device promotions, particularly with the 5G iPhone, targeting both new and existing customers.

That also showed up in equipment sales, where revenues soared more than 45% year over year to $5 billion. Perhaps unsurprisingly, AT&T attributed the jump to smartphone sales and a mix of higher priced postpaid smartphones and selling more data devices. In Q1 2020, equipment revenues were also hurt by store closures related to Covid-19.

AT&T’s equipment revenues beat Wall Street consensus by almost $1 billion for the quarter, according to MoffettNathanson.

“It is clear that their ambition is to grow subscribers, even if they have to ‘buy’ them. And they are succeeding,” wrote senior analyst Craig Moffett in a Thursday research note. “Unit growth in the Mobility segment was very strong; unit growth for HBO Max was solid, and growth in their broadband unit was at least positive. Even their still-negative results in service revenue and EBITDA are at least trending in the right direction.”

While AT&T is pulling in more subscribers, it’s generating less revenue per user than in the first quarter of 2020. Postpaid phone average revenue per user (ARPU) was down 2.8% to $54.10. The decline in ARPU was mostly attributed to promotional discount amortization and declines in international roaming revenue.

Still, wireless service margins improved, which New Street Research analysts categorized as the biggest surprise in face of AT&T's aggressive customer retention efforts.

Wireless service revenue also ticked up slightly, increasing 0.6% compared to a year ago, to $14 billion. The subscriber gains offset continued hits to international roaming revenues, which have been down as travel was blunted amid the pandemic. Stankey said roaming cost the carrier about $100 million in EBIDTA in Q1. Adjusted EBITDA was $8 billion, up 2.3% year over year.

But AT&T is gaining and keeping customers. Total postpaid and postpaid phone-only churn remained low at 0.93% and 0.76%, respectively, compared to 1.08% and 0.86% in Q1 2020.

Overall mobility revenues were up 9.4% to $19 billion. And while AT&T has its wireline, video and entertainment segments, mobility accounts for about 41% of its overall business revenues, according to MoffettNathanson.

“The challenge facing AT&T is to fight three wars at once. That will demand higher capital investment, and will limit their ability to delever. They aren’t out of the woods yet,” wrote Moffett. “But the market likes growth, and, at least judging by subscriber metrics in Q1, AT&T is delivering.”

For consolidated results, revenues were up 2.7% to $43.9 billion. Adjusted earnings per share were up 2.4% to $0.86.