AT&T expects to shed 390,000 PayTV video subs from DirecTV satellite and U-verse, according to the company’s 8-K filing released on Wednesday. A loss that will be offset by about 300,000 gains from DirecTV Now, the company’s OTT-delivered pay TV service. But because of the price difference between the two services, DirceTV Now subscribers won’t be enough to make up for the continued loss of the company’s cable/satellite subs.
AT&T will come out of Q3 with a loss of 90,000 total video subs likely driven by heightened competition in traditional pay TV markets and over-the-top services, but the company also pointed some of the blame to “hurricanes and stricter credit standards.”
Those results indicate that AT&T, like its cable peers, “is suffering from the ravages of cord-cutting,” explained MoffettNathanson analyst Craig Moffett in a research note. “The issue is in the acceleration in cord-cutting, and the prevalence of OTT, not each other,” Moffett noted, adding that it’s reasonable to expect a weak Q3 across the pay TV industry.
Moffet also suggested that “it is becoming increasingly clear that the wheels are falling off of satellite TV,” anticipating a tough Q3 from Dish Network’s satellite TV business as well, despite the continued growth of the company’s own OTT platform SlingTV.
The analyst also pointed out that the current situation “makes an AT&T acquisition of Dish Network all but unthinkable.”
AT&T also reiterated full-year 2017 guidance of mid-single digital adjusted earnings growth, capex in the $22 billion range, and free cash flow at the low end of its $18 billion range. However, damage to its network and other property, including the cost to restore services and waive charges, are expected to result in a drop of Q3 consolidated revenues of nearly $90 million, with pre-tax earnings of $210 million (2 cents per diluted share).
The company also announced that, effective July 1, it is reporting prepaid IoT connections (mainly for car connectivity) as a separate class in its subscriber categories, which will result in 97,000 additional prepaid net adds in Q3.