Equipment revenue growth isn’t sufficient to offset service revenue declines
In the previous part of this series, we discussed why AT&T’s (T) service revenues declined in the last quarter. Traditionally, these revenues have grown at a positive rate. We also discussed why the Next plan carries lower monthly service charges compared to subsidy plans because the customer also needs to pay for the monthly installment of their devices or equipment under the Next plan. Common sense suggests that the decline in service revenues should be compensated by the increase in equipment revenues to achieve stable overall wireless revenue growth.
But this didn’t happen in the last quarter. As the chart below shows, the overall wireless revenue year-over-year growth slowed down to 3.7% in the last quarter compared to the 5%+ growth rates that AT&T achieved in the other quarters in the last year. Even though equipment revenues grew 45% in the last quarter, they weren’t sufficient to offset the decline in service revenues such that the overall wireless revenue growth became more than 5%.
Bring-your-own-device avoids the need of upgrades
Bring-your-own-devices (or BYOD) are devices that customers bring on their own before seeking services from a telecom provider. BYOD are typically low-cost smartphones or tablets that customers like to buy on their own. According to AT&T, the number of BYOD units on its network have tripled in the last year. This affected sales of devices from AT&T, which is why its equipment revenues didn’t increase at an even faster rate.
But AT&T is hopeful that new and attractive devices in the upcoming holiday season will help grow its equipment revenues even more. Some of the attractive devices that are expected to be released in the next few months are Apple’s (AAPL) iPhone 6 and iPhone 6 Plus, Samsung’s (SSNLF) Galaxy Note 4, Sony’s (SNE) Xperia Z3, and BlackBerry’s (BBRY) Passport.