Why U-Verse is driving growth at AT&T’s wireline business

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U-Verse now contributes 62% to AT&T’s wireline consumer business

In the previous part of this series, we discussed the main reasons behind a consistent decline of AT&T’s (T) wireline business. But the consumer sub-segment within the wireline division has been a bright spot for the company.

As the chart below shows, the company’s year-over-year consumer revenue growth rate has consistently exceeded 2% in the last few quarters. This growth has been led by its high-speed Internet and TV business, branded as U-Verse.

AT&T’s U-Verse revenues grew by 25% in the last quarter from $2.9 billion in 2Q13 to $3.7 billion in 2Q14. The growth has been quite rapid. U-Verse now contributes 62% to AT&T’s wireline consumer business—up from 51% in the corresponding quarter a year ago.

AT&T consumer revenue growth

Despite U-Verse broadband subscriber gains, AT&T is losing its edge to competition

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During the last quarter, AT&T had a net gain of 190,000 U-Verse TV subscribers to reach 5.9 million in service. More importantly, the company had a net gain of 488,000 U-Verse high-speed Internet subscribers, making a total of 11.5 million subscribers in the service. However, AT&T’s total wireline broadband subscribers decreased by 55,000 in the quarter. This decline was mainly due to the churn of DSL subscribers.

Despite this loss in net subscribers, revenues from the U-Verse segment increased by 25%, as we’ve seen. This is because U-Verse subscribers are more valuable to AT&T than DSL subscribers. They carry a higher average revenue per user (or ARPU).

The loss in net subscribers also underscores the fact that AT&T is losing edge to other telecom companies in the overall U.S. broadband Internet market. According to a report from Leichtman Research Group, the top cable companies like Comcast (CMCSA) and Time Warner Cable (TWC) contributed 82% of the net broadband additions in 2013. But among the top telecom companies, Verizon (VZ), CenturyLink (CTL), and Frontier (FTR) had more net broadband additions than AT&T in 2013.

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