AT&T’s wireline margins
In the earlier parts of this series, we learned that AT&T (T) witnessed significant growth in U-verse video subscribers during 4Q14. We also saw a marginal decline in wireline revenue during the quarter. The decrease was excluding the impact of the sale of the Connecticut operations. AT&T sold its Connecticut wireline operations to Frontier Communications (FTR).
Despite the decline in wireline revenue, the segment’s operating income grew marginally by ~1% year-over-year, or YoY, during 4Q14. As you can see in the above chart, the segment’s operating margin expanded slightly YoY in 4Q14.
What affected AT&T’s wireline income?
In 4Q14, the company’s expenses related to employees declined YoY. Lower expenses positively impacted the wireline segment’s margins. However, U-verse video subscribers’ increasing content costs negatively impacted the margins.
Earlier in this series, we mentioned how AT&T is upgrading its U-verse broadband network to fiber-to-the-premises, or FTTP, according to its Project Voice over Internet Protocol, or VoIP, initiative. Through the initiative, the company expanded its high-speed broadband offering to cover 57 million customers in the US. The company reached 650,000 businesses through FTTP. The company plans to reach one million business customers through fiber broadband by the end of 2015.
The capital expenditure associated with Project VIP has some trailing expenses. John Stephens—AT&T’s CFO—talked about these expenses at UBS’ Global Media and Telecom Conference held on December 2014. These expenditures also negatively affected AT&T’s wireline margins during the last quarter.
AT&T is the second largest US telecommunications company. Verizon (VZ) is the largest. Together, these companies represented ~9.4% of the Technology Select Sector SPDR ETF (XLK) at the end of January 2015. They represented ~24.9% of holdings of the iShares U.S. Telecommunications ETF (IYZ) at the end of the same period.