AT&T warns of earnings hit, video customer losses in Q3

Natural disasters across its operating footprint will impact on AT&T's revenues and earnings in the third quarter of this year, the U.S. telco warned on Wednesday, adding that it will also report hefty video customer losses, in part due to the recent hurricanes and also as a result of market competition.

The operator said its business was affected by "several devastating hurricanes, as well as earthquakes in Mexico," during Q3. As a result, its quarterly consolidated revenues will be hit with a decline of close to US$90 million (€76 million), while reported pre-tax earnings will see a slide of around $210 million, or $0.02 per share.

And it expects further reductions in the fourth quarter as it continues to assess the damage to its network and restore service.

AT&T also noted that it will report a net decline of around 90,000 U.S. video subscribers in Q3, partly as a result of the hurricanes, but also due to "heightened competition in traditional pay TV markets and over-the-top services," and stricter credit standards.

The telco said it will report 300,000 net adds to its DirecTV Now business, but that is something of a double-edged sword. The video streaming service has been cannibalising AT&T's traditional video base since it launched almost a year ago. Those net adds means AT&T lost 390,000 traditional video customers in total, and they were doubtless paying more for their service than its DirecTV additions.

"The decline of traditional video subscribers negatively impacts our Entertainment Group revenues and margins, resulting in an adjusted consolidated operating income margin that will be essentially flat versus the year-ago third quarter," AT&T said.

The telco also drew investors' attention to its postpaid mobile customer base, where subscribers grew, but fewer customers upgraded their handsets. It recorded 900,000 fewer handset equipment upgrades than in the year-earlier quarter, which adversely impacted on wireless equipment revenue.

"This trend does not affect gross adds and we continue to see low postpaid phone churn levels," the operator said.

AT&T will report its third quarter numbers on 24 October.