AT&T (NYSE:T) and Verizon Communications (NYSE, NASDAQ: VZ) announced their respective first quarter 2020 financial number this week, the initial reporting period in which they’ve felt the effects of the coronavirus pandemic. Not surprisingly, both reported year-on-year declines in overall revenues but gains in broadband subscribers. But in each case, the greater number of potential customers working from home hasn’t stemmed the tide of video subscriber losses.
AT&T stated it saw $42.8 billion in revenues for the first quarter of 2020 versus $44.8 billion in 1Q19. While revenues from domestic wireless services and strategic and managed business services rose year-on-year, declines in revenues from WarnerMedia (thanks to ad sales shrinkage), domestic video, legacy wireline services, domestic wireless equipment, and Vrio dragged the overall total downward. Verizon reported consolidated operating revenues for the quarter of $31.6 billion, off 1.6% from the year-ago quarter. As was the case with AT&T, the requirement to curtail retail outlet activities led to significant declines in cellphone sales and offset growth in wireless services revenue, the company reported.
The pandemic-induced shrinkage also hit the bottom line for both service providers. AT&T saw adjusted earnings per share of $0.84 versus $0.86 in the year-ago quarter. “The COVID pandemic had a 5 cents per share impact on our first quarter. Without it, the quarter was about what we expected — strong wireless numbers that covered the HBO Max investment, and produced stable EBITDA and EBITDA margins,” commented Randall Stephenson, AT&T chairman and CEO, via an AT&T press release. (Stephenson will retire in July, it was revealed today; see “Randall Stephenson to give up AT&T CEO role in July.”)
Verizon, meanwhile, had an uptick in adjusted earnings per share. Excluding special items, adjusted earnings came in at $1.26, better than the $1.20 of adjusted earnings enjoyed in the first-quarter 2019. Nevertheless, the company estimates 1Q20 earnings would have been 4 cents better without the effects of COVID-19, which primarily took the form of an increase to its bad debt reserve.
But COVID-19 effects, particularly stay-at-home virus containment strategies, benefitted wireline broadband numbers for both companies. AT&T reported 209,000 AT&T Fiber net adds and an increase of IP broadband revenue of almost 2%, while Verizon says it saw 59,000 Fios Internet net additions during the same three months. However, staying at home didn’t mean sticking with AT&T’s or Verizon’s video services. AT&T says it lost 897,000 “premium TV subscribers,” while Verizon shed 84,000 Fios Video subscribers. Both operators frankly stated the drops were due to a continuing switch to streaming video services.
While such subscriber declines could be expected, the same can’t be said for future revenues. AT&T and Verizon senior management stated that the future impact of the coronavirus pandemic was dynamic enough to lead them to withdraw their previous revenue guidance for the year and not offer replacements. However, despite such uncertainty, it appears the two service provider giants remain committed to network deployments, albeit more strongly in Verizon’s case. The company said it remained committed to its 2020 capex projection of $17.5 billion to $18.5 billion. Conversely, AT&T’s Stephenson said on his company’s quarterly earnings call that while AT&T wants to continue its 5G and fiber rollouts, its plans require cooperation from government officials who may have other priorities than issuing permits.
“The issue that [AT&T President and COO] John Stankey and his team are running into right now is…it’s not just writing checks for capex. It’s people out doing things,” Stephenson said in response to an analyst’s question (according to a transcript provided by Seeking Alpha). “These require permitting and government officials, and government officials are sheltered in place. And a lot of the permitting and a lot of the logistics [that] go into allowing us to invest are a little bit hampered right now.
“And so while we have no intention of slowing down on 5G and fiber deployment and such, reality is that a lot of it is not in our control,” he continued. “We are having to work through some of those issues. So, there is probably going to be, relative to what the targets we gave you on the capex, downward proclivity on that number, just because of logistical issues that we are running into.”
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