AT&T Shares Jump Most in 3 Years on Surprise Mobile Gains

(Bloomberg) —
(Reuters/Rick Wilking)

AT&T Inc. shares surged the most in three years after the telecommunications giant posted a surprise wireless subscriber gain in the second quarter, showing it can fend for itself in a cutthroat price war.

Second-quarter earnings topped estimates, and wireless customers rose by 127,000, compared with analysts’ average projection for a loss of 22,713. An offer for unlimited wireless data, bundled with discounted streaming media service, is helping AT&T bide its time while awaiting regulatory approval to transform into a media powerhouse through the $85.4 billion purchase of Time Warner.

AT&T rose as much as 4.8 percent to $37.96, the biggest intraday gain since July 2014.

Competitor Sprint is offering deep discounts, including a year’s worth of free service, and T-Mobile US continues to hammer AT&T with aggressive advertising. But AT&T is managing to weather the fierce competitive environment for now by bundling services instead of cutting prices, running its network more efficiently and adding wireless subscribers in Mexico, its newest market.

Its operating profit margin expanded to 21.6 percent from 21.45 percent a year earlier, leaving out expenses including merger costs.

“AT&T managed the competition favorably in the quarter, and while it promises to get more aggressive with the iPhone launch, the carrier’s integrated strategy is starting to prove out,” Colby Synesael, an analyst with Cowen and Co., wrote in a note Wednesday. Apple’s latest version of its handset is expected to be introduced around September or October.

AT&T lost 89,000 phone subscribers, but that deficit was more than offset by the gain of 156,000 tablet customers. The loss of phone customers, the most lucrative subscribers, was down from 180,000 a year earlier. T-Mobile added 817,000 wireless subscribers in the second quarter and raised its full-year customer-gain forecast last week, boosted by price cuts and giveaways.

While it contends with the wireless price war, AT&T is feeling the competitive pressure from streaming-video services on another. The company lost 199,000 TV subscribers, compared with the 194,333 analysts had predicted.

That was even after gaining 152,000 customers for DirecTV Now, the online-streaming service AT&T introduced last year to attract cord cutters. The service, which is competing against offerings from Dish Network Corp., Google, Hulu and Sony Corp., had almost half a million subscribers at the end of June.

Rather than just operate networks and distribute content, AT&T aims to own top programming like CNN and HBO, and has started talks with the Department of Justice on possible conditions for approval of the Time Warner deal, according to people familiar with the discussion. Once complete, AT&T Chief Executive Officer Randall Stephenson plans to realign the company under separate leadership, one for the telecommunications unit and the other for media.

AT&T posted second-quarter earnings excluding some items of 79 cents a share, more than the 74 cents analysts predicted. The customer defections dragged down sales 1.7 percent to $39.8 billion, in line with estimates.

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