AT&T Q2 Earnings In Line With Expectations, Sees Boost From Strategic Business Services, Mobility

Telecom giant AT&T Thursday reported earnings in line with analyst expectations for its fiscal second quarter of 2016 ended June 30, with business service revenue receiving a slight boost from strategic services and wireless gains.

Strategic business service revenue, including AT&T's Ethernet, cloud, hosting, IP conferencing, VoIP and dedicated internet services, proved to be the brightest spot within AT&T's business services financials. Strategic business service revenue, which brings in about $11 billion annually according to AT&T, climbed by more than $200 million compared with the same period one year ago -- an increase of more than 8 percent.

"Strategic business services are now 36 percent of business wireline revenues. The growth of strategic business services and mobility is changing the revenue mix in business solutions. Those two areas are now making up more than 70 percent of business solutions revenues," said John Stephens, AT&T senior executive vice president and CFO, on Thursday’s earning call.

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AT&T also reported growth within its small-business customer segment, which is being driven by mobility, a big area of focus for the company this year. Stephens said AT&T is seeing "strong demand" for secure mobile business solutions.

AT&T in March released its Mobility Guide for partners, as well as access to Control Center, its cloud-based platform for managing Internet of Things applications. The carrier has been aggressive in the IoT space during the second quarter, and partners who haven't led with it in the past are starting to take a look.

Lumenate, a Dallas-based solution provider and AT&T partner that services midmarket and enterprise customers, has recently started focusing on IoT with AT&T's help.

"We had our first AT&T IoT deal with 500 devices initially and will grow to 4,500 by end of year. Those devices are SIM-connected IPads being managed by the Cisco Jasper platform," said John Hudson, director of service provider solutions for Lumenate. "I believe IoT changes that by allowing us to have a customer business discussion rather than an IT project discussion."

The strong demand for wireless and strategic services is also being echoed in the channel, Sue Galvanek, vice president of marketing, pricing and product solutions for AT&T's Partner Exchange, told CRN.

"There is a great deal of opportunity in mobility, which is further compounded by IoT. Not only are we encouraged by the momentum of our AT&T Partner Exchange solution providers selling mobility, we’ve also seen strong engagement with our Channel Executive’s Guide to Mobility. This demonstrates the channel’s deep interest in learning how to capitalize on mobile opportunities – opportunities like IoT, which is another area where we’re seeing our solution providers’ interest and traction continue to grow," Galvanek said.

Meanwhile, as AT&T's small-business revenue increased, enterprise business revenue remained flat. Total business solutions revenue was $17.6 billion, down about 0.5 percent from the year-ago quarter due to the sale of hosting operations and foreign exchange pressure, according to Dallas-based AT&T.

However, solid business wireless revenue -- which was up 2 percent year over year to $9.7 billion -- helped offset lower wireless equipment sales and declines in legacy services, Stephens said.

"Our transformation to next-generation products and services is well on its way in our business segment," he added.

AT&T saw its consolidated revenue for its second fiscal quarter of 2016 grow to $40.5 billion and earnings per share of 72 cents, up more than 22 percent when compared with the year-earlier period of 69 cents on $33.02 billion in revenue. The company largely attributed this growth to its acquisition of DirecTV that closed in July 2015.

AT&T's earnings fell just shy of analyst expectations of $40.63 billion and earnings per share of 72 cents, based on estimates by Thomson Reuters.

AT&T posted second-quarter 2016 net income of $3.4 billion, compared with $3.1 billion in the year-ago quarter.

According to the carrier, its 2.1 million wireless net adds during the second quarter were driven by connected devices, as well as customer gains in Mexico and within its Cricket Wireless business unit.

While CFO Stephens declined to comment on the wireless spectrum auction being held in August by the Federal Communications Commission, he did confirm that AT&T has submitted its application and will be participating in the upcoming auction.