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AT&T profit up as mobile, video ambitions start to play out

The telecom giant hopes bundling the two services together will get customers to stick around longer.

AT&T made a $49 billion bet that consumers are still willing to pay for a traditional package of television channels.

AT&T said it added 2.5 million wireless customers and 26,000 new DirecTV subscribers. CNET/Marguerite Reardon

It's counterintuitive thinking, with many industry watchers conceding that more folks are shedding their cable and satellite TV packages in lieu of video found online or through streaming-media boxes such as Roku and Apple TV. Roughly 24 percent of adults are no longer paying for TV, according to Forrester Research, with the trend most pronounced among people in their 20s and early 30s.

Enter Dallas-based AT&T, which is reporting its first quarterly results since closing its $49 billion acquisition in July of satellite provider DirecTV. The deal combined AT&T's broadband and wireless services with DirecTV's nationwide satellite TV service and is meant to create a powerhouse of broadband, entertainment and communication services.

The telecom giant's push for traditional television comes amid massive shifts in several industries. Direct rivals such as Verizon are exploring more Internet-based video services. Stalwart cable giants such as Comcast are offering a standalone TV-streaming option for Internet customers. Consumers, meanwhile, are gravitating toward online services such as YouTube, Netflix and Amazon Prime Video.

On Thursday, AT&T offered an early glimpse into whether its contrarian call is paying off.

The nation's second-largest wireless carrier said it added 2.5 million AT&T wireless customers and 26,000 new DirecTV subscribers.

The company managed to beat Wall Street analysts' profit estimates, but it missed on revenue expectations. The company reported earnings, excluding one-time items, of 74 cents per share on $39.1 billion in revenue. Analysts had expected the company to post a profit of 69 cents a share on $40.42 billion of revenue, according to Yahoo Finance.

AT&T's acquisition of DirectTV closed in the middle of last quarter, and it did not count revenue from the first 24 days of the period. AT&T said on a conference call with analysts that it would have generated $41.2 billion in revenue had it factored in the missing days.

Shares rose 1.7 percent to $34.55 in after-hours trading.

"With our national wireless and video capabilities, as well as our extensive broadband network, we now have assets that make us a unique competitor," AT&T CEO Randall Stephenson said in a statement. "Our early integration efforts with DirecTV are going very well and we've just begun to scratch the surface on the video, wireless and broadband cross-selling opportunities."

AT&T is also betting that its various assets will work better together than apart.

DirecTV has steadily lost customers, and is just one of the companies affected by the trend of cord cutting, or forgoing a traditional TV package. In the second quarter, the pay TV industry lost 566,000 subscriptions, according to MoffettNathanson analyst Craig Moffett.

AT&T's wireless business, meanwhile, lost 333,000 subscribers who pay at the end of the month, often referred to as post-paid customers. The company, however, saw growth in its pre-paid business, and also added 1 million connected cars, driving its total growth to 2.5 million. Broadband customers are also leaving the service, fueled by the disconnection of older DSL lines.

The wireless numbers come as AT&T has dealt with pressure from rivals such as T-Mobile and Sprint, which have both used aggressive offers to lure away rivals' subscribers. It's led to AT&T pursuing non-traditional areas such as connected cars for growth.