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As AT&T focuses on show business, wireless still struggles

The telecom giant wants to be an entertainment giant. But the transition has been awkward and AT&T is still well behind rivals T-Mobile and Verizon in wireless.

Sarah Tew

AT&T can't stop reminding people that it's in the entertainment business now. 

But the reality is the company's still in the phone business.

The country's second-largest wireless provider by subscribers added 3 million net customers in the third quarter, the company said in its earnings report on Tuesday. Roughly 2.3 million of those customers were in the US, the company's home market.

But AT&T gained only 130,000 phone subscribers, while losing 97,000 post-paid phone customers. The post-paid customers -- people who pay at the end of the month -- are the most coveted because they typically boast higher credit scores and rack up bigger bills. It also added 227,000 prepaid phone customers through its Cricket and AT&T Prepaid services, and saw 700,000 new customers from Mexico.

On the other end, AT&T's DirecTV streaming service added a net 300,000 customers, marking a rare bright spot for a period in which the company lost nearly 90,000 US video subscribers. It ended the period with 25.1 million total video subscribers. 

The dichotomy underscores AT&T's awkward transition as it looks to transform itself into a Hollywood powerhouse from stodgy telecom player. Though it doesn't want to lose you as a phone customer, the company is increasingly seeing more value in delivering video service, as well as programs like "Game of Thrones." That's why it spent $49 billion for satellite TV provider DirecTV and is pushing to close its $85.4 billion acquisition of Time Warner, the studio behind the hit HBO show. 

The extra incentive is that AT&T has been struggling to deal with the competitive heat on the wireless end. In the same quarter, T-Mobile added 595,000 postpaid phone customers, while Verizon gained 274,000. T-Mobile and Sprint are widely expected to announce a merger in the coming weeks, which could potentially create a stronger rival. 

One bright spot: Customers are sticking around longer. AT&T reported its postpaid customer turnover rate fell to 0.84 percent from 1.04 percent a year ago, even if it ticked up slightly from the second-quarter turnover rate (known in the industry as "churn") of 0.79 percent. 

On the entertainment side, AT&T crowed about nabbing nearly 800,000 DirecTV Now subscribers in less than a year. But the company also lost 385,000 traditional video subscribers in the period, thanks to competition from both streaming services and other traditional pay-TV providers. It also blamed the numerous natural disasters that hit the US, and the company tightening its credit policy and kicking off customers who weren't paying. 

Of those total losses, 251,000 were satellite TV subscribers from DirecTV. The company saw a net gain of 125,000 broadband customers. 

Still, AT&T believes it's the combination of both that will lead to its success. 

"Bundling is definitely the strategy," CFO John Stephens said on a conference call with analysts. "We definitely believes it works."

AT&T posted a third-quarter profit of $3.12 billion, or 49 cents a share. Excluding one-time items, the company earned 74 cents a share. 

Revenue fell 2 percent to $39.67 billion. 

Analysts, on average, expected AT&T to earn 75 cents a share on revenue of $40.12 billion, according to Yahoo Finance

AT&T shares fell 1.7 percent to $34.28 in after-hours trading. 

Corrected at 2 p.m. PT: To note that AT&T lost post-paid customers in the period.