AT&T reported Q4 2013 consolidated revenues of $33.2 billion, up 1.8 percent versus the year-earlier period. Q4 net income totaled $6.9 billion, or $1.31 per diluted share, compared to $(3.9) billion, or $(0.68) per diluted share, in the year-earlier quarter. Adjusting special items, earnings per share was $0.53 compared to an adjusted $0.44 in the year-ago quarter, an increase of 20.5 percent.
AT&T said it is on track to deliver the financial targets laid out with Project VIP. It expects consolidated revenue growth in the 2 to 3 percent range for 2014, including strength in wireless service and wireline consumer revenues. The company also expects stable consolidated margins with continued improvement in wireless margins helping offset Project VIP pressure in wireline. Adjusted earnings per share growth is expected to be in the mid-single digit range excluding any impact from future share buybacks.
AT&T expects capital expenditures in the $21 billion range. Free cash flow is expected to be in the $11 billion range.
Some Wireless Operational Highlights
Wireless Service Revenues -- total wireless revenues, which include equipment sales, were up 4.5 percent year over year to $18.4 billion. Wireless service revenues increased 4.8 percent in the fourth quarter to $15.7 billion. Wireless data revenues increased 16.8 percent from the year-earlier quarter to $5.7 billion. Fourth-quarter wireless operating expenses totaled $14.5 billion, down 3.9 percent versus the year-earlier quarter, and wireless operating income was $3.9 billion, up 53.8 percent year over year.
Phone-Only Postpaid ARPU -- Postpaid phone-only ARPU increased 3.9 percent versus the year-earlier quarter. Total postpaid subscriber ARPU, which includes high-margin but lower-ARPU tablets, increased 2.1 percent versus the year-earlier quarter. This marked the 20th consecutive quarter AT&T has posted a year-over-year increase in postpaid ARPU. Postpaid data ARPU increased 15.4 percent versus the year-earlier quarter.
Smartphones and Tablets -- AT&T posted a net increase in total wireless subscribers of 809,000 in the fourth quarter. Subscriber additions for the quarter included postpaid net adds of 566,000. Postpaid net adds include 299,000 smartphones. Total branded smartphone net adds (both postpaid and prepaid) were 529,000. Total branded tablet net adds were 440,000.
Connected device net adds were 398,000 -- Prepaid had a net loss of 32,000 subscribers primarily due to declines in session-based tablets; however, prepaid revenues increased both year over year and sequentially. Reseller had a net loss of 123,000 subscribers primarily due to losses in low-revenue 2G subscriber accounts.
Q4 Postpaid Churn -- The company had its lowest-ever fourth-quarter postpaid churn of 1.11 percent compared to 1.19 percent in the year-ago quarter. Total churn was stable at 1.43 percent versus 1.42 percent in the year-ago quarter.
Smartphones Reach Record 93 Percent of Phone Sales -- AT&T added 1.2 million postpaid smartphones in the fourth quarter. At the end of the quarter, 77 percent, or 51.9 million, of AT&T's postpaid phone subscribers had smartphones, up from 70 percent, or 47.1 million, a year earlier. The company sold 7.9 million smartphones in the quarter. More than 1 million of those smartphone sales were on the new AT&T Next program. Smartphones accounted for a record 93 percent of postpaid phone sales in the quarter. AT&T's ARPU for smartphones is twice that of non-smartphone subscribers. More than half of AT&T's postpaid smartphone customers now use an LTE device, and 77 percent use a 4G-capable device (LTE/HSPA+).
Some Wireline Operational Highlights
Wireline Revenues -- Total Q4 wireline revenues were $14.7 billion, down 1.4 percent versus the year-earlier quarter and up 0.3 percent sequentially. Wireline service revenues were down 0.7 percent year over year. Total U-verse revenues grew 27.9 percent year over year and were up 7.0 percent versus the third quarter of 2013. Fourth-quarter wireline operating expenses were $13.3 billion, up 1.0 percent versus the fourth quarter of 2012. AT&T's wireline operating income totaled $1.5 billion, down 18.8 percent versus the fourth quarter of 2012. Fourth-quarter wireline operating income margin was 9.9 percent, down versus 12.0 percent in the year-earlier quarter, primarily due to declines in voice revenues, success-based growth, U-verse content costs and costs incurred as part of Project VIP.
Consumer Revenues Increase 2.9 Percent -- Revenues from residential customers totaled $5.6 billion, an increase of 2.9 percent versus the fourth quarter a year ago and up 1.3 percent sequentially. Continued strong growth in consumer IP data services in the fourth quarter more than offset lower revenues from voice and legacy products. U-verse, which includes TV, high speed Internet and voice over IP, now represents 57 percent of wireline consumer revenues, up from 46 percent in the year-earlier quarter. Consumer U-verse revenues grew 26.8 percent year over year and were up 6.8 percent versus the third quarter of 2013.
U-verse TV Churn -- Total U-verse subscribers (TV and high speed Internet) reached 10.7 million in the fourth quarter. U-verse TV had the lowest-ever churn in its history. U-verse TV added 194,000 subscribers in the fourth quarter with an increase of 924,000 for the full year to reach 5.5 million in service. AT&T has more pay TV subscribers than any other telecommunications company. U-verse high speed Internet had a record fourth-quarter net gain of 630,000 subscribers, to reach a total of 10.4 million, and a record annual increase of 2.7 million, or 34 percent. Overall, total wireline broadband subscribers were essentially flat in the quarter but grew year over year. Total wireline broadband ARPU was up more than 7 percent year over year. Total U-verse high speed Internet subscribers now represent 63 percent of all wireline broadband subscribers compared with 47 percent in the year-earlier quarter.
About 59 percent of U-verse broadband subscribers have a plan delivering speeds up to 12 Mbps or higher.
Some Business Services Operational Highlights
Total revenues from business customers were $8.8 billion, down 3.4 percent versus the year-earlier quarter, and were essentially flat from the third quarter.
Revenues for next-generation business solutions — including VPN, Ethernet, cloud, hosting and other advanced IP services — grew 17.4 percent versus the year-earlier quarter. These services represent a $9 billion annualized revenue stream and are more than a quarter of business wireline revenues. During the fourth quarter, the company also added 78,000 business U-verse high speed broadband subscribers.