Editor’s note” Many changes are afoot at AT&T, as a review of its latest earnings report last week and what’s happening across the company shows. For example: AT&T will capitalize on IoT and new acquisitions to offset decelerating phone subscriber growth in 2015, writes analyst Eric Costa of Technology Business Research.

HAMPTON, N.H. – AT&T is focused on retaining its wireless subscriber base and driving these customers toward connected devices rather than yielding to the pressures of the wireless pricing war to attract new phone customers.

AT&T reported the company’s lowest-ever first-quarter postpaid churn in 1Q15 despite trailing Verizon and likely T-Mobile in postpaid subscriber growth. Mobile Share plans are improving subscriber retention as customers with multiple devices on their accounts are less likely to switch to other carriers. Mobile Share plans are also driving AT&T’s subscriber growth in tablets and emerging Internet of Things (IoT) segments such as connected car that will become more prominent sources of revenue growth over the next five years.

Additionally, AT&T’s Iusacell and Nextel Mexico acquisitions will provide opportunity for the carrier to take advantage of the developing wireless market in Mexico, where smartphone adoption is roughly half that of the United States.

AT&T was unable to report postpaid phone net additions in 1Q15, however, due to basic phone subscriber losses and competitive pricing pressures.

TBR believes this trend will continue throughout 2015 as AT&T is more focused on preserving margins and expanding its connected device segment than competing on price to the extent of T-Mobile and Sprint to gain phone subscribers.

Wireless revenue rose 1.8% year-to-year due to more unsubsidized devices being purchased through AT&T Next, which was partially offset by service revenue declining for the fourth consecutive quarter due to discounted Mobile Share plans and phone subscriber losses. Mobile Share plans are negatively impacting postpaid ARPU, though average customer billings have increased sequentially the past three quarters when factoring in Next installment payments. AT&T will increase wireless revenue in 2015 by its expanding IoT portfolio and entry into the Mexican wireless market.

  • The DirecTV acquisition and enhanced fiber and strategic services will help AT&T recover wireline revenue in 2015

AT&T announced that the DirecTV acquisition is expected to close in 2Q15 and will also provide cost synergies of $2.5 billion on an annual run rate within three years of the transaction closing, higher than the $1.6 billion in synergies the operator initially anticipated. The acquisition will enable AT&T to renegotiate lower licensing deals with content owners and also save on customer service and back-office expenses.

The acquisition also provides opportunity for DirecTV services to be bundled with other AT&T services, which will help the carrier gain video subscribers amid increased competition from over-the-top (OTT) platforms. The Comcast-TWC acquisition would have meant more competition, but Comcast has dropped that deal.

AT&T is deploying accelerated U-verse broadband services, which will also help bolster wireline revenue. U-verse with GigaPower is now available in 10 markets, and AT&T recently introduced a 75Mbps U-verse Internet service that launched in nearly 90 cities so far. The services will help AT&T contend against ultrafast fiber services such as Google Fiber and Comcast’s new Gigabit Pro service. AT&T is also expanding its fiber footprint to businesses and is launching new solutions to bolster strategic services revenue, which rose 14.8% year-to-year in 1Q15.

Investments in DirecTV, U-verse and strategic services will help AT&T recover its wireline revenue, which has been in perpetual decline since 2008 due to lower demand for the carrier’s voice and legacy business services.

(C) TBR