(Editor’s note: AT&T is expanding into new markets and verticals to drive long-term revenue growth, writes Technology Business Research Analyst Eric Costa.)

HAMPTON, N.H. – AT&T (NYSE: T) booked a nearly $4 billion loss for the fourth quarter because of a slew of one-time expenses that included a loss on benefit plans, but its revenue grew 4 percent to top expectations. And, the nation’s second-largest wireless carrier added 1.9 million wireless subscribers – twice as many as in the year-ago quarter.

AT&T continued to increase postpaid subscribers in 4Q14 despite declining postpaid phone net additions

AT&T reported solid 4Q14 earnings backed by growth in the postpaid and connected device segments. AT&T’s postpaid subscriber growth increased 50.9% year-to-year to 854,000 net additions in 4Q14. AT&T is primarily relying on its Mobile Share promotions to retain subscribers and drive new subscriber adoption, including the recent offering of double data allotments on select plans at no extra cost. AT&T’s pricing strategies are in part a reactive measure to counter promotions launched by rival carriers, exemplified by AT&T’s decision to offer Rollover Data following the launch of T-Mobile’s Data Stash program.

AT&T continues to be outpaced by Verizon in postpaid subscriber growth, despite AT&T’s continued positive postpaid subscriber growth. AT&T’s postpaid segment was impacted in 4Q14 by a decline in phone subscriber net additions as the carrier’s 1 million postpaid smartphone net additions were offset by higher basic phone subscriber losses in 4Q14. In comparison, Verizon garnered a net total of 672,000 postpaid phone subscribers in the quarter. TBR attributes AT&T’s elevated churn in 4Q14 to cost-conscious basic phone subscribers migrating to aggressive pricing promotions offered by competitors such as T-Mobile’s Simple Choice and Sprint’s Cut-Your-Bill-in-Half promotions. The operator will continue to garner positive subscriber net additions in 2015, though it will rely on its connected device segment to spur the majority of this growth as the postpaid and prepaid segments will be pressured by lower-price alternatives.

AT&T is expanding its IoT portfolio to spur connected device additions through 2015

AT&T generated its highest quarterly postpaid tablet subscriber growth to date with 969,000 net additions in 4Q14. Despite the strong net additions, AT&T trailed Verizon’s 1.4 million postpaid tablet net adds during the quarter. Though AT&T trails in tablet adoption, the operator excels in other connected device verticals. AT&T is focused on developing segments such as connected car and its Digital Life connected home platform to augment its tablet segment. AT&T began integrating connected home solutions from third-party vendors such as LG and Samsung in 4Q14 with its Digital Life platform, which will provide customers greater flexibility in creating their smart home systems. AT&T will expand its connected car portfolio in 2015 as the segment is experiencing rapid growth due to the carrier’s low-cost Mobile Share plans for vehicles. AT&T garnered 800,000 connected car additions in 4Q14, accounting for nearly two-thirds of connected device net additions in 4Q14.

AT&T is pursuing wireless assets in Mexico to drive long-term revenue growth as the U.S. smartphone market continues to saturate

Following the closure of its acquisition of Mexican operator Iusacell, AT&T announced in January that it will also purchase the wireless assets of Nextel Mexico from NII Holdings for $1.9 billion. AT&T will acquire Nextel Mexico’s wireless network, which provides coverage to 76 million POPs along with the carrier’s subscriber base of approximately 3 million customers. AT&T will capitalize on the Iusacell and Nextel Mexico acquisitions to take advantage of the still-developing smartphone market in Mexico as current smartphone adoption in the country is roughly half that of the United States.

AT&T has an opportunity to drive long-term revenue and subscriber growth in the country to compensate for its saturating U.S. smartphone market, which has reached 83% postpaid penetration as of 2014. AT&T will accelerate LTE deployments in Mexico over the next several years through increased capex spend, including rural regions in the country in which LTE coverage is presently limited.

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