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AT&T counts the cost of natural disasters in the third quarter

Hurricanes in the Gulf of Mexico and earthquakes in Mexico caused damage to the telecoms giant's networks
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AT&T's video subscription service is under pressure

Shares in AT&T Inc (NYSE:T) were lower in pre-market trading after the telecoms giant issued a profit warning on Wednesday evening.

The company said third-quarter revenues and earnings would be lower than expected as a result of several natural disasters during the period, including hurricanes and earthquakes.

AT&T revealed damage to its network and other property plus the costs to restore services, along with revenue declines from waived charges, would shave almost US$90mln from third quarter consolidated revenues, while reported pre-tax earnings would take a US$210mln hit, equivalent to around two cents a share.

“We expect further reductions in the fourth quarter as we continue to assess damage to our network and fully restore service,” AT&T said.

Despite that, it left its full-year guidance unchanged.

In the three months to the end of September the group saw its DIRECTV NOW service add around 300,000 (net) customers, but total US video subscribers were down about 90,000.

The video net losses were driven by heightened competition in traditional pay TV markets and over-the-top (red button) services, hurricanes and stricter credit standards.

The decline of traditional video subscribers has a negative impact on AT&T’s Entertainment Group revenues and margins; the group said the third quarter adjusted consolidated operating income margin would therefore “be essentially flat” versus the year-ago third quarter.

The mobile network operator continued to expand its post-paid smartphone base, despite seeing almost 900,000 fewer handset equipment upgrades than in the year-ago third quarter. The lower upgrade numbers will adversely affect wireless equipment revenue, but will not affect “gross adds”.

“We continue to see low post-paid phone churn levels,” the group said.

AT&T shares were down 1.5% at US$37.60 in screen-based trading.

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