In a largely uneventful second quarter, AT&T (T) met revenue consensus expectations, modestly exceeded earnings per share expectations, and maintained its prior full-year overall guidance. Total revenue fell 2% year over year, primarily driven by continued declines in wireless service and business wireline revenue. While top-line performance failed to impress, management did a nice job controlling expenses with consolidated adjusted EBITDA margins expanding to 34% from 33% a year ago. We are maintaining our $40 fair value estimate on this narrow moat stock that is trading in 3-star territory. Shares still appear slightly undervalued to us.
Total wireless revenue fell 2% year over year. More importantly, wireless service revenue declined over 2% year over year, reflecting continued intense wireless competition. While total U.S. wireless customer additions were 2.3 million, the bulk of those gains came from low-value connected devices. Customer attrition in the all-important postpaid phone segment moderated but continued with AT&T losing 89,000 net postpaid phone subscribers. AT&T hasn’t delivered positive net postpaid phone subscriber additions since the third quarter of 2014. On the bright side, all-time low postpaid phone churn of 0.79% helped drive profitability improvement with wireless service EBITDA margins expanding to an all-time high of 50%.
During the quarter, AT&T lost 361,000 traditional pay TV subscribers. This was partially offset by a gain of 152,000 DirecTV NOW OTT subscribers. Despite an eroding customer base, video revenue grew 2% year over year due to solid growth in video average revenue per user. AT&T added 112,000 IP broadband customers, helping IP broadband revenue grow 3% year over year. Profitability for the consolidated entertainment segment was roughly stable as video and IP broadband revenue growth offset pressure from rising TV content costs and declines in legacy services.
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