Shares of AT&T (NYSE:T) recently dropped after the telecom giant posted a mixed second quarter report. Its revenue, which included 16 days of Time Warner (WarnerMedia) revenues, fell 2% annually to $39 billion, missing the consensus estimate by $300 million. That also marked its seventh straight quarter of year-over-year revenue declines.  

AT&T's adjusted earnings grew 15% to $0.91 per share, topping estimates by six cents. However, that earnings growth was inflated by tax reform savings and a two cent boost from WarnerMedia's earnings.

These numbers didn't impress investors, so AT&T remained in the penalty box, with its shares down 20% for the year.  

1. Across-the-board revenue declines

AT&T's 2% sales decline compares poorly to Verizon's (NYSE:VZ) 5% sales growth last quarter. Verizon also posted positive sales growth over the past four quarters. Here's how AT&T's four main business units fared during the second quarter:

SOURCE: AT&T Q2 REPORT.

2. Sliding wireless revenues per customer

AT&T's wireless unit added 46,000 postpaid phones for a low postpaid phone churn rate of 0.82%. It also added 453,000 prepaid phones during the quarter for a "record low" prepaid churn.  

However, AT&T's postpaid phone-only ARPU (average revenue per user) also fell 7.1% annually. The company attributes most of that decline to "new revenue accounting rules" (ASC 606) regarding contract revenues, but its ongoing price wars against Verizon and T-Mobile US also likely throttled its ARPU growth.  

AT&T is diversifying its wireless business by offering connections for connected cars, wearables, and other Internet of Things (IoT) devices, but those connections also generate lower revenues than traditional smartphone customers.

3. Its "traditional" pay TV business continues to struggle

AT&T added 219,000 video subscribers in the US and Latin America during the quarter. However, the unit is losing its "traditional" DirecTV subscribers, while gaining DirecTV Now and U-Verse bundle subscribers.  

On a year-over-year basis, AT&T's total video subscriber count rose just 1% to 39.2 million. But if we exclude the 1.8 million DirecTV Now subscribers it gained during that period, its video subscriber count would have declined nearly 4%. That's troubling, because AT&T generates higher video revenues from traditional DirecTV subscribers than DirecTV Now and U-verse subscribers.  

Meanwhile, cord cutting is accelerating in the US. eMarketer estimates that the number of cord cutters in the US will rise from 33 million this year to 55.1 million by 2022. However, eMarketer also claims that WarnerMedia's HBO Now is the fifth most popular OTT (over-the-top) video streaming platform in the US after YouTube, Netflix, Amazon, and Hulu.

4. Losing broadband customers

AT&T's broadband business is also unbalanced, with big declines in the business broadband market offsetting its gains in consumer broadband.  

AT&T's Entertainment Group gained 23,000 broadband customers during the quarter, but its Business Solutions unit lost 26,000 customers, resulting in a net loss of 3,000 broadband customers for the quarter.  

AT&T is intentionally pivoting away from business solutions to grow its consumer broadband business, which can be bundled with its streaming media and advertising solutions. However, the Entertainment unit also has a much lower operating margin (12.5% during the second quarter) than the Business Solutions unit (21.6%).  

AT&T is offsetting its loss of business broadband customers with its growth in business wireless customers, but that strategy isn't boosting the unit's top line growth.