By Thomas Gryta and Anne Steele

AT&T Inc. posted a slight revenue decline in the final quarter of 2016 as it continued to lose mainstream phone and video customers.

AT&T, which agreed to pay more than $85 billion for Time Warner Inc. in October and bought DirecTV in 2015, is diversifying away from a focus on the competitive U.S. wireless business.

The telecom giant projected 2017 total revenue growth in the low-single digits, while company executives spoke optimistically Wednesday of potential reform of corporate-tax rules and telecommunications regulations under the new presidential administration.

"If we get tax reform, I would suggest there may be upside to this guidance that we're giving you," said Chief Executive Randall Stephenson on a conference call with analysts, noting that eased regulation could prompt more investment. "But it's wait and see."

AT&T lost 67,000 postpaid wireless phone customers in the U.S. in the quarter, an improvement from larger losses over the past two years. Phone additions are considered important because they provide more service revenue than tablets, and customers with postpaid phone accounts tend to stay longer.

AT&T's deal to buy Time Warner is a tie-up that would transform the phone company into a media giant, helping it potentially find new areas of growth as its core wireless business has become saturated and its share of the mobile market leaves little room for acquisitions.

The company has focused on retaining its most profitable wireless customers and shying away from promotional offers used by rivals. Whileit has lost more than two million postpaid phone connections in the last two years, wireless service margins rose to 45.4% in the fourth quarter from 43.2% a year ago.

AT&T shut down its 2G cellular network at the beginning of the year, and if it weren't for that, fourth-quarter postpaid phone losses would have been flat, Chief Financial Officer John Stephens said.

The traditional video business, including both DirecTV and the older U-Verse service, lost 27,000 customers in the quarter, bringing the total losses for the year to 133,000. After long targeting growth for the year, the company said in October said it would "decline slightly" for the year but still be positive for the quarter. AT&T has 25.3 million traditional pay television customers.

That figure doesn't include the more than 200,000 new customers on its recently launched DirecTV Now streaming service. The company said it is too early to predict customer retentionin that business.

In all for the December quarter, AT&T posted earnings of $2.44 billion, or 39 cents a share, down from $4.01 billion, or 65 cents a share, a year earlier. Excluding merger-and integration-related and other items, AT&T earned 66 cents a share, in-line with the average analyst estimate from Thomson Reuters.

Revenue fell 0.7% to $41.84 billion. Analysts were looking for $42.04 billion.

Rival Verizon Communications Inc. posted a 5.6% decline in fourth-quarter revenue on Tuesday amid a continued drop-off in wireless customer additions. Verizon executives said they expected revenue and profit this year to be little changed from 2016.

Write to Thomas Gryta at thomas.gryta@wsj.com and Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

January 25, 2017 18:54 ET (23:54 GMT)

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