AT&T lays out the next three years

AT&T executives said on the company’s results call that they have largely delivered on the efforts to re-shape the company’s financial position and pay down debt. The company missed Wall Street’s expectations on revenues, but investors sent the stock rising after it reported its third quarter results.

Key takeaways from the call include:

-Wireless service revenues nudged up 0.7% year-over-year and about 2% year-to-date, and CFO John Stephens said that is expected to continue into the fourth quarter.

-The company expects overall revenue growth in 2020 to be about the same rate, between 1-2%. Total consolidated revenues for the company were $44.6 billion.

-No major acquisitions on the horizon, and the company is reviewing its portfolio of businesses with an eye toward selling non-core assets — such as its recent transaction to sell its Puerto Rico and Virgin Island operations to Liberty Latin America fo $1.95 billion. That approach is expected to bring the company $14 billion this year and another $5-$10 billion next year.

The company also continues to make reducing costs and debt a priority, and has hired a special advisor, Bill Morrow, to lead a company-wide cost-reduction initiative. Stephenson said that Morrow’s work “will be above and beyond what we’re already doing with network virtualization, real estate consolidation and our other ongoing cost-reduction initiatives.”

“We’ll analyze the merits of each of our businesses individually and as a part of the whole. But let me be clear, we have no sacred cows,” Stephenson said on the quarterly call.

-While the carrier recorded 317,000 total smartphone net adds, it saw 217,000 postpaid net losses, where tablet losses offset gains in phones and wearables. Overall, it had 101,000 postpaid phone net adds and 154,000 prepaid phone net adds. The carrier also expects 5G device adoption to boost its equipment sales as it launches 5G nationwide in 2020.

-Churn was up slightly: 1.19% compared to 1.16% in the year-ago quarter, driven by tablet and phone churn, the carrier said. Postpaid churn was also up, from 0.93% in the same period last year to 0.95% this year.

-AT&T says it now has nearly 900,000 FirstNet subscriptions from around 9,800 agencies.

-Capital expenditures were $5.2 billion.

-While AT&T has made a number of executive changes lately, Stephenson said he is not planning to leave his position as CEO any time soon and expects to stay in the position through 2020.

-In AT&T’s Entertainment Group, Stephens noted that the company has sought to stabilize earnings there in 2019, and he said that AT&T expects that its losses in premium video subscribers have peaked. There were about 225,000 new losses due to programming blackouts, he said, and gross additions were down due to “new, higher intro pricing and credit thresholds, as well as more targeted promotions.” There were more than 300,000 AT&T fiber net additions in the quarter, he added.

-In AT&T’s Mexico operations, the company has been reducing costs and added nearly 600,000 wireless subscribers.

AT&T sums up its strategy, takes another look at the reseller space

Stephenson laid out a summary of the company’s strategy in recent years and how that flows into the next three years. He said that AT&T has aligned its investments since 2012 around two overarching trends: that consumers “will continue to spend more time viewing premium content” and that “businesses and consumers will continue to demand more connectivity, more bandwidth and more mobility.”

“The foundational elements of our investment thesis are clearer than ever,” he said. “It all starts with advanced high-capacity networks. From our iPhone experience, we knew the mobile Internet revolution in a world of streaming video would require much more capacity than people were anticipating, so we began investing for future demand.”

That meant spending $20 billion on spectrum, acquiring Leap Wireless and its spectrum holdings, and Cricket prepaid; and pursuing the FirstNet network build-out that “brought with it another layer of premium spectrum capacity.”

Stephenson also said that AT&T has “been undertaking the most aggressive fiber deployment program in the U.S. since 2015 with over 20 million locations passed.” But, he also indicated that “over the next 3 years, our strong spectrum position will allow for lower capital intensity.”

The company wanted more direct customer relationships and to gain scale in linear pay TV, leading to its acquisition of DirecTV. Stephenson said that a third rationale for AT&T’s strategy has been that it was “convinced that the value of premium content would increase significantly over time as consumer demand continued to grow and new forms of distribution emerged. … Vertically integrating content and distribution is the future, and we’re seeing it across the board.” The fourth part of its strategy leans on the fact that its “vast distribution network and subscriber base brings unique viewer and customer insights” as a platform for advertising.

Asked about AT&T’s potential interest in spectrum, Stephens responded that while he could not speak to the upcoming millimeter wave auctions due to the quiet period, but “With regard to the C-band and the other future auctions, certainly we’ll be interested. As always, we’re interested in fair auctions that provide as much spectrum available to the marketplace and allows all bidders to bid,” although the company thinks that it will be some time before C-band spectrum might be available.

Executives also indicated renewed interest in reseller arrangements for excess capacity.

“We had stepped away from the reseller business because of capacity issues,” Stephens said, leading to flat reseller revenues for the past year. With new capacity enabled by the FirstNet build-out, he said, “we now have the opportunity to have a real growth from that reseller perspective.”

Asked about whether AT&T would be amenable to the type of MVNO arrangement that Verizon has made with cable companies, Stephenson said the company would be open to it. “And not just cable guys, but there are a number of people in the reseller space that are reaching out,” he said. “We’ve got a lot of capacity now in this network, and we’re at the point of evolution in this industry where we ask, how do you monetize [capacity]most efficiently? And so we’re going to look at all those channels.”

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