AT&T Is Performing But Not Predicting

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By John Celentano, Inside Towers Business Editor

Despite dropping big bucks to go Hollywood, AT&T at its core is still a telecom company.

In the company’s 1Q20 earnings call, John T. Stankey, AT&T President & COO put it succinctly, “ … our core subscription-based businesses, wireless, broadband and enterprise networks, are critical and valued services in these times. They connect, inform and entertain our customers. And for our business, they represent more than 60 percent of revenues and more than 70 percent of EBITDA. These businesses have proven to be resilient, and they help provide a recurring stream of revenue and solid cash flows even in times of economic stress.” Stankey added that AT&T’s wireless and broadband communications networks can absorb losses from its media and entertainment businesses under COVID-19 stress.

In 1Q20, AT&T Mobility alone accounted for 41 percent of the company’s total $42.8 billion in operating revenues and 55 percent of the $14.2 billion of Adjusted EBITDA. Wireless service revenues in the quarter were $14 billion, essentially flat with 4Q19 but up 2.5 percent from $13.6 billion in 1Q19. Total wireless subscribers and connections grew to over 169 million, up over 9 percent from 1Q19, mainly on the strength of 3.5 million new connected devices. Postpaid connections remained flat sequentially at 75 million. A slight drop of 60,000 accounts included 40,000 delinquent accounts for which connections are still being maintained during the pandemic.

AT&T’s overall capital expenditures (capex) for the quarter were $5 billion, virtually flat with 1Q19. Wireless 1Q20 capex was an estimated $2.4 billion, up 6 percent QtQ and up 16 percent over the $2.0 billion invested in 1Q19. There are several key drivers that are stimulating sustained capital investment in its wireless network. First, AT&T’s 5G deployment is not slowing down. The company indicated that its 5G network now covers more than 120 million people in 190 markets, or roughly one-third of the country.

Stankey commented, “Our 5G deployment continues, although we continue to navigate workforce and permitting delays. We expect nationwide coverage this summer. We also continue to be opportunistic with our fiber build beyond the 14 million household locations we reach today.”

Second, the company is expanding and augmenting the FirstNet network to enhance critical communications for first responders dealing with unprecedented emergencies every day. FirstNet network activity involves both establishing new sites and adding to existing sites. Third, AT&T is adjusting quickly to the shift in high traffic volumes from urban core districts into the suburban areas as stay-at-home orders remain in effect. AT&T Chairman & CEO Randall Stephenson observed, “ … we’re seeing heavy, heavy volumes on the networks out in homes. This caused us to have to do some [network] enhancement in a quick basis.”

Going into 2Q20, the company acknowledged the operational impact of COVID-19 on its business and the accompanying uncertainties and withdrew its financial guidance for 2020. That guidance included overall capex of $20 billion, down from the $23.7 billion total spent in 2019. Wireless capex is a subset and typically runs 45-50 percent of that total in any given year.

What to expect? AT&T is not slowing its wireless builds but acknowledges dependency on outside organizations, particularly for new cell site acquisitions. New sites for FirstNet and density enhancements in its primary network require permits and approvals by government officials currently sheltered in place. Stephenson said, “ … while we have no intention of slowing down on 5G and fiber deployment and such, the reality is that a lot of it is not in our control. We’re having to work through some of those issues. So there’s probably going to be, relative to what the targets we gave you on capex, some downward proclivity on that number just because of logistical issues that we’re running into.”

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