AT&T Sticks With 2020 CapEx Guidance

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AT&T’s (NYSE: T) 2Q20 results showed revenue slowdowns and dislocations due to COVID-19. At the same time, the company is progressing with infrastructure investment for fiber, 5G, FirstNet and video programming. The company reaffirmed its 2020 capital expenditure guidance of $20 billion.

AT&T reported 2Q20 operating revenues of $40.9 billion, down 4 percent from $42.8 billion in 1Q20 and down 9 percent from $44.9 billion in 2Q19. Service revenues totaled $33.6 billion, down 5 percent from $35.3 billion in 2Q19.

Despite moves in recent years to remake itself into a telecommunications, media and entertainment conglomerate with big investments in Time Warner and DirecTV, AT&T remains a communications company at its core.

Communications is AT&T’s largest business unit comprising Mobility, Entertainment Group and Business Wireline. Communications manages the bulk of AT&T’s wireless and wireline infrastructure and accounted for $33.6 billion or 82 percent of AT&T’s total 2Q20 operating revenues and over 85 percent of Adjusted EBITDA. 

WarnerMedia including Turner broadcasting, HBO television entertainment and Warner Bros. movie productions contributed $6.8 billion or over 15 percent of the total revenues while Latin America with operations in Venezuela and Mexico accounted for $1.2 billion or 3 percent of revenues.

AT&T calculated a COVID-19 impact of $2.8 billion on revenues in 2Q20. WarnerMedia content and advertising, and video advertising was hit hardest, dropping by $1.7 billion as sports broadcasting and movie production were shut down. Mobility wireless service and equipment revenue took a $700 million hit.

Communications produced $30 billion in 2Q20 service revenues. Of that, Mobility generated $13.7 billion or 46 percent.

At end 2Q20, Mobility reported a customer base of 171.4 million post- and pre-paid subscribers and connected devices that was up 8 percent on a year-to-year basis.

Connected devices for Internet of Things and vehicle applications grew by 2.3 million in 2Q20. Since 2Q19, connected devices grew by 23 percent even as the post-/pre-paid wireless subscribers has stayed flat at around 100 million subscribers.

Entertainment Group which includes residential broadband and legacy telephone lines generated $9.6 billion or 30 percent of Communications’ 2Q20 service revenues.

Business Wireline accounted for the balance with sales of advanced communications equipment and special services connectivity mainly for Enterprise accounts. Service revenues in both groups declined by low single digit percentages mainly due to fewer new installations during the pandemic.

Communications takes the lion’s share of AT&T’s capital expenditures. Of the $9.4 billion in capex that AT&T invested in 1H20, Communications accounted for $8.4 billion or 89 percent. 

For 1H20, Mobility spent $4.7 billion or 56 percent of Communications’ capex allotment with most of that for 5G deployments along with 4G LTE network enhancements. 

AT&T has 5G spectrum options in 700 MHz low-band, 1.9 GHz and 2.3 GHz mid-band, and 24 GHz and 37/39 GHz high-band frequencies. The company is leveraging dynamic spectrum sharing facilities in key markets to get 5G up and running quickly on 4G LTE bands.

Note that AT&T is in a high cycle of investment as it rolls out 5G mobility nationwide and continues with fiber cable installations for residences and businesses alike.

Network construction activity should accelerate in 2H20 as restrictions ease. We estimate that AT&T Mobility’s capex for full-year 2020 in the $8-10 billion range, with Mobility just at its capex midpoint.

It is interesting that AT&T CEO John Stankey downplayed using 5G in millimeter wave fixed wireless applications as a substitute for fiber-based internet access. “… a tough one to beat when there’s embedded gigabit-capable fixed line networks in place. … But I don’t believe in the near term that 5G is the right fixed line replacement strategy in what I would call a typical single-family home infrastructure.”

By John Celentano, Inside Towers Business Editor

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