AT&T Communications CEO John Donovan on 3Q2018 Earnings Call
Broadband: Fiber deployment will drive broadband growth:
AT&T Communications is driving broadband growth in our fiber footprint. We now cover more than 10 million customer locations today and plan to add 4 million more locations in the next year. We already have substantially more than 3 million broadband customers in our fiber footprint. And the longer we have fiber in the market, the higher our penetration.
In fact, we expect our fiber broadband base to increase by more than 1 million subscribers this year. This shift to fiber is beginning to drive IP broadband ARPU growth. The strategic pivot we’re making with video, combined with our execution with fiber gives us the confidence that we will stabilize Entertainment Group EBITDA next year.
[Implication is that increased fiber to the building will stabilize AT&Ts linear video business (U-Verse and DirecTV) which has been losing subscribers to cord cutters. However, FTTB is only applicable to U-Verse- not satellite TV (DirecTV)].
Finally, we’re keeping a laser focus on costs in all of our businesses and maintaining our margins in Business Wireline.
FirstNet:
Our FirstNet team continues to execute extremely well. So far, we launched a nationwide FirstNet dedicated and physically separate network core with FirstNet traffic moving on it. We have priority and pre-emption in place, allowing continuous service during times of heavy traffic.
FirstNet devices are ready and available. These devices support all AT&T commercial LTE bands as well as the FirstNet Band 14 and meet the band priority selection technical requirements. And we’re six months ahead of schedule with our network deployment already covering about one-third of the expected FirstNet area.
We’re seeing in real time how we are performing in times of emergency with Hurricane Michael being the latest example. We began preparing for this storm before it arrived and our work continues even to today.
Because of these efforts, we were able to keep our customers, including first responders, connected during and after the storm in many areas. In fact, our network operated at 90%, and usually better, of normal performance in the areas affected by Hurricane Michael. And through our tight coordination with public safety, we rolled out network assets to impacted areas to keep first responders connected.
We also worked with local authorities to identify public safety agencies that were without service from their wireless provider and delivered hundreds of FirstNet-enabled devices to help these first responders carry out their important mission of keeping the public safe.
One first responder went as far to say, when everything else was down, FirstNet was working. That’s high praise, and we’re humbled that we can play a part in helping a community recover from such a devastating storm. That’s what FirstNet is all about.
We continue to push our deployment. We’re climbing towers and adding 700 megahertz, AWS, and WCS spectrum all at once. We’re also adding new radio capability, which will enable us to upgrade the tower to 5G, without another tower climb.
The first responder community is a great sales opportunity for us. It’s an area where we’ve been under-penetrated in the past. But with our dedicated network core and outstanding performance when it matters most to the first responders, we’re making headway.
We now have more than 250,000 subscribers on FirstNet with more than 3,600 agencies represented. With a sales team dedicated to building this base, we believe there’s a lot of opportunity waiting for us.
5G and LTE-LAA:
AT&T is on track to be the first wireless carrier to introduce mobile 5G services in the United States in the next few weeks. This will be standards-based 5G (what standard is that John???????????????????). We plan to introduce 5G in parts of 12 cities by the end of the year. And we’ve announced additional 5G cities for next year, as we drive toward nationwide coverage of our 5G network.
Editor’s Note/Sanity Check:
The first wave of AT&T “5G” markets will include Dallas, Atlanta, Waco, Charlotte, Raleigh and Oklahoma City. Mr. Donovan noted that this rollout is part of a ‘drive toward nationwide coverage of our 5G network’; a nationwide 5G coverage target date has not been disclosed. He also noted that the 5G service will leverage the telco’s substantial fiber-optic network (see Comment box below), saying ‘fiber (backhaul) is the backbone of 5G’ [Of course, we agree]. AT&T will pass 18 million customer locations with its fiber network this year, with 22 million locations targeted in 2019. However, neither AT&T’s or any “5G” network announced for this year or next will NOT be “standards based,” as there is only ONE!!!!! standard for 5G – IMT 2020 which won’t be completed till year end 2020.
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Second, our 5G foundation is in place (see below). We’ve completed 5G trials in several cities in the last three years. Fiber is the backbone of 5G, and we have one of the nation’s largest fiber networks. Including businesses, we pass about 18 million customer locations today and are expanding that to more than 22 million locations by next year.
5G Foundation:
Fiber passing ~22M units
• 14M Consumer by mid ‘19
• 8M Business
400+ 5G Evolution Cities in 2018
LTE-LAA in 24 Cities by End of Year
5G Introduction:
Completed 5G trials in multiple cities since 2016
Introducing mobile 5G in parts of 12 cities in 2018
-> 7 additional cities by early 2019
Starting on path to nationwide mobile 5G
Reliability:
The Best Network according to the nation’s largest test2
Nearly 50% increase in spectrum deployed by end of 2019 vs 2016
Strong performance during recent storms
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We plan for our 5G Evolution to be in more than 400 markets by the end of this year with nationwide coverage by mid-2019. Customers are seeing a dramatic lift in speeds with theoretical peak speeds reaching 400 megabits per second.
We also plan to launch LTE Licensed Assisted Access, or LTE-LAA, in parts of 24 cities by the end of the year. These are the building blocks towards the transition to 5G and can deliver speeds substantially faster than traditional LTE.
SDN, Virtualization, Spectrum, etc:
We’re also the leader in software defined networking (SDN) and are on track with our virtualization goals. This virtualization is bringing baseband units to the edge of the cloud or core and is going to be key for ultra-low latency that’s in 5G.
Thanks in part to our FirstNet build, our wireless spectrum is being put into service at a rapid rate. We’re on track to increase the amount of spectrum deployed by nearly 50%.
This is having a dramatic positive impact on our network, and others are noticing. We’ve been named the nation’s best network by a September GWS OneScore study, which is the largest and most comprehensive network study of its kind. Our network already is a recognized leader, and we’re taking steps to make it even better.
Video Business:
Moving to the video business. We continue to navigate industry pressure. We have plans to bring EBITDA stability back to our Entertainment Group. Allow me to elaborate on that.
First, we’re refining our four video products, tailoring them to customer needs. Our mobility-focused WatchTV is gaining traction. DIRECTV NOW is being updated to increase its simplicity and further differentiate the service. And our premium DIRECTV and U-verse services focus on the traditional linear TV viewers.
We’ve also begun beta testing our proprietary thin client streaming service (unnamed but said to be built around HBO) and plan to roll out trials in the first half of next year. This will be a more measured roll out. And like our introduction of WatchTV, we expect this service to be EBITDA positive. And over time, it should lower our acquisition cost of our premium video service. And both of these use the common platform we introduced with DIRECTV NOW.
If you look at linear TV, it’s really going to be about broadband and how do we use broadband to lead ourselves into premium TV. And then get an OTT package that’s well-suited to the people that are going to be the heavily engaged users.
If you look at the industry’s rate of decline on linear video, you find that we’re doing dramatically better than the industry where we have fiber footprint. We’re doing dramatically better than the industry in churn and acquisition where we have 25 meg and greater. Where our stress is is in the linear, in areas where we’re priced with just the linear video. And we’re going to have to take actions to continue to improve how we’re doing there.
Our fiber footprint build has given us a lot of inventory to sell into. With the fiber inventory that we’ve got coming online back half of this year, first part of next year, we have a lot of footprint to sell into. And within the quarter, not only do we have broadband ARPU growth, each month of the quarter got stronger. So we feel very good about where the broadband footprint is, in particular the fiber area. And that will help us with the video business, especially the linear video business.
But with the fiber inventory that we’ve got coming online back half of this year, first part of next year, we have a lot of footprint to sell into. And within the quarter, not only do we have broadband ARPU growth, each month of the quarter got stronger. So we feel very good about where the broadband footprint is, in particular the fiber area. And that will help us with the video business, the linear video business.
AT&T CEO Randall Stephenson aded: “And as we’re nearing completion of our fiber build and making pricing moves on video, we’re laying the foundation for stabilizing our Entertainment Group profitability in 2019. Across the business, I like our momentum and feel confident that we’re on track to deliver on our plans.”
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CFO John Stephens on CAPEX and Free Cash Flow:
We continue to expect our capital spending in the $22 billion range this year but we don’t expect as much vendor financing in the fourth quarter as before. So now we expect to be in the $24 billion range in gross capital investment for the year. We’re feeling really good about our free cash flow position heading into the fourth quarter. We expect $1.3 billion of FirstNet reimbursements in the fourth quarter since we received the FirstNet authorities’ approval for the latest contract milestone achievement.
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Earnings Call Transcript:
https://seekingalpha.com/article/4213893-t-t-q3-2018-results-earnings-call-transcript?part=single
Slide Presentation:
2Q-2018 AT&T Communications report by John Donovan:
2Q-2018 Status & Direction of AT&T Communications, by CEO John Donovan
AT&T Fiber Now Reaches 2 Million Business Customer Locations
https://about.att.com/story/2018/fiber_for_business.html
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AT&T’s 69,000 net new monthly wireless subscriptions in the third quarter were more than analysts had expected, but the number pales in comparison with Verizon’s 295,000 net adds over the same three months. And those 69,000 new AT&T customers won’t make up for the accelerating decline in AT&T’s DirecTV satellite TV business: The service lost a net 359,000 customers, versus 251,000 in the same period last year. Verizon’s Fios TV service also lost subscribers in the quarter, but it’s a far smaller part of Verizon’s business compared with DirecTV and AT&T.
DirecTV Now, AT&T’s streaming TV product that was billed as a way to retain fleeing satellite TV customers, flopped in the third quarter. Only 49,000 net new subscribers signed up, far behind the 287,000 that analysts had been expecting or the 296,000 new DirecTV Now accounts added in the same period last year.
John Donovan, CEO of the AT&T Communications unit, acknowledged that a recent price increase and heightened competition had weighed on DirecTV Now sign-ups.
The $81 billion acquisition of Time Warner provided most of the 15% boost in AT&T’s revenue over last year, an important contribution given that “virtually every single part of legacy AT&T is shrinking,” according to MoffettNathanson analyst Craig Moffett.
AT&T’s acquisition focus seems to be weighing on the company’s network investments, though—a key priority at Verizon. To fund the Time Warner deal, AT&T had to substantially increase its debt load, to more than $250 billion in borrowings, roughly four times debt to Ebitda, or earnings before interest, taxes, depreciation, and amortization. On the company’s earnings call, CFO John Stephens said AT&T is seeking to reduce its debt load to 2.5 times by the end of 2019.
Paying down debt while maintaining AT&T’s nearly 6.5% dividend yield will put significant demands on the company’s cash flow. “Who would have guessed that, as we stand on the brink of 5G…, we would be looking at capital spending declining rather than rising?” Moffett wrote in a report Wednesday morning.
Verizon, meanwhile, is using its cash to improve its efficiency while investing in its coming 5G rollout.
https://www.barrons.com/articles/att-verizon-3q-earnings-1540406224
“5G and smart cities can only become a reality for all Americans if there is enough fiber infrastructure to support them,” wrote Lisa Youngers, CEO of the Fiber Broadband Association, in a column for Morning Consult. “Deloitte Consulting recently reported that the United States will require an estimated $130 billion to $150 billion in fiber investment over the next five to seven years to adequately support broadband competition, rural coverage and wireless deployments for future network technologies such as 5G.”
Indeed, the Fiber Broadband Association itself released a white paper late last year that found that 1,390,816 miles of fiber would be required to provide full 5G service to just the top 25 metropolitan land areas in the United States, “assuming all of those 5G cells were served by fiber connections.”
5G players like AT&T and Verizon are also touting their fiber networks as a key element in their nascent 5G services. “Fiber is the backbone of 5G, and we have one of the nation’s largest fiber networks. Including businesses, we pass about 18 million customer locations today and are expanding that to more than 22 million locations by next year,” AT&T’s John Donovan said during AT&T’s quarterly earnings call with analysts this week.
“Our network preparation for nationwide 5G deployment requires deep fiber resources, a vast array of small cells, critical spectrum holdings and mobile edge computing capabilities. All of which we have been assembling for years,” echoed Verizon’s CFO Matt Ellis this week on his carrier’s quarterly conference call.
AT&T’s fiber efforts stem directly from the conditions placed on the company as part of its acquisition of DirecTV. And Verizon’s own fiber efforts come after the company offloaded a significant chunk of its fiber operations to Frontier—though, to be clear, Verizon has said it continues to build fiber connections in specific locations in order to aid its 5G and wireless network buildout efforts.
Nonetheless, operators’ emphasis on fiber doesn’t come as a surprise. After all, the nation’s core internet transport network is build primarily out of fiber connections among major U.S. cities—and virtually all wireless traffic collected today by the tens of thousands of cellular towers around the country is ultimately backhauled through this transport network. But with 5G, those fiber connections could become even more important considering the vast amounts of data that 5G connections promise to support. Thus, most 5G providers are looking to connect their cell towers and small cells directly to fiber backhaul—instead of a microwave or other type of connection—in order to stay on top of their growing transport needs.
The FCC, for its part, hasn’t ignored the fiber market. Chairman Ajit Pai for example wrote in September that “we’ll also need a lot more fiber optic lines to connect all these small cells to the networks’ core.”
Further, some fiber proponents have cheered recent FCC actions in the fiber arena. “Thankfully the FCC has already taken steps to remove unnecessary barriers to innovation. Just this summer, FCC Chairman Pai paved the way for the adoption of the One-Touch-Make-Ready rule, which will make it easier to attach equipment to telephone poles and help propel fiber broadband deployment throughout the country,” wrote Youngers of the Fiber Broadband Association.
But Youngers and other fiber proponents content that the FCC and other regulators could do more to promote the buildout of fiber networks—and that such regulations would therefore aid in the rollout of 5G. “There is still work to do to make the United States the global leader in 5G. So as we look ahead to the next generation of wireless network technologies and smart cities, policymakers at all levels of government and industry need to work together to ensure that there is plenty of fiber broadband infrastructure available for the United States to lead on 5G,” Youngers wrote.
Similarly, the EFF’s Falcon wrote that federal, state and local legislators could speed the build-out of additional fiber for 5G by allowing multiple providers—including startups and municipalities—to enter markets and access networks currently controlled by cable and telco providers. Local fiber providers, ranging from Sonic to Socket, have made the same contention: They’ve even teamed with trade group Incompas to launch an advocacy website—Bridge 2 Broadband—to argue their point.
It’s no surprise that fiber proponents are pushing for federal and local regulations that are more friendly to fiber providers. After all, 5G operators have managed to grab the spotlight this year from a policy perspective—most recently the Trump administration held a 5G summit that assembled key policy makers from the FCC, NTIA and Congress. Further, the FCC has moved forward with a number of proceedings in recent months geared toward speeding the deployment of 5G network technology.
Such actions appear to be motivated in part by the notion that the United States is in a race to 5G with China, and that a leading position in 5G is a matter of U.S. national security. Thus, fiber companies may be hoping to draft onto the political momentum behind 5G by pointing out that fiber is a key element of 5G services.
https://www.fiercewireless.com/5g/5g-momentum-could-benefit-fiber-industry-too
With all the optimistic happy talk by AT&T execs, T stock was down over 10% over 3 consecutive days to close Friday at a 9+ year low. VZ doing much better, perhaps because it has much less debt.