John Stankey, president and chief operating officer, and incoming CEO of AT&T Inc. talked up broadband, HBO Max, and 5G today at the J.P. Morgan Global Technology, Media and Communications Conference. Stankey said the company’s market focus is on providing customers with broadband through its fiber and mobile networks and software-based entertainment offerings such as HBO MAX and AT&T TV. More importantly, he reaffirmed AT&T’s plan to have a nationwide 5G network in place by this summer (that’s long before 3GPP Release 16 can be implemented or ITU IMT 2020 standard completed).
In the midst of the COVID-19 pandemic, Stankey said the resiliency of AT&T’s wireless, broadband and enterprise businesses provides the company with confidence in its ability to continue to generate strong cash flows to invest in key capital areas including fiber, 5G and HBO Max, comfortably cover its dividend and pay down debt. Additionally, he noted that it continues to be challenging to predict the length or depth of the pandemic’s overall economic impact or its effect on the company’s overall business.
Here are a few highlight telecom related quotes from Stankey:
“Wireless business at its core remains very strong, but the activity environment is a bit suppressed primarily because of distribution. Roaming dynamics have put some pressure on revenues but the core is looking very good.”
“On the SMB side, its a little early to tell if they’ll be a bounceback,” referring to the uncertainty of when many SMBs will re-open. “I think we’ll be in a fairly slow climb back out of the low end of the market. I don’t expect this to be a quick snap-back this year.”
“We want customers to start thinking about connectivity (and content) so we can grow our advertising business over time HBO Max is the front end of our entertainment distribution platform.” He noted that both HBO Max and AT&T TV are software based (OTT TV packages) that are independent of the underlying transmission/ delivery network.
“Any discretionary consumer spending will be under review” in light of the economic hardships and distress imposed by COVID-19 stay at homes. That will likely result in more cord cutting and reduced spending on traditional pay TV bundles.
Nationwide 5G coverage by mid-year:
“It’s going well. We’re starting from a very strong position. Our embedded (cellular) network is performing as well or better than any network out there. We’ve added over 70% capacity since the end of 2017 and are broad spectrum holding (mmW, midband and lowband) for which we have the flexibility to allocate traffic to all of those, puts us in excellent position for deploying 5G.”
“In the summer we’ll have nationwide coverage of 5G. Our customer base over- indexes (?) on Apple products, but Apple hasn’t announced a 5G product yet…. I feel great on how things are lining up.”
What 5G enables when widely deployed:
” A highly managed WAN with incredible levels of security that supports the kind of environments we’re in today. It plays very well into the enterprise. New business models will emerge, including manufacturing floor, medical communities and establishments.”
AJW Comment: This reiterates that AT&T continues to focus its 5G strategy on enterprise customers vs consumers and we think that is where the growth will be, especially if ultra low latency and ultra high reliability are added to the 5G specs (those two capabilities are not nearly complete in 3GPP Release 16 and non-existent in the ITU-R IMT 2020 RIT/SRITs being progressed.
Yesterday, AT&T CFO John Stevens told a Moffet-Nathanson virtual conference that the businesses that come out of the COVID-19 crisis in good financial shape may want to take advantage of 5G-related cost efficiencies.
“Businesses that are going through this who do have solid balance sheets, solid capabilities, good technology – they may want to move quicker to 5G to ring out the cost savings and efficiencies,” he said, adding the situation remains “wait and see.”
Stephens acknowledged that COVID-19 damage may also cause AT&T to lose business customers. “Certainly some opportunities will go away” from companies facing financial pressures and restrictions to credit amid the coronavirus-related economic downturn.
The timeline for monetizing consumer 5G hasn’t been impacted since AT&T didn’t expect to generate significant consumer service revenues from 5G any time soon, instead anticipating 5G applications to be targeted at business users.
“Those [business] applications will be turned into consumer applications over time, so we feel really good about getting the network out there before significant growing demand for 5G on the consumer side,” Stephens said.
At the start of the year, AT&T had expected a major handset upgrade cycle, coinciding with its expanded 5G network deployment and HBO Max launch. With a significant portion of its retail stores closed, alongside high unemployment rates and possible tightened consumer spending, AT&T anticipates reduced activity – as was seen in March, when device sales dropped 25%.
Consumers may put off purchasing devices as they conserve financial resources, but a weak upgrade cycle won’t affect AT&T’s profitability, according to Stephens.
“The way we’re building toward 5G on an evolutionary basis, we are dramatically improving our LTE coverage and speeds along the way, so the customers we have get the benefit of what we’ve done with the equipment that’s in their hands today,” he said. “They don’t need to buy a new device,” although they do expect 5G to provide the opportunity to do that if they opt to.
In terms of mid-band spectrum compared to competitors, with T-Mobile’s new 2.5 GHz holdings and Verizon expected to participate in the C-Band auction later this year, Stephens said that AT&T’s work getting about 150 MHz of new spectrum into service has put the company in a favorable position for low-and mid-band spectrum.
Stephens couldn’t comment on the upcoming CBRS auction, but said C-band would be interesting to participate in and is confident in AT&T’s ability to fund spectrum acquisitions. Still, AT&T feels very good with its current spectrum holdings, which he stressed are already in service for customers.