AT&T reports strong wireless growth in 1Q 2021; C Band ? Fiber footprint increases
AT&T reported strong wireless subscriber growth today. The company recorded $19.0 billion in mobility revenue, up 9.4% from a year earlier. While service revenue grew just 0.6%, with subscriber gains largely offset by continued pressure on international roaming amid the pandemic, AT&T’s equipment revenue rose 45.2% as AT&T benefited from a greater mix of higher priced smartphones. The latest results also benefitted from comparisons to those from a year-ago period that saw temporary store closures due to the beginning of the COVID-19 crisis.
The telecom/media recorded to 595,000 postpaid phone net additions for the quarter and a postpaid phone churn rate of 0.76%, which was down from 0.86% a year prior. Of the major wireless companies in the U.S., AT&T has been the most focused since the latest iPhone launch on offering promotions meant to drive upgrades from existing customers, rather than mostly targeting customers who would be switching from another carrier.
Impressively, AT&T added 235,000 AT&T Fiber customers in the 1st quarter of 2021, up from 209,000 in the year-ago period. Fiber penetration rose to 35% from 30% in Q1 2020.
During an earnings call, AT&T CEO John Stankey said the company added a total of more than 1 million fiber subscribers over the last four quarters, and was on track to build out fiber to 3 million consumer and business customer locations in 2021. He previously said AT&T was aiming to roll out fiber to 2 million new residential customers this year.
Reflecting on its progress thus far, Stankey said, “I like what I see in terms of our market position. If you look at things like lives, churn, customer satisfaction and net promoter scores and the actual performance of the product, they’re all great…I’ve not seen share movement on typical products like this as rapidly as we’re able to get share movement once we deploy an area.”
“We continued to excel in growing customer relationships in our market focus areas of mobility, fiber, and HBO Max,” said CEO John Stankey. “We had another strong quarter of postpaid phone net adds, higher gross adds, lower churn, and good growth in Mobility EBITDA.” AT&T posted 2.7 million total domestic HBO Max and HBO subscriber net adds, bringing total domestic subscribers to 44.2 million.
AT&T said it expects to spend $6 to $8 billion between 2022 and 2024 to deliver 5G services over its own midband C-band spectrum licenses. The company expects to cover up to 100 million people in “early” 2023, but that target generally trails the buildout plans of Verizon and T-Mobile.
“Global supply chains are stressed right now across the board. You ask the question, can you do the work? And people will give you comfortable answers,” Stankey said in response to questions about plans for C-band, timing and increased capex on AT&T’s first quarter earnings call.
“But I’m a little skittish,” Stankey acknowledged. “We’re seeing dynamics that are occurring in the global supply chain where unexpected things are popping up. And is it possible we could see certain element shortages that start to crop up as everybody’s racing to put stuff up on towers? It may.”
Stankey said that’s part of why he’s cautious about increasing guidance or making changes to C-band plans until there is a little momentum happening.
Likely as a result, Stankey expressed interest in purchasing additional midband spectrum licenses later this year during the FCC’s 3.45-3.55GHz spectrum auction. “I believe there could be an opportunity there,” he said.
Business Wireline, which accounts for 14% of AT&T’s consolidated revenues, saw weak results. This has historically been a highly cyclical business. Total Business Wireline revenue was $6.0B, down 3.5% YoY, a bit better than last quarter’s 4.1% decline. That result was considerably weaker than the expectation of a 3.5% decline.
As with peers, AT&T’s Business Wireline business has held up better than we would have expected during the COVID recession. Verizon noted last quarter that their own Business Wireline segment has been boosted by explosive growth in Public Sector revenues, driven in large measure by schools adjusting to the demands of remote learning, and they indicated that they expected some mean reversion. Perhaps, the CARES Act, which provides a huge amount of subsidy for schools and local governments, will soften (or even reverse) that blow.
AT&T Communications CEO Jeff McElfresh said that AT&T is “supportive” of President Joe Biden proposed infrastructure plan, which sets out to bring high-speed broadband to rural America, and that the company is “encouraging the government to do this in a smart way.” He argued that efforts to expand broadband access are “generally more impressive when you have scale backing the implementation” and that private-public partnerships, as well as collaboration within the telecommunications industry, can help drive success.
“AT&T appears to be ceding the field in wireless with a network plan that doesn’t even attempt to close the gap with T-Mobile and Verizon,” wrote the financial analysts at New Street Research in a note to clients released shortly after AT&T disclosed its first quarter financial results. “As with results today, for a little longer AT&T may be able to stem the tide of losses through continued aggressive promotions and retention offers, but this can only go so long given other costly priorities (a massive investment in HBO, a doubling of the fiber footprint) amidst generally constrained resources. Moreover, if they allow the network gap to widen too far, they may not be able to keep subs at any price (as was the case with Sprint in later years).”
“AT&T is investing in mobile and HBO Max, as it promised, and at great cost,” wrote the financial analysts at Sanford C. Bernstein & Co. in a note to investors. “The problem is, there are not enough investment dollars to go around. We believe the share price fairly reflects the highly uncertain outlook, and we are watching … as the competitive environment evolves.”
Craig Moffett of MoffetNatanson wrote: “The broadband business requires big capital investments up front for gradual and steady returns later… but the payback period even for good investments is as much as ten years…. The C-Band auction was just the beginning. Verizon has already committed to an additional $10B of capex over the next three years, and Verizon was, by all accounts, far ahead of AT&T already in small cell densification. And what of their costly handset giveaways? Can they be sustained?”
“The problem, as ever, is s AT&T’s debt load. To maintain any pretense that they will be able to pay down debt and service their $15B per year dividend, they need to sustain free cash flow at current levels, or grow it even. But service revenue is still declining, and, despite solid cost controls in Q1, EBITDA is still declining as well (down 4.7% YoY).”
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AT&T told the FCC it plans to begin adding open RAN-compliant equipment into its network “within the next year.”
That puts AT&T on roughly the same timeframe as Verizon. Verizon’s SVP Adam Koeppe told Light Reading earlier this year that the operator’s 5G hardware vendors – Ericsson, Samsung and Nokia – will begin supplying open RAN-compliant equipment starting later this year. And he expects that the bulk of their equipment shipments to Verizon will comply with open RAN specifications by next year.
AT&T told the FCC it expects to implement similar changes into its own network.
“The challenge for an operator shifting to any open network architecture, including but not limited to O-RAN, will be maintaining network reliability, integrity and performance for customers during the transition,” the operator wrote in a filing. “For our part, AT&T serves multiple customer groups, with varied and often complex, service requirements. As we introduce O-RAN into our network, our goal will be maintaining the same high level of performance at scale. We are actively working in this direction.”
AT&T to FCC: Promoting the Deployment of 5G Open Radio ) Access Networks – GN Docket No. 21-63
Another update: AT&T, Verizon Refuse FAA Request to Delay 5G Launch
AT&T and Verizon rebuffed a request from federal transportation officials to voluntarily delay the launch of new 5G wireless services, extending a showdown that could lead to potentially disruptive U.S. flight restrictions as soon as this week.
The cellphone carriers on Sunday offered a counterproposal that would further dim the power of their new 5G service for six months to match limits imposed by regulators in France, giving U.S. authorities more time to study more powerful signals’ effect on air traffic. The companies had planned to launch the service Wednesday in as many as 46 of the nation’s largest metropolitan areas.
“If U.S. airlines are permitted to operate flights every day in France, then the same operating conditions should allow them to do so in the United States,” the chief executives wrote in a letter reviewed by The Wall Street Journal.
The Federal Aviation Administration has been preparing to issue flight restrictions that could go into effect around the country as soon as Wednesday. The limits could restrict pilots from using certain automated systems to help land aircraft in bad weather, a move that could disrupt air travel and cargo shipments.
“U.S. aviation safety standards will guide our next actions,” the FAA said Sunday. The agency declined to comment about when it might issue the flight limits in official notices to air missions.
Telecom-industry officials have pointed to dozens of countries, including France, that have already allowed cellular service over parts or all of the frequencies in question, known as C-band. France is among the countries that have imposed wireless limits near airports while regulators study the effect the signals have on aircraft.
The letter by AT&T CEO John Stankey and Verizon CEO Hans Vestberg was in response to one sent by Transportation Secretary Pete Buttigieg and Federal Aviation Administration chief Steve Dickson late Friday. The New Year’s Eve missive asked the carriers to postpone their planned 5G launch by “no more than two weeks” while officials worked to address the wireless services’ effect on specific airports over the coming weeks.
Air-safety regulators have said the new cellular services could confuse key cockpit safety systems and have been preparing to impose potentially disruptive flight restrictions.
AT&T and Verizon, which combined serve more than half of all U.S. cellphone connections, disputed officials’ claims of air-safety risks. The companies postponed a planned December debut of the new signals to provide more time for telecom and aviation regulators to share information about the wireless infrastructure and aircraft equipment in question.
Wireless companies later pledged to limit C-band signals for another six months through early July. The letter Sunday proposed even stricter 5G limits over the same period.
But the telecom CEOs said transportation regulators’ latest delay request would be to “the detriment of millions of our consumer, business and government customers.” The CEOs added that carriers spent more than $80 billion to acquire the licenses in a Federal Communications Commission auction that closed in January 2021.
FCC authorities padded the spectrum they auctioned with a swath of buffer frequencies to prevent interference with cockpit systems. But air-safety regulators have expressed concern that more sensitive altimeters could mistake cellular transmissions for terrain.
AT&T and Verizon have spent the past year preparing to turn on new signals to provide new fifth-generation wireless technology, a faster and more capable mobile service. Wireless companies in other countries already use similar frequencies, but the spectrum wasn’t available to U.S. providers until recently.
Without a resolution to the dispute, Messrs. Buttigieg and Dickson warned the FAA’s flight limits would bring severe economic consequences.
“Failure to reach a solution by Jan. 5 will force the U.S. aviation sector to take steps to protect the safety of the traveling public, particularly during periods of low visibility or inclement weather,” they wrote in their Dec. 31 letter.
Airlines have been bracing for significant flight cancellations and diversions due to potential FAA flight restrictions because of the regulator’s aviation-safety concerns. Pilots and airlines had been awaiting details of potential FAA flight restrictions that limit the use of systems that rely on radar altimeters.
Over the past week, U.S. air travel has been snarled by a mix of winter storms and staffing challenges because of increasing ranks of airline crews calling in sick with Covid-19 as the U.S. deals with a surge by the Omicron variant. Thousands of flights have been canceled and delayed.
The competing proposals are the latest in a flurry of behind-the-scenes work by aerospace manufacturers and wireless companies, their regulators and senior White House officials. As they attempted to hammer out solutions to allow the new 5G service to go live without prompting severe flight restrictions, the trade group Airlines for America asked the FCC to consider an emergency request to delay the wireless rollout.
The airline trade group said Sunday it continued to urge the FCC and telecom industry to work with the FAA and aviation industry to reach a compromise.
The FCC is an independent agency that acts outside the Biden administration’s direct authority. The commission hasn’t shown an interest in limiting licenses that it found safe to grant in a 2020 order authorizing the 5G auction.
An FCC spokeswoman declined to comment on the airline group’s request but said the commission remained optimistic that “by working together we can both advance the wireless economy and ensure aviation safety.”
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