AT&T CFO sees inflation as main threat, but profits and margins to expand in 2nd half 2022
At the Credit Suisse Communications Conference on Tuesday, AT&T CFO Pascal Desroches said Tuesday that inflation is the issue he is most concerned about, and one that he expects to continue “for the foreseeable future. It’s hard for me to envision that that’s not going to impact the consumer negatively,” Desroches said. “And that we and some others will see some pressure,” he added.
AT&T has already raised prices on some mobile service plans in order to combat the impacts of inflation. The CFO’s comments were made mere weeks after the telecom giant increased the pricing for certain older single-line individual plans by $6 per month or $12 a month for family plans.
Yet Desroches said the company may review its pricing again. AT&T is seeing the impacts of inflation across labor, supplies, energy and transport. Nonetheless, AT&T is expecting to see profit margins expand during the course of the second half of the year, as well as improved profit trends, Desroches added.
Desroches reiterated that AT&T has taken a disciplined approach to growth and investment and made the following points:
- The company continues to grow customer relationships in its strategic focus areas of 5G and fiber. Desroches said the company continues to see healthy consumer demand even with continued expectations that 2022 postpaid wireless industry demand is unlikely to replicate 2021 levels. AT&T continues to successfully attract high-value customers with its consistent, simple go-to-market strategy.
- Desroches remains comfortable that the company can deliver improving postpaid phone ARPU trends in 2022. He noted that postpaid phone ARPU could in fact edge up sequentially in the second quarter.
- Desroches also reiterated expectations for gradual improvement in year-over-year mobility EBITDA trends through the course of 2022. Following a more pronounced impact in the second quarter, the revenue and EBITDA impacts of the previously announced 3G network shutdown and the absence of approximately $100 million in CAF II and FirstNet related reimbursements are expected to be more than mitigated in the back half of year by organic service revenue growth and the lapping of 3G shutdown costs comparisons in the second half of 2021.
- AT&T’s fiber build progress continues with expectations to achieve 30+ million customer locations by 2025. Desroches noted that AT&T is acquiring new customers and seeing strong penetration rates thanks to a straightforward go-to-market approach.
- Desroches shared that the company continues to work with state and local government municipalities across the country to provide affordable broadband connectivity to low-income customers through the Affordable Connectivity Program. Over time, the company believes these efforts can help provide internet for all Americans and expand the total addressable market for broadband access. Additionally, Desroches indicated that any federal funding in support of the company’s fiber buildout would be deployed to expand its network to additional customer locations, representing potential upside above AT&T’s existing guidance.
- AT&T continues to work through its business wireline portfolio rationalization process and focus its efforts on core transport and connectivity solutions. Desroches noted that the company has yet to see a recovery in government sector demand trends which impacted the business during the first quarter.
- With regard to the macroeconomic environment, Desroches said that the company considered a higher-than-typical level of inflation when setting 2022 budget. The company’s recent pricing increases were a response to higher-than-expected inflation trends. Additionally, the company has opportunities to address the impacts of inflation with its ongoing cost savings initiative, which is expected to reach a run rate of $4+ billion by the end of this year.
- Desroches stated the company feels good about its financial flexibility, does not plan to issue any debt in the near-term and remains focused on its goal of achieving a net debt-to-adjusted EBITDA ratio in the 2.5x range by the end of 2023.
References:
https://about.att.com/story/2022/pascal-desroches-webcast-summary-june-14.html
https://www.barrons.com/articles/att-prices-inflation-51655220258
2 thoughts on “AT&T CFO sees inflation as main threat, but profits and margins to expand in 2nd half 2022”
Comments are closed.
AT&T CFO Pascal’s inflation warning was not new. It followed what AT&T CEO John Stankey said at a May 2022 JP Morgan TMT virtual conference:
AT&T CEO John Stankey is growing wary about inflation, warning that the rate of price increases in the general economy will impact consumer spending on video content.
“We have to be mindful of the fact that inflation levels are really problematic. It’s not good for anybody. It’s not good for any business. It’s not good for the consumer. It’s not good for the country overall,” he said.
https://www.hollywoodreporter.com/business/business-news/att-ceo-john-stankey-inflation-threat-warning-1235152395/#!
AT&T continues to downplay the market opportunity for 5G-based fixed-wireless access (FWA) services, instead putting its financial and marketing power behind its expanding fiber deployments.
AT&T COO Jeff McElfresh restated those plans during a recent Bank of America investor event, noting that traffic growth curves require a deeper fiber investment.
“When we take a look at the data traffic that we serve over our wireless and our fiber networks, our network itself, we’re calling for a 5x increase in net traffic,” McElfresh said. “And no matter what your last mile serving architecture is, that’s going to require a lot of fiber. We’ve made that point pretty clear.”
McElfresh earlier this year – when he was CEO of AT&T Communications, a role he transitioned out of in April as part of a broader corporate restructuring – said the carrier planned to reach at least 30 million new locations with fiber by 2025. That includes 5 million new businesses, or around 50% of the addressable market.
Those deployment plans carry an annual capex of $3 billion to $4 billion, which translates to an upfront cost of about $1,000 per location.
McElfresh noted that the investment is necessary in order to provide “high-quality, premium broadband connectivity.”
“What we mean by that … is just really truly is physics,” McElfresh explained. “Multi-gig, symmetrical uplink is becoming a much more important component to your broadband experience. And the only technology that offers unfettered and broad and great experience is a fiber-fed network.”
https://www.sdxcentral.com/articles/news/att-fiber-focused-first-over-5g-fwa/2022/06/