AT&T continues to add customers in key focus areas- 5G and fiber
Pascal Desroches, senior executive vice president and chief financial officer, AT&T spoke today at the Bank of America Media, Communications and Entertainment Conference where he provided an update to shareholders. Desroches reiterated that AT&T continues to take a disciplined and return-focused approach to growth and investment and made the following points:
- The company continues to add customers in its strategic focus areas of 5G and fiber. Overall industry postpaid phone volumes remain healthy, and AT&T has continued to see solid demand with continued low postpaid phone churn. In addition, AT&T’s consistent, disciplined and simple go-to-market approach continues to attract high-value customers. Desroches indicated that the impacts of recent pricing action on churn are within AT&T’s expected range and the company continues to expect that the pricing changes will be accretive in the back half of the year.
- AT&T continues to expand its fiber footprint and has the ability to serve 18 million customer locations in more than 100 metro areas with AT&T Fiber. Desroches shared he’s pleased with the increasing penetration rates for new fiber build. As AT&T expands to new markets, the company has seen first-year penetration rates about two times greater than historical norms.
- Desroches noted that AT&T is not seeing any material incremental shift in its cash collection cycles, which are within the company’s expectations and largely consistent with normal pre-pandemic levels.
- While the current macroeconomic environment has reduced visibility into economic trends going into next year, Desroches reiterated expectations for improved cash conversion in 2023 compared to 2022. Factors driving the company’s outlook for improved cash conversion include expectations for better service revenue levels exiting 2023 — from both a larger customer base and higher ARPUs — lower interest costs and the benefits from continued transformation savings.
- Expectations for improved cash conversion off this year’s free cash flow guidance of the $14 billion range provide more than sufficient financial flexibility to meet AT&T’s financial obligations – including its annual dividend commitment of $8 billion, or $1.11 per common share – even after factoring in the company’s above historical capital investment levels.
AT&T Corporate Communications
Phone: (214) 202-6630
Email: [email protected]
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Light Reading: Why AT&T’s fiber gambit in Phoenix is worth watching
AT&T announced it will build a fiber network in the Phoenix suburb of Mesa, Arizona, a move that competes with with cable company Cox Communications and fiber operator Lumen Technologies. The effort represents a test by AT&T to see whether it should expand its fiber network beyond the boundaries of its existing copper footprint.
“We announced Phoenix a couple of weeks ago. We did that for a reason. That’s a test case for us to understand, are there attractive markets for us to build as the first fiber provider into a particular area that might make sense for our business?” AT&T CEO John Stankey said at a recent investor conference, according to a Seeking Alpha transcript. “And we’ll look at the data, and we’ll look at the results, and we’re going to look at our performance. And if we see the same kind of returns we’re seeing than what we’ve been building over the last couple of years, that’s a possibility that I’d come back and say, there’s another approach to this [fiber buildout] that makes sense for our business.”
According to BroadbandNow, Cox and Lumen, operating under its old CenturyLink brand, are two of the biggest current providers in Mesa, Arizona. AT&T said it would begin offering fiber services up to 5 Gbit/s in Mesa starting next year, with the goal of covering 100,000 homes.
Upgrading and potentially expanding
AT&T has touted its ongoing plan to upgrade around half of its existing copper network footprint to fiber (and to offer fixed wireless Internet services across most of the other half of its copper footprint). That fiber project involves roughly doubling AT&T’s fiber footprint to around 30 million locations by 2025, making AT&T’s buildout one of the biggest fiber endeavors in the US.
AT&T officials have repeatedly hinted that the operator’s ambitions may extend beyond those 30 million locations.
“When I step back and I think about that opportunity right now, are there other markets maybe outside of our operating footprint, given our success and what we’re seeing in rate of penetration, receptivity of the product, our ability to cross-sell both fixed and wireless, we should understand whether or not there’s something there?” Stankey explained.
In the second quarter of 2022, AT&T added 316,000 fiber customers, up from the 246,000 it scored in the year-ago quarter and extending its grand fiber subscriber total to 6.59 million. AT&T ended the quarter with 37% subscriber penetration in its fiber markets.
Some analysts believe that AT&T could expand its fiber ambitions to other greenfield markets beyond Phoenix.
“AT&T is not the incumbent phone company in Arizona and the carrier has little if any history of edging out,” noted Wave7 Research analyst Jeff Moore. “Could this effort give AT&T a wireless tailwind in Mesa and will AT&T have other edge-out efforts?”
The Comcast and Charter factor
Interestingly, Moore pointed to other recent examples of established wired Internet providers expanding their services into new markets. “With RDOF as a factor, Charter is expected to expand its cable footprint to 1 million customer locations in the coming years and there has been a torrent of specific announcements. Comcast just announced an expansion to 3,400 homes and businesses in Spring Hill, Kansas, as part of its plan to pass 800,000 additional homes this year with landline broadband,” he wrote in a recent report.
Charter’s Rural Digital Opportunity Fund (RDOF) efforts currently stretch across 24 states. Via its RDOF winnings, Charter hopes to add more than 100,000 miles of new fiber network infrastructure to its existing 800,000 miles of infrastructure in the coming years.
Moore added that AT&T, Comcast and Charter could all use their wireline expansions to improve the sale of related, bundled products, including wireless services.