AT&T earnings, mobility and consumer broadband grow; stiff competition lies ahead

AT&T today reported a net profit of $5.9 billion in the third quarter, up from $2.8 billion a year ago. Adjusted EPS, excluding the one-time effects of the divestments, reached $0.87 versus $0.76 a year earlier. The company now expects full-year adjusted EPS to be at the high end of the earlier indicated low- to mid-single digit growth range and free cash flow should meet the $26 billion target.

AT&T said it was on track to meet its full-year targets. Revenues for the three months to September were still down 5.7 percent year-on-year to $39.9 billion due to the spin-off its pay-TV business in July, along with other divestments and weaker sales in Business Wireline.

Source: AT&T

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Mobility is AT&T’s largest and most important business, accounting for 48% of consolidated
revenues, and more than two thirds of pro-forma revenues post divestitures.  The company’s mobile business did quite well in the third quarter, adding over 1 million postpaid lines. AT&T has now added 4.4 million wireless postpaid subscribers over the past four quarters.  Jeff McElfresh, Chief Executive Officer, AT&T Communications said on today’s earnings call (see analyst Craig Moffett’s comments below):

Our (wireless) strategy is working here at AT&T. As we’ve demonstrated, it’s the fifth consecutive quarter where we have driven some momentum and gaining (market) share. Our net add strength here in the quarter at 928,000, that compares to what we had produced back in 2019 in the third quarter of 101,000. And we’re driving strong service revenue growth. And we just posted the largest total EBITDA that we’ve generated out of the wireless business segment. The best part about it, Phil, is that our customers are telling us that we’re doing a good job. These churn levels that are low are a signal to the service and the value that we’re offering and our NPS feedback that we’ve received is the highest that we’ve ever received.

I’d also point to things like our FirstNet program. We’re starting to reach some scale here. Third quarter, we posted the highest net add quarter since launching the program and we’ve arrived at a position of leadership and strength in the law enforcement segment under the public safety sector. And so all in all, it’s been the operational changes that we’ve made at AT&T that has driven really strong momentum in our customer counts.

For comparison, arch rival Verizon added a net 699,000 postpaid subscribers including 429,000 postpaid phones in the third quarter.  T-Mobile US will report third quarter results on November 2nd after the stock market closes.

HBO subscribers grew to nearly 70 million by the end of the quarter.   Excluding its U.S. video business (to be spun off and merged with Discovery (DISCA) by the middle of next year), revenues rose to $38.1 billion from $36.4 billion in the year-ago quarter, and adjusted operating improved to $8.1 billion from $7.8 billion.

“We continue to execute well in growing customer relationships, and we’re on track to meet our guidance for the year,” said John Stankey, AT&T CEO. “We had our best postpaid phone net add quarter in more than 10 years, our fiber broadband net adds increased sequentially, and HBO Max global subscribers neared 70 million. We also have clear line of sight on reaching the halfway mark by the end of the year of our $6 billion cost-savings goal.”

Third-quarter revenues were $28.2 billion, up 3.8% year over year due to increases in Mobility and Consumer Wireline more than offsetting a decline in Business WirelineOperating contribution was $7.1 billion, up 0.8% year over year, with operating income margin of 25.2%, compared to 26.0% in the year-ago quarter.

Highlights of AT&T’s Consumer Wireline business:

  • 289,000 AT&T Fiber net adds; penetration about 37%
  • Revenues up 3.4%; broadband revenues up 7.6% with ARPU growth of 5.2%

Growth in fiber broadband is an important part of AT&T’s new strategy, with billions of dollars of capital investment planned to expand its network and win new customers. In the third quarter, broadband internet subscriber growth was underwhelming. The company added a net 5,700 broadband customers, versus the consensus of 52,000. That includes a smaller-than-expected 289,000 fiber adds and a larger-than-expected loss of 261,000 DSL customers.  Yet AT&T CFO Pascal  Desroches said on today’s earnings call:

Our Fiber growth was solid. We had our highest Fiber gross adds ever and we continue to win share wherever we have Fiber. We added 289,000 Fiber customers in the quarter, and more than 70% of the Fiber net adds are new AT&T broadband customers and this gives us great confidence as we continue to build out our Fiber footprint.

CEO Stankey added a bit more color by saying:

We’re on this path to substantially increase our Fiber footprint and that stretches across both our consumer and our business base. And I think as you’ve known from past history, this is — it’s not uncommon for us to go through these ramps of infrastructure builds. We’ve done that many times before. We’ve recently been through one where we went through a multi-year ramp on fiber builds that we kind of started executing around the 2015 timeframe. They always, as you move through the front end of them, have a few moments where they’re a little bit lumpy and a little bit rocky because that’s the nature of it.

Source: AT&T

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AT&T said it cut operating expenses by $3.4 billion in the past 12 months, to $32.8 billion. Divestments and lower sports programming costs were offset by higher wireless equipment costs and higher costs for other types of content at WarnerMedia, plus increased sales and marketing expenses. Operating profit was helped also by lower depreciation and amortization following earlier asset write-downs.

Earnings report summary:

  • AT&T added 1,218,000 postpaid wireless net additions in the third quarter as well as 249,000 prepaid phone ads and 928,000 postpaid phone net ads.
  • AT&T’s mobility unit reported revenue growth of 7% in the third quarter to $19.1 billion and operating income of $6 billion.
  • AT&T’s equipment revenue was $4.6 billion, up 15%, due to strong smartphone sales.
  • AT&T Fiber added 289,000 net customers and broadband revenue was up 7.6% in the third quarter from a year ago.
  • WarnerMedia revenue in the third quarter was $8.4 billion, up 14.2% from a year ago.

“AT&T lays claim to the most hated stock and the most maligned management team in our universe,” wrote New Street analyst Jonathan Chaplin after AT&T’s earnings report on Thursday morning. “…We continue to expect AT&T to struggle as T-Mobile and cable rise. That certainly doesn’t seem to have happened this quarter though, with exceptionally strong net adds in wireless; however, it’s unclear how much credit investors will give AT&T for the newfound resilience in its wireless business, at least in light of everything else.”

With respect to AT&T’s carrier competitors, analyst Craig Moffett wrote in note to clients:

In Wireless, competitor T-Mobile has staked out the rather unusual dual position of lowest cost AND best network. TMobile is expanding its footprint, retail presence, and market share in rural America, and it is targeting market share gains in business wireless. Verizon is planning a march “up the stack,” with a focus on mobile edge compute in the 5G enterprise market. Verizon’s network strategy, somewhat quixotically we would argue, still has a large component of millimeter wave ultra-wideband. But, as a backup, Verizon has amassed a huge trove of C-Band spectrum, and they claim the industry’s densest network.

As we inch toward the finish line of the 3.45 GHz spectrum auction, we will probably learn that AT&T has narrowed, but not fully closed, their spectrum gap versus Verizon (but not T-Mobile). What will its network strategy be? In Business Wireline, it is the nation’s largest incumbent, facing declining share and eroding pricing. What will its Business Wireline strategy be?

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On October 11th, AT&T awarded a 5 year contract to Ericsson in order to accelerate the expansion of AT&T’s 5G network. This deal helps support deployment of the service provider’s recently acquired C-band spectrum and the launch of 5G Standalone (SA) (which has been outsourced to Microsoft Azure).

Ericsson will help AT&T to bring its 5G network to more consumers, businesses and first responders across key industries – including 5G use cases in sports and venues, entertainment, travel and transportation, business transformation and public safety. AT&T’s network evolution is made possible in part by the Ericsson Radio System portfolio, which includes the Advanced Antenna System (AAS), Advanced RAN Coordination and Carrier Aggregation technologies.

The deployments will support future network enhancements like Cloud RAN, which offers communications services providers increased flexibility, faster delivery of services and greater scalability in networks. The platform supports a centralized RAN architecture enabled by Ericsson Fronthaul Gateway, a new technology that will enable a more efficient transport of the fronthaul interface by converting it to packet (eCPRI).

References:

https://about.att.com/story/2021/q3_earnings.html

https://investors.att.com/financial-reports/quarterly-earnings/2021

AT&T, Inc. (T) Q3 2021 Earnings Call Transcript

https://www.telecompaper.com/news/atandt-grows-underlying-sales-in-q3-on-mobile-hbo-expansion–1401409

https://www.telecompaper.com/news/atandt-selects-ericsson-for-expansion-of-5g-network-c-band-spectrum-build–1400105

AT&T CEO John Stankey: 30M or more locations could be passed by AT&T fiber

AT&T CEO John Stankey was interviewed by Brett Feldman, Goldman’s U.S. telecom and cable analyst.  AT&T is both a telecom and media company.  We focus on the former for the IEEE Techblog. Here are selected telecom related comments Stankey made (BOLD font emphasis added):

We’re pulling (market) share back from our two largest competitors (Verizon and T-Mobile).  I feel good about how we’re doing that. There’s more to be done as we invest in fiber, and we can compliment our wireless business with fiber. There’s opportunities for us to take communications further than what we’ve traditionally done at AT&T. And I think that business should be recognized for being a leading global communications business, like it is, very uniquely positioned with more fiber than any other communications company on the face of the planet, with a great wireless asset domestically in the U.S. and in Mexico, an opportunity to bring those things together, and run it incredibly effectively as a focused business. I think we’ve got a great story there.

I think AT&T is in a great position moving forward. I think the industry frankly is in a great position. I think there’s tremendous promise right now in what ubiquitous high capacity bandwidth with the kind of capabilities that 5G brings in terms of the density that it can afford, the number of devices, the ability to use technology to do things like network slice (requires 5G SA core network which Microsoft is building for AT&T) and begin to differentiate the network. I think this is going to be great for society. I think this is going to be great for the U.S. economy as a whole. If I had to bet, we don’t have the numbers for 2021, certainly can’t project 2022, but I have a sense of where this industry is going. (This author totally disagrees, largely because real, standards based 5G has yet to be deployed as there is only a standard for the RAN which doesn’t meet URLLC performance requirements.  No standard for 5G SA core network.).

We’re probably going to see record infrastructure investment coming out of this industry in this period of time. And I think it’s going to equip the United States and our economy and our infrastructure in a way that we’ve never seen. I think that’s going to be incredibly powerful. And I think it’s not only going to be good for AT&T, because I think we have the right kind of wherewithal and the right kind of capability to be right alongside others that are investing at a high clip to bring that infrastructure forward. I think we’ll do just fine with where we are there. I believe when unleashed we have some of the best network minds in the country. I believe that dense fiber footprint that we have that’s denser than anybody else in the United States when engineered properly on top of a great spectrum assets and a great wireless business, it’s going to make our combined product offer and our business even better and more capable to deal with what customers need to do. So, I feel really comfortable about that. And I can do nothing more than not ask you to look at my prognostications, but look at how we’re performing in the market today.

We’ve now started doing some things quietly behind the scenes. We have another muscle to build here, which is how do we begin to work on software to differentiate our products and services in a way that makes our product better than what our competitors can do, because we do have a different asset base, and we are able to serve every corner of the market from the largest of enterprises to the smallest apartment somewhere in the United States. And I don’t think we’ve done as much as we can do in that vein, to actually make that real for our customers and the right products and the right services and the right offers. And so, rebuilding that product engine that we can do that and begin to differentiate allows us to do things that won’t necessarily just hinge on, can I get an attractive handset?

Brett Feldman: I believe your fiber network passes something around 15 million customer locations right now, you’re targeting to ultimately get to 30 million by 2025, that would still only be about half roughly half of the customer locations in the AT&T wireline footprint. Question we’ve gotten is how did you decide what the right target was? Why is it 30? And what really dictates the pace at which you build out fiber?

Stankey replied: Getting this kind of an engine (fiber optic build-out) ramped up to go from building 3 million to 4 million to 5 million homes (locations) past, working through the supply chain, all the logistics that are necessary to build network, it’s not a real simple undertaking. And as I’ve said, my goal is I feel very comfortable, we have places we can go to build 30 million homes (he really means residential and business locations combined) right now on an owned and operated basis, that have very attractive returns in the mid to upper teens. We’re demonstrating every day with our existing base, that we can operate that more effectively, we’ve now crossed over places where we have scale where we’re taking cost out of the business based on fiber replacement, the old infrastructure, we’re seeing that flow through in lower call rates, lower repair rates, better churn, all those things are going to continue to give us goodness moving forward.

Do I think there’s a magic number of 30? No, I don’t. I think there’s a combination of things. One is unlike the investment base, to recognize the good work we’ve been doing. And then in fact, we are building and adding value back to our shareholders. And when they start to recognize that in the form of the equity in the stock, do I believe my credibility and the team’s credibility goes up? Yes, do I believe there’s going to be other opportunities for us to come out, as we hit those scaling metrics that we have in place, the supply chain metrics that we might be able to go in and say, there’s more that we could possibly attack, I’d love to be in that position to do that. And I’ve kind of put that out as a challenge to the management team to say the only thing that stands in the way between you doing 30 million and doing more is your execution and performance.

Brett Feldman: Speaking of execution, execution really has two pieces. It’s deploying the network, and then it’s driving penetration of that network. I believe you had about 5.4 million fiber subscribers as of your most recent quarters, that’s about 35% penetration [1.]. What do you think is the right target for your fiber penetration and how are you going to get there?

Note 1. Fiber-based broadband has clearly established itself as a growth engine for AT&T, which added another 246,000 fiber subscribers in Q2 2021, ending the period with 5.43 million. With about 80% of new fiber subscriber additions new to AT&T, overall broadband revenue growth at the company has finally surpassed declines in its legacy, non-fiber-to-the-premises (FTTP) broadband business.

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Stankey replied: If I look what’s happening right now, and kind of where we are in our maturity scale, one of the things I’m most excited about is our new net adds to fiber right now good, almost 80% of them are new to AT&T. So, we’ve now gotten to this place where we’ve been managing the base. And we’re now shifting over where got a lot of new customers coming in. And in fact, as you saw last quarter, we’re starting to get ourselves to a point where that consumer business is a growth business today, despite the legacy drag on historic telecom products, parts and the like of legacy data products, that the fiber growth is beginning to outstrip that where we have real growth in that business. And we’re now starting to turn that corner real EBITDA growth in that business. And so, I would tell you as I step back from that, we’re going to see consistent growth. But I’m not going to be happy until we have a 50:50 share split in places where there’s two capable broadband providers. And I think there’s no reason with the product is capable as what we have out there and how fiber performs and what we’re able to do and the differentials we see in our customer satisfaction to our most significant competitor often cable in those markets, we were looking at 10, 15 points of difference in satisfaction levels, between other players in the market and ourselves, that we shouldn’t be able to achieve that over time.

Brett Feldman: You had earlier made a slight adjustment to your fiber deployment for this year, you were hoping to do 3 million homes, it’s going to be closer to two and half million and you noted some of the well reported supply chain issues as being a factor. Any update there, is there any further disruption in your supply chains and your ability to secure labor?

Stankey replied:  

And we’re talking about what’s probably effectively about a 90 day delay for us to hit those numbers, and really primarily in this case, got to fiber assemblies. The way fibers built in the distribution network is we engineer it, we provide detailed engineering to our manufacturer, the manufacturer in the manufacturing facility, pre-splices and pre-assembles some of that fiber before we receive it. So, when it goes in, we’re doing less field splicing. And we’re able to basically put it up in the air or bring it through infrastructure in a way that lowers labor costs coming in. And we’re having some supply issues in the factory partly labor driven because of COVID, individuals getting sick not being able to run enough shifts, and carry through and partly some raw material issues. But those have been worked through right now our deliveries over the last 30 days have tracked to what our expectations are.

So, we feel like we’re through that dynamic right now. We should be fine with it. But look the supply chain is fragile at all levels. It’s fragile on everything. Last week, it was the number of generators, we’re deploying for power backup on cell sites, there’s, we’re going to miss a target on some of those by a couple 100 because there’s a resin base connector in the harness and we can’t get the resin. And that resin base connector, it’s a $15,000 generator that’s been held up on something that’s $0.25 part, you see these things popping up, left and right, every corner of the business. So, I don’t know what next week brings, we’re aggressively managing it. We’ve got a great supply chain organization. We’re a scaled provider, with all of our vendors. So, we lean into that, we were able to work through the fiber dynamics because we are the largest consumer of fiber in the United States. We use that ability and that expertise to make sure we get what we need to move through. So, I feel we’re managing through it, okay. I don’t think there’s anything around the challenges we’re dealing with, it gives me concern on guidance where we stand right now, but it’s going to be choppy and a little bumpy moving forward on some of these things as we move through the years.

Typical fiber optic deployment to multiple homes via underground and aerial cable

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Stankey wouldn’t say how the proposed U.S. infrastructure bill might also alter AT&T’s outlook in a way that encourages the company to explore a buildout that goes beyond 30 million locations.

“There’s a degree of uncertainty there,” he said of the bill. “But in its current form [and if] it does actually make its way into law, that’s going to change the landscape of the broadband business in this country … It will also change my posture and point of view on where we should be playing as a company.”

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References:

https://seekingalpha.com/article/4456360-t-inc-t-ceo-john-stankey-presents-goldman-sachs-30th-annual-communacopia-conference

https://www.lightreading.com/opticalip/atandts-fiber-expansion-could-reach-beyond-30-million-locations/d/d-id/772225?

https://techblog.comsoc.org/2021/08/12/atts-fiber-buildout-reduced-due-to-supply-constraints/

AT&T and OneWeb: Satellite Access for Business in Remote U.S. Areas

AT&T Communications has signed a strategic agreement with OneWeb, the low Earth orbit (LEO) satellite communications company, to harness the capabilities of satellite technology to improve access for AT&T business customers into remote and challenging  geographic locations. The new connectivity will complement existing AT&T access technologies.

Why is this important? AT&T’s leading business fiber network enables high-speed connections to over 2.5 million U.S. business customer locations. Nationwide, more than 9 million business customer locations are within 1,000 feet of AT&T fiber.  However, there are still remote areas that existing networks can’t reach with the high-speed, low-latency broadband essential to business operations.

Who can use this: AT&T will use this technology to enhance connectivity when connecting to its enterprise, small and medium-sized business and government customers as well as hard-to-reach cell towers.

Where will it work: AT&T says that more than 9 million business customer locations are within 1,000 feet of its fiber network, but that there are remote areas that remain out of reach. By riding OneWeb’s LEO-based broadband satellite constellation, AT&T believes it will be able to deliver high-speed, low-latency services to small, medium and enterprise-sized business customers in those locations.

The AT&T service will be supported by OneWeb’s network of satellites. OneWeb has launched 288 satellites and expects to attain global coverage with a total fleet of 648 satellites by the end of 2022. AT&T business and government customers in Alaska and northern U.S. states will be covered later this year.

Image source: Roscosmos, Space-Center-Vostochny and TsENKi

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What are people saying:

“Working with OneWeb, we’ll be able to enhance high-speed connectivity in places that we don’t serve today and meet our customers wherever they are,” said Scott Mair, President, Network Engineering and Operations, AT&T. “We’re expanding our network with one more option to help ensure that our business customers have the high-speed, low-latency connectivity they need to thrive as the nation recovers from COVID-19.”

“OneWeb’s enterprise-grade network has a unique capability to serve hard-to-reach businesses and communities. Our work with AT&T will focus on how satellite technology can support improved capacity and coverage in remote, rural and challenging geographic locations,” said Neil Masterson,  OneWeb Chief Executive Officer. “Today’s agreement with AT&T demonstrates OneWeb’s execution momentum and the confidence customers such as AT&T have in its services and offering.”

About OneWeb:

OneWeb is a global communications network powered from space, headquartered in London, enabling connectivity for governments, businesses, and communities. It is implementing a constellation of Low Earth Orbit satellites with a network of global gateway stations and a range of user terminals to provide an affordable, fast, high-bandwidth and low-latency communications service, connected to the IoT future and a pathway to 5G for everyone, everywhere. Find out more at http://www.oneweb.world

Light Reading – Satellite Internet Competition:

OneWeb’s win with AT&T also surfaces amid growing competition in the satellite broadband sector.

Enterprise and business customers are among the targets for Viasat, which is in the process of providing global coverage with a growing fleet of high-power geosynchronous (GEO) satellites. SES also focuses on the business and government services market, and intends to hit those markets harder as it moves ahead with O3b mPower, a new global connectivity platform that will ultimately comprise a constellation of 11 medium Earth-orbit (MEO) satellites. Starlink, SpaceX’s LEO-based satellite broadband service, has largely focused on the home broadband market, but has hinted at ambitions to serve connectivity to planes, trucks and other moving vehicles.

OneWeb recently landed a $300 million investment from South Korean conglomerate Hanwha Systems, which secured an 8.8% stake in OneWeb and a board seat. Other investors include India’s Bharti Airtel (35% stake), the UK government (almost 20%), and Japan’s SoftBank Group, France’s Eutelsat and Hughes Network Systems.

Earlier this month, OneWeb inked a $1 billion-plus insurance agreement through broker/risk advisor Marsh as it prepares for its next phase of deployments.

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About AT&T Communications:

AT&T helps family, friends and neighbors connect in meaningful ways every day. From the first phone call 140+ years ago to mobile video streaming, we @ATT innovate to improve lives. AT&T Communications is part of AT&T Inc. (NYSE:T). For more information, please visit us at att.com

References:

https://www.prnewswire.com/news-releases/att-and-oneweb-plan-satellite-access-for-business-in-remote-areas-across-the-us-301371306.html

https://www.lightreading.com/satellite/atandt-will-tap-into-onewebs-satellite-network-to-reach-remote-areas-/a/d-id/771944?

AT&T’s fiber buildout reduced due to supply constraints

AT&T has experienced recent disruptions in the supply of fiber optic cable, which has caused the company to trim back its planned fiber-to-the-premises (FTTP) buildout for 2021, according to senior EVP and CFO Pascal Desroches.

AT&T had previously said it would build out its fiber network to an additional 3 million homes passed this year. But that’s now been reduced by 1/2 million.

“Since the start of the third quarter, we are seeing dislocation across the board, including in fiber supply. We’re probably going to come in a little bit light of 3 million homes passed, probably around 2.5 million,” Desroches said Tuesday at the Oppenheimer Technology, Internet & Communications Conference, according to this transcript.

 An AT&T technician working on a fiber project

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Specifically, this is what Pascal said:

But since the start of the third quarter, we are seeing dislocation across the board, including in fiber supply. And as a result of those dislocations, we had previously provided guidance of 3 million homes past this year (unedited- very bad grammar). We’re probably going to come in a little bit in light of that, probably around 2.5 million. We don’t think it’s going to impact us long term. But I think it’s really important context because if we’re feeling the pain of this, I can only imagine what others in the industry are experiencing.

John Stankey (AT&T CEO) has always been a believer in fiber. I think when he took over he identified that as a priority area because he understood from a technology standpoint, there is no better technology for connectivity. And therefore, in a world where the demands for symmetrical speed are increasing significantly, this is the technology to bet heavily on. And so we have a great position, and we are leaning into adding to that position. So it’s really a function of when you — and I think others are now recognizing it as a result of what you’ve seen in the last year in the pandemic, the need to do what we’re doing now, 2-way communication can only happen with symmetrical speed. So I think everyone has had an aha moment, like we need to deploy fiber. And so we’ve long believed that. John has long believed that, and this is just really leading into that opportunity.

As we deploy fiber, our goal is to get at least 40% penetration on homes passed. And we think in certain markets, we’ll have an opportunity to do better than that. And the other thing that is great about is when you lay fiber, you lay fiber to a community where there is both homes and businesses. So it also helps boost returns in your enterprise business. And so that’s why it is so critical that we roll this out because the ability to grow both your enterprise and your consumer business is attractive. And we think these investments will provide us with mid-teen returns over time.

I know we’re largest fiber purchaser in the country. And we have prices that are at the best and most competitive among the industry. So we feel really good about the ability to secure inventory, fiber inventory and at attractive price points and the ability to execute and the build-out at scale, something that many others don’t have.

Oppenheimer moderator question: “Can you talk a little bit about where your supply comes from, I guess, both the fiber and the optical components or any other key suppliers? Is that U.S. sourced? Or is it a lot of it outsourced internationally?”

Pascal’s answer: “It is a U.S. company which has locations both domestically and outside the U.S.”  [We suspect that it’s Corning].

AT&T typically has had no problem getting fiber at a low cost, Desroches said. “We’re the largest fiber purchaser in the country and we have prices that are the best and most competitive in the industry,” he said. “We feel really good about the ability to secure fiber inventory at attractive price points and the ability to execute the buildout at scale, something that many others don’t have.”

AT&T expects to catch up to its original fiber-construction estimates in the years after 2021, largely because of what Desroches called its “preferred place in the supply chain” and “committed pricing.” As AT&T said in a news release yesterday, AT&T is “working closely with the broader fiber ecosystem to address this near-term dislocation” and “is confident it will achieve the company’s target of 30 million customer locations passed by the end of 2025.”

AT&T added another 246,000 fiber broadband subs in Q2 2021, extending its total to 5.43 million, and said last month it was on pace to add about 1 million net fiber subscribers for all of 2021.

AT&T has estimated that nearly 80% of new fiber subscribers are also new AT&T customers, reversing a previous trend that saw a sizable portion of its FTTP customer net adds coming from upgrades of existing AT&T high-speed Internet customers on older VDSL and DSL platforms (which have been largely discontinued).

Speaking on AT&T’s 2Q-2021 earnings call last month, Desroches stated that the company’s consumer wireline business had reached a “major inflection point” as broadband revenues continue to surpass legacy declines. Meanwhile, AT&T’s broadband average revenue per user (ARPU) reached $54.76 in Q2 2021, improving from $51.61 in the year-ago period.

References:

https://investors.att.com/~/media/Files/A/ATT-IR-V2/events-and-presentations/final-oppenheimer-transcript-8-10-21.pdf

https://www.lightreading.com/opticalip/supply-chain-constraints-cut-into-atandts-fiber-buildout-plan/d/d-id/771438?

https://arstechnica.com/information-technology/2021/08/att-delays-500000-fiber-to-the-home-builds-due-to-severe-fiber-shortage/

Will AT&T’s huge fiber build-out win broadband market share from cablecos/MSOs?

AT&T Earnings, Revenue, Subscriber Additions Beat Forecasts

AT&T reported Q1 FY 2021 earnings results that beat analyst expectations.  Revenue surpassed forecasts, up 7.6% from the year-ago quarter to $44.0 billion, reflecting partial recovery from the prior-year effects of the initial Covid-19 outbreak.

Higher revenues from WarnerMedia, Mobility (1.), Mexico, and Consumer Wireline more than offset declines in domestic video and Business Wireline and the sale of AT&T’s activities in Puerto Rico and the U.S. Virgin Islands.

Note 1.  Mobility (aka Wireless) is AT&T’s largest and most important business, accounting for 43% of consolidated revenues, and fully 67% of pro-forma revenues post divestitures. Business and Consumer broadband wireline are also important segments for the telco, which is greatly expanding its fiber optic footprint.  AT&T expects 1 million Consumer Fiber net adds for the full year 2021.

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The telco added 789,000 net new postpaid wireless phone subscribers in the second quarter, a major turnaround from the 151,000 subscribers it shed in the year-ago quarter.

After showing such a strong recovery in second-quarter results at its wireless and media businesses, AT&T raised its full-year outlook. The company now expects 2-3% comparable sales growth this year, compared to an earlier forecast for 1 percent. This excludes the impact of the pending spin-off of DirecTV, which should be completed in the coming weeks.

However, everything was not all wine and roses for AT&T. Operating profit dropped to $3.3 billion from $3.5 billion a year ago, due to a bigger writedown on Vrio and higher programming costs from the return of sports.

Net adjusted profit increased to $1.5 billion from $1.2 billion, helped by financial gains, and adjusted EPS totaled 89 cents, up 7.2% year-on-year. Analysts had projected AT&T earnings of 79 cents a share on revenue of $42.64 billion. A year earlier, AT&T earned 83 cents a share on revenue of $41.1 billion.

Operating cash flow fell by around $1.1 billion from a year ago to $10.9 billion, with capex at $4.0 billion and content spend of  $5.3 billion.  Free cash flow totaled $7.0 billion. With net debt down by around $0.9 billion compared to March, AT&T finished the period with leverage of 3.15x adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).

For the full year 2021, AT&T now expects adjusted EPS (Earnings Per Share) to grow in the low- to mid-single digits with capex at around $17 billion.

During its earnings call, AT&T CFO Pascal Desroches said the operator reached a “major inflection point in our consumer wireline business,” with broadband revenue growth now surpassing legacy declines.

“The story with Fiber remains much the same. We continue to see solid subscriber growth with most of those customers new to AT&T. And broadband revenues grew more than 8%. HBO Max continues to exceed our expectations. Having surpassed the lower end of our global subscriber target 6 months ahead of plan, we are now raising our expectations to 70 million to 73 million global subscribers by the end of the year. We also launched our domestic ad-supported version of HBO Max as well as our international offering in 39 Latin American territories at the end of the quarter. That sets us up for additional customer growth as our addressable market expand.”

“We expect profitability trends to improve,” he continued. “We saw they improved from Q1 to Q2 and we expect that to continue as we make our way through the back part of the year.”

“Our Fiber growth continues to be solid. We added 246,000 Fiber customers in the quarter. Broadband ARPU grew by 6.1% year-over-year. Our aggregate fiber penetration rate is now more than 36%, up from about 31% a year ago. And nearly 80% of net adds are new AT&T broadband customers. We’ve reached a major inflection point in our Consumer Wireline business. Broadband revenue growth now surpasses legacy declines.”

AT&T CEO John Stankey noted its consumer fiber subscriber base increased by more than 1 million customers since the same quarter a year ago. The operator ended the quarter with 5.43 million fiber customers, up from 4.32 million in Q2 2020.

Jeff McElfresh, CEO of AT&T’s Communications division, reiterated on the call it expects to reach 3 million new locations with fiber in 2021 and tipped this new build to spur accelerated net additions in Q3 and Q4.

“The first two quarters of this year have essentially been built selling into our aged fiber footprint from a prior build,” he said. “We are currently deploying some of the early stages of our next 3 million build that we disclosed for this year…the bulk of that inventory is going to come online towards the back half of the year. So my expectations are that our net add performance takes a step up as that inventory comes online.”

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Quotes:

“We expect Dish to be successful in the market,” explained Jeff McElfresh, the CEO of AT&T Communications, which houses the company’s 5G and fiber operations. “And so the competitive dynamics aren’t changed here. Rather, we get to participate in their success at this point.”

“We’re going to enjoy some anchor tenant benefits from that,” he said of the company’s new deal with Microsoft. “We’re not disclosing any specific financial details, but one thing that we are not doing … We’re not outsourcing our core network functions. We are relying upon Microsoft to develop a scaled compute and storage capability at the edge while we retain control of our network stack and the kinds of services that we’re going to offer to the market.” McElfresh explained that the transaction will allow AT&T to focus on its services rather than the nitty gritty details of maintaining its network operations.

“It just continues to prove to be sustainable,” McElfresh said of AT&T’s free phone promotion, which has not dragged down AT&T’s earnings or profits. “We’ve remained consistent in our offer construct… This model is sustainable.”

Analyst colleague Craig Moffett of MoffettNathanson wrote:

When AT&T first embarked on their disastrous detour into the Media business, the wireless industry was in the throes of a brutal price war. It was hard to read the company’s moves as anything other than an intentional diversification away from wireless.

As it happened, the wireless industry started getting better right around the time that AT&T moved to buy Time Warner. That was no coincidence. AT&T’s need to focus on debt reduction at the time was the principal reason the industry pulled back from the brink.

Three years later, the wireless industry is still doing well. Industry subscriber growth across post-paid and pre-paid combined has soared to an improbable 5x population growth, and the very strong unit growth reported by AT&T and Verizon over the past two days suggests that it’s not slowing down for now.

Yes, AT&T’s solid growth comes with the asterisk of extreme promotions that are still suppressing EBITDA – AT&T’s EBITDA growth is lagging well behind Verizon’s, despite much faster unit growth. But, all in all, their results in Q2 were inarguably very strong.

But in jettisoning their Media and other non-core assets now, AT&T risks pivoting back to wireless at a time when this is as good as it gets. Competitive intensity in the wireless industry appears poised to be getting stronger (for all mobile carriers).

Just as AT&T, in retrospect, diversified away from Wireless at the bottom, are they diving back in at the top?

“It’s always difficult to parse the market reaction to such a tangle of businesses (we are looking forward to AT&T being a telecom company again),” wrote the financial analysts at New Street Research in a note to investors. “Taken together, the business that will constitute the future AT&T beat on revenue and subs (phone adds spectacular),” added the New Street analysts.

“AT&T added 789,000 postpaid phone subs in the quarter, well ahead of our 325,000 forecast, with the beat roughly evenly split between better gross adds and lower churn (0.69% vs our 0.80%), indicating that the company’s retention efforts continued to be effective in the quarter,” wrote the financial analysts with Evercore in a note to investors.

References:

https://about.att.com/story/2021/second_quarter_2021_results.html

https://investors.att.com/~/media/Files/A/ATT-IR-V2/financial-reports/quarterly-earnings/2021/q221/ATT_2Q21_Earnings.pdf

https://www.telecompaper.com/news/atandt-raises-fy-outlook-after-q2-recovery-in-wireless-media-businesses–1391155

https://www.lightreading.com/the-core/atandt-clarifies-dish-microsoft-deals—and-that-free-phone-promotion/d/d-id/771029?

https://www.fiercetelecom.com/financial/at-t-adds-246k-fiber-subs-q2-tips-momentum-to-accelerate-h2

https://investors.att.com/~/media/Files/A/ATT-IR-V2/financial-reports/quarterly-earnings/2021/q221/final-2q21-earnings-transcript-72221.pdf

AT&T to be the primary network services provider for DISH MVNO customers

Dish Network has announced a long-term Network Services Agreement (NSA) with AT&T, making the carrier the primary network services partner for Dish MVNO [1.] customers, including retail mobile brands such as Boost Mobile, Ting Mobile and Republic Wireless, in addition to its own new Dish 5G network.
Note 1. MVNOs do not own physical networks, but rent capacity from established mobile network operators to sell services to their customers.

The ten-year agreement, which CNBC said was worth at least $5 billion, will serve as a back-up while the company rolls out its own mobile network. Dish has relied to date mainly on the T-Mobile network, as part of the deal signed last year to acquire Boost Mobile and other assets from T-Mobile following its merger with Sprint.

AT&T will also provide transport and roaming services, to support Dish’s 5G network roll-out. Dish said it is committed to becoming the fourth facilities-based carrier in the U.S. and is aiming to bring its cloud-native, OpenRAN-based 5G network to 70% of the population by 2023.

“With an MVNO deal past 2027, Dish can focus on denser markets and leave rural to AT&T,” said MoffettNathanson principal analyst Craig Moffett. “Dish desperately needs an MVNO to fall back on past 2027, because the economics of building to rural are awful, and a network that doesn’t have rural isn’t tenable.”

Tammy Parker, Senior Analyst at GlobalData, a leading data and analytics company, offered her opinion:

This deal is highly beneficial to AT&T as the company not only gains at least $5bn in revenue streams over the term of this ten-year agreement from new MVNO subscribers, it will also have access to DISH’s spectrum holdings to support DISH customers on the AT&T network. The NSA is not exclusive for either party, so both can go out and find new dance partners; however, given the depth and breadth of this agreement, that would appear both unlikely and unnecessary.

Both companies are poised to ride the US wireless industry’s ongoing growth wave. This is increasingly driven by the rollout of 5G, which enables faster network speeds, lower latency and new use cases, including Internet of Things services, that will result in many users having multiple wireless subscriptions. According to GlobalData’s latest forecasts, the number of unique mobile users in the US will increase by 5% over the next five years. Furthermore, total mobile subscriptions in the US will expand by more than 30% during that time and there will be nearly 692.6 million US mobile subscriptions by year-end 2026.

A fascinating part of this new arrangement is that it provides a glimpse into AT&T’s concerns regarding the possibility that DISH could sell out to another entity, perhaps even Amazon or Google. Rumors have abounded, even before DISH agreed to build its 5G network on Amazon Web Services’ (AWS) cloud platform, about possible negotiations between Amazon and DISH regarding the former’s potential use of DISH’s forthcoming 5G network to offer new services. Though there is nothing new to report there, this NSA stipulates that AT&T will be allowed to terminate the NSA in the event of a qualifying change of control of DISH. This could include a rival wireless provider, US cable company or ‘certain large technology companies’ taking over 50% more of the voting power or economic value of DISH. AT&T would still have to support DISH’s MVNO customers for up to two years after such a termination. “T-Mobile, and its Sprint network, is currently the primary MVNO partner for Boost and Republic. Ting operates on every nationwide network except AT&T. However, although DISH’s involvement saved T-Mobile’s acquisition of Sprint, the relationship between DISH and T-Mobile appears to have been fraught from the start. T-Mobile’s plans to shutter its 3G network by January 2022, leaving many of DISH’s customers without network service, has created an especially contentious standoff between the two companies, which likely helped pave the way for DISH’s new agreement with AT&T.”

Dish has 8.89 million retail wireless subscribers as of its last quarterly earnings report, while AT&T has more than 186 million mobile subscribers.

CNBC said that the pact is a potential precursor to a DirecTV-Dish merger since it brings AT&T and Dish closer together.  Jonathan Chaplin, an analyst at New Street Research, said in a note to clients that one of the biggest obstacles to a merger has been the notion that “AT&T hates Dish.” Some of those bad feelings stem from the botched 2007 merger, when AT&T felt Ergen had reached a handshake deal and negotiated in bad faith, according to people familiar with the deal who asked not to be named because the discussions were private.

But the telecommunications world has dramatically shifted from 2007. AT&T is no longer run by Randall Stephenson, who stepped down as CEO last year. The wireless giant is reorganizing itself around 5G and fiber networks.  AT&T could use the $5 billion Dish will give it over the next 10 years to pay down debt from its two enormous acquisitions of WarnerMedia and DirecTV.

While AT&T’s MVNO pact allows Dish to be a stronger competitor to AT&T, “getting access to Dish’s spectrum could help improve AT&T’s competitive position,” noted Chaplin, and facilitating a merger between DirecTV and Dish will help both companies.

Bringing together two competing satellite-TV providers — especially as both companies lose pay-TV customers each quarter as the world shifts to digital streaming television — would unlock billions in synergies, as satellites can be retired, duplicative jobs eliminated and competitive costs eradicated.

Still, regulators would need to feel comfortable that a Dish-DirecTV would be beneficial for consumers. While that remains uncertain, “it is a hurdle, not a barrier,” wrote Chaplin.

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References:

https://www.cnbc.com/2021/07/19/dish-and-att-sign-wireless-network-deal-worth-at-least-5-billion.html

https://www.cnbc.com/2021/07/19/dish-and-atts-new-wireless-partnership-potentially-foreshadows-directv-deal.html

https://www.telecompaper.com/news/dish-makes-atandt-the-primary-network-services-partner-for-all-of-its-mvno-customers–1390720

AT&T’s network expansion is giving its customers “the full 5G experience” (?)

AT&T reports reaching at least 250 million people with low-band 5G, beating its milestone for its 5G network by six months. The carrier is also extending its 5G millimeter-wave infrastructure to 20 venues and areas in 38 cities. AT&T  aims to deploy mmWave in 40 instances of each category this year, and has formed partnerships with companies such as Boingo Wireless to further 5G efforts in airports and other large indoor locations.

Source:  AT&T

AT&T says it hopes its newly acquired 5G C-band spectrum (AT&T acquired 80 MHz of it during the most recent FCC auction) will cover 70 to 75 million Americans by the end of 2022, with the goal of increasing that number to 200 million by the end of 2023. Currently, AT&T says its standard 5G (aka sub-6GHz 5G) network covers more than 250 million people in the U.S., while its faster 5G+ network (aka mmWave 5G) is available in parts of 38 cities along with 20 stadiums and venues across the country. AT&T’s new mid-band spectrum will be faster than its low-band 5G, but slower than its lightning fast (but hard to find) 5G+.

AT&T says it’s completing the first successful C-band field test call. The carrier hopes to quickly deploy C-band spectrum when the first 40 MHz is made available to them later this year.

Source:  AT&T

“Sports fans love watching the game, as well as the experiences surrounding it. AT&T 5G+ is advancing the fan experience by enabling enhancements that help make the games and their favorite players come alive. And when it comes to entertainment, our 5G network will allow viewers to be immersed like never before. Just like the thrill of a last second victory, bringing to life experiences that matter to our customers is an incredible feeling – that’s the power of advanced networks enabling advanced fandom.”

– Mo Katibeh, SVP, AT&T Network Infrastructure and Build

Some of AT&T’s most collaborative and innovative partners include the Chicago Bulls, the Dallas CowboysMiami HEAT and the NBA and the WNBA where we serve as the Official 5G Innovation Partner.

“It’s crucial for us to align with partners who share similar core values. We couldn’t be more in-sync as we are with AT&T. We can’t wait to give HEAT Nation a premiere fan experience through AT&T’s network and technology.”

– Eric Woolworth, President of Business Operations, The HEAT Group

AT&T says it’s giving its customers the full 5G experience now “through our continued network build, dynamic partnerships, drive to innovate and combination of spectrum. We’re providing the coverage, reliability, security and speeds that our customers deserve along with the ability to deliver the experiences and enable the innovation that’s important to them. AT&T’s 5G network is already giving our customers the full experience. And we’re just getting started.”

Rebuttal:

The true 5G experience can only be realized via 5G services, features and functions which are ONLY available with a 5G SA core network.  AT&T, along with almost every other 5G network operator, has deployed 5G NSA which utilizes 4G LTE for everything other than the RAN (3GPP’s 5G NR).  In particular, every 5G NSA deployment uses the 4G Evolved Packet Core (EPC) which can only deliver 4G services, features and functions.

References:

https://about.att.com/story/2021/full_5g_experience.html

 

AT&T and Google Cloud Expand 5G and Edge Collaboration

Just one week after outsourcing their 5G SA/Core network software and IP to Microsoft (Azure public cloud), AT&T and Google Cloud announced new initiatives across AT&T’s 5G and Google Cloud’s edge computing portfolio, including AT&T’s on-premises Multi-access Edge Compute (MEC) solution, as well as AT&T Network Edge capabilities through LTE, 5G, and wireline.

For over a year, AT&T and Google Cloud have been developing edge solutions for the enterprise. Now, the two companies are taking the next step to deliver transformative capabilities that help businesses drive real value and build industry-changing experiences in retail, healthcare, manufacturing, entertainment and more — with the ability to use Google Maps, Android, Pixel, augmented reality (AR) and virtual reality (VR), and other solutions across Google for more immersive customer experiences. For example:

  • Enabling video analytics services to help businesses across industries with theft prevention, crowd control, and queue prediction and management.
  • In retail: Streamlining and automating inventory management, connecting brick-and-mortar, and ecommerce and backend systems for near real-time visibility into operations.
  • In healthcare: Scaling access to services like telehealth-based therapy, using AR and VR for remote care either from patients’ homes or at an onsite facility.
  • In manufacturing: Accelerating operations with remote support and quality control checks at plant locations, and optimizing bandwidth usage by streaming video on the edge rather than on-device.
  • In entertainment: Enhancing in-venue experiences for concerts and sporting events, with solutions ranging from immersive AR and VR experiences, smart parking and ticketless entry, to contactless food and souvenir payment.

The companies are also working together to evaluate how network APIs could optimize applications, using near real-time network information at the Google Cloud edge. If successful, this would allow them to optimize the user experience at the edge and drive meaningful outcomes for businesses.

AT&T Multi-access Edge Compute (MEC) with Google Cloud combines AT&T’s existing 5G and fully managed MEC offering with core Google Cloud capabilities, including Kubernetes, artificial intelligence (AI), machine learning (ML), data analytics, and a robust edge ISV ecosystem. With the solution, enterprises can build and run modern applications close to their end users, with the flexibility to manage data on-prem, in a customer’s data center, or in any cloud. All this can help customers to increase control over data, improve security, lower latency and provide higher bandwidth.

AT&T Network Edge (ANE) with Google Cloud will enable enterprises to deploy applications at Google edge points of presence (POPs), which will be connected to AT&T’s 5G and fiber networks. In this low-latency compute and storage environment, businesses can deliver faster, more seamless enterprise and customer experiences. AT&T and Google Cloud are focusing on a multi-year strategy to bring the solution to 15+ zones across major cities, starting with Chicago this year. We expect to roll out the solution next in AtlantaDallasMiami, and San Francisco.

“By combining the power of AT&T 5G and Google Cloud technologies, we are helping enterprises create new customer experiences and business services that were previously impossible,” said George Nazi, Vice President, Global Telecom, Media and Entertainment Solutions, Google Cloud. “Together with AT&T, we are committed to enabling our customers to build and deliver next-generation applications, whether on-premise or on AT&T’s leading mobile network.”

“With premises-based 5G and network edge computing, we give our customers even greater control of where their data goes and how they use it – at higher speeds and with lower latency. These capabilities allow businesses to deliver unique experiences to their customers, today and into the future,” said Rasesh Patel, Chief Product and Platform Officer, AT&T Business. “We’re bringing forth a new era where the latest technological advancements, including 5G and edge computing, make it possible to transform, innovate and prepare for whatever the future holds.”

“5G, cloud services and edge compute each have a tremendous amount of promise as standalone technologies,” says Jason Leigh, research manager for 5G and Mobile Services Research at IDC. “But coupling these three as complimentary, enabling technologies both accelerates and extends the promise of digital transformation in many more business settings.”

You can learn more about AT&T’s work in on-premises edge computing here, and network-based edge computing here. To learn more about Google Cloud’s work driving transformation and 5G adoption, visit here.

AT&Ts collaboration with Google extends beyond business and reaches the hands of the consumer. Together, the two companies are combining the power of AT&Ts  5G and fiber networks with Google cloud gaming platform.

Comment: It’s quite interesting that AT&T has outsourced its 5G SA core network to Microsoft Azure, but is using Google Cloud for edge computing for its 5G and fiber optics networks.  AT&T claims a cohesive cloud strategy, but the network operator’s various alliances with cloud providers are confusing, according to Kathryn Weldon, research director at GlobalData. AT&T previously announced 5G edge partnerships with IBMMicrosoft, Accenture, Hewlett Packard Enterprise, and Deloitte.

The different goals AT&T hopes to achieve with each cloud or edge vendor and how they will jointly provide specific aspects of edge computing for each remains unclear, Weldon said.

“There have been so many announcements regarding operators’ relationships with hyper-scalers for 5G edge that it would be helpful to get really specific about use cases. The immersive experience examples are a bit generic. It’s time for actual customer use cases to be cited, even if they are only in trial,” she wrote in a report.  Google Cloud and AT&T said joint customers will gain near real-time access to features packed into Google’s cloud and some of its most popular services.

“While the new initiatives leverage more Google capabilities, the announcement begs the question as to what things the partners have been working on for the last year. It isn’t clear why the listed Google elements could not have been brought in before,” Weldon added.

References:

https://www.prnewswire.com/news-releases/att-and-google-cloud-expand-5g-and-edge-collaboration-to-deliver-next-generation-business-outcomes-301325329.html

AT&T 5G SA Core Network to run on Microsoft Azure cloud platform

https://www.sdxcentral.com/articles/news/att-5g-edge-shimmers-on-google-cloud-leaves-aws-on-prem/2021/07/

AT&T 5G SA Core Network to run on Microsoft Azure cloud platform

AT&T will run its 5G SA Core network on Microsoft’s Azure public cloud computing platform.  Microsoft AZURE, which is the second largest cloud computing provider by revenue behind rival Amazon Web Services, has been building out specific cloud computing offering to attract carriers.  AT&T is Microsoft’s first major deal in the 5G SA Core network space.

The two giant companies said that Microsoft will purchase software and intellectual property developed by AT&T to help build out its offerings for carriers. The companies did not disclose the terms of the deals, but said that Microsoft will make job offers to several hundred AT&T Network Cloud engineers.

Microsoft will use AT&T’s software and IP to grow its telecom flagship offering, Azure for Operators. Microsoft is acquiring AT&T’s carrier-grade Network Cloud platform technology, which AT&T’s 5G core network (when completed) will run on.

The companies disclosed a few key details about their new deal, but did not provide any firm numbers or any financial arrangements/guidance:

  • Microsoft will “assume responsibility for both software development and deployment of AT&T’s Network Cloud immediately,” according to the companies, and will transition AT&T’s existing network cloud operations into Azure over the next three years. Eventually, all of AT&T’s mobile network traffic will run over Microsoft’s Azure.
  • The effort will start with AT&T’s 5G core, but will eventually include virtually all of the company’s network operations, including its 4G core.
  • Microsoft will be the company to certify all of AT&T’s software-powered network operations for inclusion in the AT&T network. That will include software from other vendors. AT&T has not yet named its 5G core network vendors.
  • Microsoft will acquire AT&T’s Network Cloud technology – including its AT&T engineering and lifecycle management software – and its cloud-network operations team. The companies did not disclose exactly how many AT&T employees that transaction might cover, but an AT&T official suggested it will be in the “low hundreds.” Microsoft will then incorporate AT&T’s intellectual property into its Azure for Operators offering, which is for sale to other 5G network operators.
  • Microsoft and AT&T did not provide the logistics of their deal, including exactly how many Azure computing locations might be necessary to power AT&T’s network. It’s an important issue considering AT&T’s cellular network spans an estimated 70,000 cell towers across the country, and the operation of the radios on top of those towers might eventually be handled by programs running inside of Microsoft’s cloud. A top Microsoft executive involved in the deal told Light Reading that Microsoft’s Azure software will be installed into some of AT&T’s existing computing locations. Several of those compute server locations are staffed by AT&T technicians.
  • AT&T said the company plans to continue to run its network workloads inside of its own data centers and facilities. However, AT&T added that the deal today is focused on AT&T’s 5G core network and that the companies might explore additional elements of the network such as Open Radio Access Network (O-RAN) technology over the course of the agreement.

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Sidebar5G SA Core networks to run on cloud service provider platforms:

  • In late April, Dish Network made a similar deal to have Amazon run its 5G core network on AWS.
  • In late May, Telefónica said it had validated AWS Outposts as option for 5G SA core deployment in Brazil.
  • Earlier this week, TIM said it was building its 5G SA Core network on “Google’s cloud solutions” (whatever that means?)

Do you think the cloud service providers will essentially take over the implementation, operations, and maintenance of 5G SA Core networks, especially since they will likely all be “cloud native.”  Please post a comment in the box below this article to express your opinion and why.  Thanks!

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“This deal is not exclusive, so I fully expect Azure will try to assert itself as the telecom cloud provider for many carriers around the world,” said Roger Entner of Recon Analytics LLC.

“It’s the first time a Tier One operator has trusted their existing consumer subscriber base to hyper-scaler technology,” Microsoft’s Shawn Hakl, VP of the company’s 5G strategy, told Light Reading. Before joining Microsoft in 2020, Hakl was a longtime Verizon executive.

The deal follows a $2 billion agreement in 2019 in which AT&T said it would start using Microsoft’s cloud for software development and other tasks. At that time, AT&T said it would continue to run its core networking functions in its own private data centers.

Andre Fuetsch, AT&T’s chief technology officer, said that shifting to a public cloud vendor will let AT&T take advantage of a larger ecosystem of software developers who are working on technologies such as wringing more use out of pricey 5G spectrum or creating new features for users.  “That’s what we at AT&T want to do, and we think working with Microsoft gives us that advantage,” Fuetsch told Reuters in an interview.

“AT&T has one of the world’s most powerful global backbone networks serving hundreds of millions of subscribers. Our Network Cloud team has proved that running a network in the cloud drives speed, security, cost improvements and innovation. Microsoft’s decision to acquire these assets is a testament to AT&T’s leadership in network virtualization, culture of innovation, and realization of a telco-grade cloud stack,” said Andre Fuetsch, executive vice president and chief technology officer, AT&T. “The next step is making this capability accessible to operators around the world and ensuring it has the resources behind it to continue to evolve and improve. And do it securely. Microsoft’s cloud expertise and global reach make them the perfect fit for this next phase.”

Microsoft intends to use the newly acquired technology – plus the experience gained helping AT&T run the network – to build out a product it calls Azure for Operators, which it will use to pursue 5G core network business from telecommunications companies in the 60 regions of the world where it operates.

“I think we’re going to have operators around the planet that are quite interested in that,” Jason Zander, executive vice president of Microsoft Azure, said in an interview.  On the AT&T website, Zander said: “With Azure, operators can provide a more flexible and scalable service model, save infrastructure cost, and use AI to automate operations and differentiate customer offerings.  Through our collaboration with AT&T, Microsoft will expand its telecom portfolio to support operators with a carrier-grade cloud that provides seamless experiences across Microsoft’s cloud and the operator’s network.”
According to the GSMA, operators are expected to spend $900 billion worldwide between 2021 and 2025 in mobile capital expenditures (CapEx), roughly 80% of which will be in 5G and much of it could run on cloud infrastructure. Operators moving to the cloud can save on hardware and development, benefit from cloud-enabled automation and data analytics, and manage real-time responses and peak traffic on demand. The delivery of new services can be accelerated through cloud-driven AI and IoT.
Post MWC comment by Iain Morris of Light Reading:
“AWS, Microsoft Azure and Google Cloud muscled into the sector, promising innovation and cost savings for their debt-ridden (telco) clients.”
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AT&T’s Cost Cutting Continues:
In 2020, AT&T announced a cost-cutting program aimed at trimming $6 billion from its budget by 2023. Part of that effort includes an “IT rationalization” that involves eliminating unneeded applications and moving other applications into the cloud.  With its new Microsoft Azure deal, AT&T said it hopes to “substantially reduce engineering and development costs.” However, the companies haven’t provided a firm cost-savings estimate for AT&T’s 5G SA Core network running on Microsoft’s Azure cloud platform.  One would think that would have financial implications for both companies.
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Addendum —  Cloud Service Providers led by Amazon and Microsoft:
John Dinsdale, a Chief Analyst at Synergy Research Group, said: “Amazon and Microsoft tend to overshadow the market, with Amazon share staying at well over 30% and Microsoft growing its share from 10% to 20% over 16 quarters. However, after excluding those two, the rest of the market is still growing by over 30% per year, pointing to growth opportunities for many of the smaller cloud providers.”
“We’ve seen a dramatic increase in computer capabilities, increasingly sophisticated enterprise applications and an explosion in the amount of data being generated and processed,” he added.
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References:

https://news.microsoft.com/2021/06/30/att-to-run-its-mobility-network-on-microsofts-azure-for-operators-cloud-delivering-cost-efficient-5g-services-at-scale/

https://azure.microsoft.com/en-us/industries/telecommunications/

https://about.att.com/story/2021/att_microsoft_azure.html

https://www.reuters.com/business/media-telecom/att-run-core-5g-network-microsofts-cloud-2021-06-30/

https://www.lightreading.com/the-core/atandt-to-offload-5g-into-microsofts-cloud/d/d-id/770600?

https://www.lightreading.com/service-provider-cloud/atandt-has-locked-itself-into-risky-affair-with-microsoft/a/d-id/770608?

https://www.bloomberg.com/news/articles/2021-06-30/at-t-agrees-to-outsource-its-5g-network-to-microsoft-s-azure

Will AT&T’s huge fiber build-out win broadband market share from cablecos/MSOs?

AT&T added 235,000 fiber connections in the first quarter, ending the period with nearly 5.2 million total fiber customers. AT&T says they have a total of around 15 million fiber and non-fiber customers, so fiber access is approximately 1/3 of total customers now.

The company recently announced it plans to build fiber to 3 million new customer locations this year and 4 million next year. AT&T plans to double the number of locations where it offers fiber Internet, from approximately 15 million to about 30 million, by 2025. To do that, AT&T is planning to increase its annual capital expenses from $21 billion to around $24 billion.

AT&T’s new focus on connectivity over content is a direct result of its spinning off Warner Media to Discovery, as we chronicled in this IEEE Techblog post. Thaddeus Arroyo, head of AT&T’s consumer business, made that crystal clear at a recent BoA investor event:

“We expect capital expenditures of about $24 billion a year after the Warner Media discovery transaction closes. That’s an incremental investment that’s going to go to fiber to 5G capacity and 5G C-band deployment.

We have another great opportunity, the one we continue to talk around fiber. So as part of this capital, we’re going to be investing in fiber expansion to meet the growing needs for bandwidth that require a much more robust fiber network regardless of the last mile serving technology. Fiber is the foundation that fuels our network. Expanding our fiber reach serves multiple services hanging off at each strand of fiber. It includes macro cell sites, small cell sites, wholesale services, enterprise, small business, and fiber that’s extended directly into our customers’ homes and into businesses.

We plan to reach 30 million customer locations passed with fiber by the end of 2025. That’s going to double our existing fiber footprint. And investing in fiber drives solid returns because it’s a superior product. Where we have fiber we win, we’re improving share in our fiber footprint, and the penetration rates are accelerating and growing, given our increased financial flexibility. We’re comfortable in our ability to invest and achieve our leverage targets that we outlined of getting to 2.6% at close and below 2.5% by the end of 2023.”

Mo Katibeh, the AT&T executive responsible for fiber and 5G build-outs, added on via a recent post on LinkedIn:  “We are building MORE Fiber to MORE homes and businesses. And we’re talking A LOT of fiber – MILLIONS of new locations every year, planning to cover 30 MILLION customer locations by the end of 2025! And you know what comes with all that investment in America? JOBS. Our AT&T Network Build team is GROWING..”

Previously, Katibeh wrote on LinkedIn : “Contributing to a large portion of the $105B Capital spend between 2016 and 2020 – our team is building out AT&T #Fiber to MILLIONS of new customer locations in 2021, as well as augmenting America’s best mobility network with more capacity, more speed – and more #5G (you know I love 5G!).”

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So with all that said, will AT&T’s fiber build-out keep pace with cable companies/MSOs DOCSIS networks?

Tom Rutledge, Charter’s CEO, made a brief comment about plant upgrades on the earnings call (note – Dave Watson made similar comments on the Comcast earnings call):

“We’re continuously increasing the capacity in our core and hubs and augmenting our network to improve speed and performance at a pace dictated by customers in the marketplace. We have a cost-effective approach to using DOCSIS 3.1, which we’ve already deployed, to expand our network capacity 1.2 gigahertz, which gives us the ability to offer multi-gigabit speeds in the downstream and at least 1 gigabit per second in the upstream.”

According to Leichtman Research Group, the top cable companies had 68 million broadband subscribers, and top wireline telecom companies had 33.2 million subscribers at the end of 2019.

“Based on the currently available information, cable stole wired broadband market share in Verizon and AT&T markets as well. Oy vey!” said Jim Patterson of Patterson Advisory Group in his May 2, 2021 newsletter.  “Think about Comcast and AT&T as having roughly the same number of homes passed (AT&T probably closer to 57 million homes versus the nearly 60 million shown for Comcast),” he added.  Patterson noted that top cable companies Comcast, Charter and Altice managed to capture 86% of broadband customer growth in the U.S. in the first quarter of this year.

“(AT&T) fiber connections simply aren’t growing fast enough to keep up,” wrote colleague Craig Moffett of MoffettNathanson in a recent note to clients.  Here’s more:

To be sure, there are questions about the extent to which these deployments will overlap cable (or will instead be focused on unserved rural communities), and the extent to which labor and supply chain contraints might limit acheivability of announced targets. Still, taken together, these deployments suggest that, after a precipitous decline in new fiber construction in 2020, planned fiber deployments do, indeed, rise over the next two years; we expect that both 2021 and 2022 will represent new all-time peaks in total number of fiber homes passed. Typically, the competitive impact from overbuilds is felt with some lag, suggesting the impact on cable operators will peak in 2024/2025.

At the same time, we expect that federal stimulus to accelerate broadband market growth in 2021 and 2022, perhaps significantly, with new household formation, in particular, driving upside to 2021 and 2022 forecasts.

Longer term, however, Cable operators will have to contend with more fiber overbuilds, as TelCos increasingly see both more favorable economics for fiber deployment and increasingly acknowledge that their copper plant faces imminent obsolescence without it. The forecasts for fiber deployment in this note suggest that 2021 will be a record for fiber construction – assuming labor and materials capacity can accommodate the TelCos’ own forecasts – and 2022 will step up higher still. After that, deployments are expected to abate, at least to a degree.

“Cable can upgrade its plant quickly and at low cost to offer at least 4.6Gbit/s down and 1.5Gbit/s up, well beyond current fiber offerings. They can do this before the move to DOCSIS 4.0, which is still years off,” wrote the financial analysts at New Street Research in a recent note to investors.   The result, according to the New Street analysts, is that fiber providers like AT&T won’t necessarily be able to dominate the fiber market with a 1 Gbit/s FTTH/FTTP connection and take market share from cable incumbents.

“Cable will face new fiber competition in more of its markets over the next few years; however, there is little to no prospect of fiber delivering a service in those markets that cable can’t easily match or beat,” New Street concluded.

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“Looking back and being a little critical, we probably allowed the cable companies to execute and to take share in that market in a significant way,” AT&T CFO Pascal Desroches said at a recent Credit Suisse investor event.

AT&T executives have said that the company’s fiber investment ultimately will generate internal returns of around 15%. Desroches said that return on investment will be due to a variety of factors. Fiber “supports not only consumer needs, it supports needs for our enterprise businesses as well as needs for potentially our reseller business. So being able to look across and integrate the planning for fiber deployment such that it not only serves consumer needs, but it serves these other market adjacencies as well is something that we haven’t been very good at historically, That’s why we’re really bullish and we believe we’re going to be able to execute really well here,” AT&T’s CFO concluded.

 

References:

https://www.lightreading.com/opticalip/is-atandts-fiber-investment-good-idea/d/d-id/770468?

https://investors.att.com/~/media/Files/A/ATT-IR-V2/events-and-presentations/bank-of-america-transcript-6-16-21.pdf

https://www.linkedin.com/feed/update/urn:li:activity:6813211481950318592/

https://investors.att.com/~/media/Files/A/ATT-IR-V2/events-and-presentations/final-credit-suisse-transcript-6-15-21.pdf