Citi investor conference

AT&T added 1.3 million new postpaid mobile subscribers in Q4-2021, including 880,000 cell phone customers, similar to its performance in Q4-2020.

With 3.2 million postpaid phone net adds in the full year 2021, AT&T said it delivered its best performance in over 10 years.

AT&T CFO Pascal Desroches was scheduled to discuss AT&T’s numbers at Citi’s Apps Economy Conference on January 5th. However, the company said that AT&T CEO John Stankey would replace him and participate in a Q & A discussion with a Citi moderator.

AT&T said in a statement before the event that it “continues to benefit from strong network performance and its disciplined and consistent go-to-market strategy.”

In the fixed wireline market, AT&T added 270,000 fiber optic subscribers for the quarter, taking it to a total of around 1 million net adds for the full year. This is the fourth consecutive year in which the company has added 1 million or more fiber subscribers, AT&T noted.

Fiber roll-out faced some delays earlier in the year, due to supply chain issues related to the coronavirus epidemic. Nevertheless, AT&T added 2.6 million new premises passed with fibre, slightly better than its target of 2.5 million.

The company said it also exceeded its target for HBO and HBO Max subscribers. It reached 73.8 million subscribers worldwide at year-end, compared to earlier guidance to reach the high end of its targeted range of 70-73 million subscribers.

Stankey said during his Citi keynote Q & A with Michael Rollins:

We’ve been able to run our operations better because of improved customer satisfaction. That’s extending into lower churn levels. That ultimately drives efficiency in things that we’re doing to make our business more effective and efficient moving forward, that are helping us keep that margin equation where it needs to be, so that we’re getting good, healthy, profitable growth around that. I feel really good about the progress we’ve made against our $6 billion objective over a three-year period to drive costs out. We’re halfway plus through that at this juncture. And I think there’s really good momentum and discipline and operating capability moving into the business as a result of that.

In the communications company side, we’re going to walk out of this with a capital structure and a balance sheet that I think puts us in a great position relative to our peers in the industry. I’ve articulated where we’re stepping up our investment, especially making sure that we have fiber capillaries that allow us to do really well in our wireless business and really well in our premium business networking entity. And then go back into places where we’ve been underpenetrated, like the consumer broadband market, and ultimately be share takers and grow our business as a result of that.

I do believe we’re seeing a reordering of industry structure in general where customers don’t necessarily love the notion of having to make a decision to buy one form of connectivity from one company and another form of connectivity from another. And I think most customers when they get up in the morning just think about it in the context of I need to get on the Internet, I like to just get on the Internet, I’d like to be able to do the business I need to do.

And my gut is that customer desires are ultimately going to drive how product and industry performs. And I expect that we’re going to see more consolidated offers going out to customers, where people are selling a bundle of connectivity. And it doesn’t matter where you are or where you need to use it. And as we think about how product evolves and the capabilities and features of products, that that’s going to be kind of the next several years or ultimately going to start to seed into the industry as we think about things.

And when I start talking about why I believe AT&T is well positioned with that transition, we are a company that has more fiber infrastructure than anybody else who does networking in the United States. And we know more about building these integrated networks than anybody else, and we do more — we have a more balanced portfolio at the low end of the market, in the consumer space and at the top end of the market in business networking.

I think in the business segment, we’re going to see this interesting dynamic of public and private networking start to evolve where private networking used to be in the domains of exclusively unlicensed spectrum, and what I would call fixed (wireless) LAN connectivity oftentimes and larger more complicated businesses. And I think we’re going to now start to see a little bit of that dynamic where managed wireless networks are going to become relevant in parts of businesses and how that gets done I think will be maybe another dynamic that requires companies to work — a company like ours to work with large enterprises on that approach.

And, again, I think we start from a unique place there, where we have the account management infrastructure, the consulting expertise and the capabilities to go into those businesses to support them through that evolution as they do a combination of what used to be fixed private networking that’s now fixed and wireless private networking in combination with large scale public networks. And I think that’s probably another dynamic we’ll see play out over time.

In response to Citi’s survey which found 64% thought AT&Ts biggest risk was Verizon, T-Mobile and the competitive landscape broadly; 24% cable, 12% dish, and 0% for other possible new entrants, Stankey said: “First, my reaction to kind of those results are I’m actually surprised that 0% for other new entrants is at the bottom end of the spectrum, because I frankly believe if 12% of the folks think that Dish Networks is maybe going to be the most disruptive aspect, my gut tells me that Dish coming into the market may be something that’s more paired with a combination of possibly another new entrant that wants to do something a little bit differently….I feel really good about that momentum and our ability to respond to T-Mobile and Verizon in the way we’ve done this year and continue to be very, very effective.”

Rollins asked: “Can you give us a preview of what 5G is going to look like for AT&T over the next 12 months? AT&T was in discussions with the FAA and with C-band over the last few weeks. So what should your customers and investors expect for the evolution of what 5G will look like from an experience perspective?”

Stankey replied: “When you deploy an air interface like 5G, it’s with you for a very long time. And so a couple of weeks here and a couple of weeks there at the front end of this isn’t in the context of the grand scheme of what’s going to happen and how you build networks and how you support a customer base. In my opinion, it isn’t going to be a big shift one way or the other. I think we need to keep that in perspective (this author completely agrees).

What I would tell you about our approach is no different than what I alluded to earlier. We want to make sure all of our network deployment, whether it be fiber or 5G is done in a way where we’re taking advantage of our dense and rich fiber networks, that we’re putting the bandwidth where customers need to do it and we’re evolving a product in a way that we can have a relationship with a customer that says it doesn’t matter where you go, we will handle your bandwidth needs. And we may choose to do that on 5G or we may choose to do that on fiber. At the end of the day, that should be something that’s fairly transparent to the customer. It should be done in a way that makes sense for them and a product that makes sense for them. And I think we’ll be in a good position to do that.

Our approach to 5G rollout, partly because we have such a broad and dense low band spectrum position, our networks performing incredibly well right now. You see the speed tests. And I would tell you that yes, there’s nominal differences that are showing up at a couple meg (Mbps) here, a couple meg there. This provider wins in this market, a different one wins in another. But when you look at customer feedback, customers are telling you — AT&T customers that they’re incredibly satisfied with the service.

We see sentiment on the network improving. That’s really important as a result of that. And that’s all going on within the dynamic of what’s occurring in the market right now and what other competitors are doing. When you see that momentum and that ascent on network performance and the consistency, that’s really strong and that’s partly because of one, the dense spectrum assets we already had walking into the mid-band deployment; and two, just the infrastructure of how cell sites in the network has been built.

Now as we go into this mid-band deployment, we’re going to be a bit more deliberate in our approach here, because as you know we’ve got the dynamic of certain mid-band spectrum being available now, certain mid-band spectrum that won’t be available until ’23 and we have some other mid-band spectrum that may come available somewhere in the middle of those two things. And as a result of that, as you think about how you deploy, you want to make sure that you’re using the right electronics and the right time to be on a tower once as opposed to multiple times.

And so as we move through the middle of this year, I think you’ll see us hit our stride on how we get the right kind of pervasive coverage using a collection of mid-band spectrum assets to make sure that that occurs. And I think given the near term as we kind of get in to the middle of this year and we wait for further spectrum availability into ’23, a spectrum that we’ve acquired and other auctions, we’ll be in a really nice position to take the strength of where the network is today and evolve it and ultimately be in a position to do that in the middle of this year as we start to scale that.

Rollins asked: “One of the differences so far in the 5G discussion for AT&T is on fixed wireless broadband. How are you looking at the opportunity, especially where you don’t have an incumbent wireline footprint or in the areas where it may not make sense to build fiber, how are you looking today at the opportunity to use this mid-band spectrum that you have in the wireless network and offer a wireless home broadband solution?”

Stankey replied: I believe that having some fixed high bandwidth infrastructure is going to be essential to being an effective networking company moving forward. Here’s a simple example: If you go into a typical average U.S. household and you think about the amount of video consumption that’s going on in a household today and you think about the customer trajectory of how much of that video consumption is moving from what used to be what I’ll call broadcast or multicast combinations, where it’s one stream sent out to a bunch of households or one stream watched by many people in the household to unicast where each individual in the household is watching something different at a particular time.

And I would tell you that if you believe, two things happen. One, that there’s going to be more on-demand consumption of video moving forward. And two, the resolution of that video will improve over time. And it will improve at a rate that compression technologies won’t necessarily keep you even in that consumption, so the jump to HD to 4K is an example. I would tell you that you start to look at those things and realize that wireless networks in some instances will have difficulty scaling in certain segments of the market as a result of that and there’ll be more effective ways to serve those customers.

And when I start to look at what we’re seeing as we start to do our market tests and our market pilots on multi-gig deployment on fiber and the market success we’re having and the sentiment of the customers that are taking it, I think that’s a really, really powerful combination. And I think those segments of the market are going to need to be addressed with more fixed solutions.

Now, are there single individuals living in an apartment someplace that may have a usage profile that is effectively served by fixed wireless in a metropolitan area? Sure. There are those other businesses that sit in a strip mall that are low data intensity that may have an opportunity to be served by fixed wireless, sure. Is fixed wireless going to be the best way to get a lot of bandwidth out to less densely populated rural areas? Yes, it probably will be. So is there a segment of the market where fixed wireless will apply and be effective? Sure, it will, and we’ll be in a position to have the right product to address those places.

But I don’t want to just simply say, well, that is the single solution that’s going to deal with what I would call the 70% of the business community, the 70% of the consumer population that are going to be pretty intensive users in some location, indeed, to have fixed infrastructure to support that over the long haul, given all the innovation that’s going to come. So how do I think about it out of region? Again, having a broad portfolio of business and consumer and believing that ultimately having fiber infrastructure to make both networks run well is important.

I see an opportunity for us to be very targeted and very disciplined around what we do and what used to be I hate using the term but traditional out of region markets, where good fiber deployment that supplements the strength of your wireless network and at the same time can pick up businesses and consumer, that’s probably a place where if this future that I talk about, which is a consolidated broadband product offering that occurs in the market, a customer that just wants a provider that solves their needs starts to occur, that those opportunities and companies that ultimately sustain themselves in the U.S. market for networking will need to address and ultimately effectively do. And that’s how we’re positioned to move forward right now.

Rollins asked: “On the fiber side, you announced that you hit the 2.6 million homes incrementally passed in 2021. Are those now fully open for sale in 2022? And is there another bogey that we should be thinking about for the next year in terms of the expansion of your home fiber network?”

Stankey replied: The answer is yes on the 2.6 million. And as I think I shared on the last earnings call, we wanted to do 3 million this year. We got a little bit of a supply chain dynamic that worked in the latter part of the year on how we were getting some of the elements we needed for the — the final piece of the distribution plan. It was largely how the preassembly dynamics of the fiber come in for us to be able to splice it in and ultimately serve the home. Feel pretty good about how the team and our vendor community has worked through that in the fourth quarter.

Obviously, we did 2.6, not 2.5. I think that’s indicative of the fact that we’ve got a little bit better momentum than what we had expected. And now those homes are in fact available. And the next 400,000 that we didn’t hit will come very quickly in the front end of this year in the 30, 45-day timeframe, because we are in fact starting to see that ramp in that supply component we needed. As we told you, we want 30 million fiber households by the end of ’25. I’m very confident we’ll get that done.

As I’ve told you on the last earnings call, I’d kind of like to get away from a discussion of how many new homes are added this quarter and be able to talk to you about just what are we seeing in the growth of customer acceleration? I’m really pleased with 270,000 fiber adds in the fourth quarter and be able to talk to you about just what are we seeing in the growth of customer acceleration? I’m really pleased with 270,000 fiber adds in the fourth quarter of this year, especially given we were a little bit late bringing on that new inventory. I think now that we can sell into that in ’22, that’s going to allow us to get that momentum to break through that 300,000 range on customers per quarter.

And as we continue to add in the footprint, what the investor base should look about is, is our new fiber adds, are they continuing to scale and grow irrespective of what we’re doing with the footprint. And that’s really what I hold the management team to and how we think about our commitments and our financial planning moving forward. So yes, I expect you’re going to continue to see those to grow as we move through ’22 as the footprint expands, and that will be the case all the way through ’25 as we get to 30 million fiber homes through the end of ’25.

As I’ve also shared, we’re continuing to do work to look at opportunities out of region, what we want to do to possibly find other attractive places to go and penetrate more effectively in the business community (presumably with fiber access). And as we have confidence in those things and we’re in a position to go and demonstrate that we can make that happen, we may be doing some revisions to our approach and our guidance on that moving forward.

Rollins asked: “Our final question is what application(s) can fundamentally change demand for connectivity and data consumption over the next few years?”

Stankey replied: There isn’t one, and I’d go back and say, history repeats itself. It’s like saying what application made LTE and 4G relevant in society. I’ve been around here a long time. I can remember sitting around in 2009, 2008 answering the same, well, geez, what’s going to justify this investment in LTE? Isn’t 3G good enough? And why do we need to invest this money? And it almost seems quaint right now that you’d go back and say, was it worthwhile to invest in LTE and in 4G to give people more speed and more effective and more resilient, more ubiquitous networks? And the answer was, of course. And I’d ask the question, are wireless networks as effective and as resilient as what you’re accustomed to when you sit in your living room or when you’re at your desk inside of an office building? The answer is not yet.

And so if there’s innovation that occurred on the LAN in the workplace and if there’s services and capabilities that occur in your home that you can’t quite do everywhere you are, why wouldn’t there be an opportunity to invest to take that somewhere else. And as we start to think about what I talked about earlier, public and private mixes into enterprise, when we get to low latency and what that opens up in terms of opportunity for medical diagnostics and remote health care and we think about the manufacturing dynamics and autonomous vehicles, we’re going to see a whole another decade of innovation that’s built on the back of these networks. And I’m really optimistic about that. And I have no question that we’re going to someday be sitting around saying, we need more spectrum because 6G is here and if we don’t have it, we’re not going to be able to take the next wave of innovation for ubiquitous high broadband, high speed broadband networks, no matter where we are, live, work and play.

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Drew FitzGerald and Karen Langleyof the Wall Street Journal (on line subscription required to access) wrote on Wednesday afternoon:

Chief Executive Officer John Stankey in June called the period “a hard year that’s been full of anxiety.” By December, he said he hoped that within another year “our attention will be entirely on the future and not on what we needed to do to reposition or restructure the business.”

The company’s WarnerMedia unit ended 2021 with 73.8 million global HBO subscribers, ahead of its 70 million to 73 million target. AT&T in May announced plans to spin off WarnerMedia, the entertainment empire it acquired in 2018, into a new joint venture with Discovery Inc.

The transaction secured European competition authorities’ approval in December but is still under review in the U.S. and other countries. AT&T shareholders will keep a 71% stake in the new media creation, so the company’s stock price partly reflects how the market values that future media business, which will be called Warner Bros. Discovery. The telecom company that remains is expected to pay shareholders a lower annual dividend.

Executives have said the yearly payout will fall from about $15 billion to between $8 billion and $9 billion after the media spinoff closes. An AT&T spokesman pointed to executives who have said that amount will still make it one of the top-yielding companies among dividend payers.

The subscriber surge prompted some market watchers to question how long the good times can last. Jeff Moore, a wireless-industry analyst for Wave7 Research, likened such explosive growth to all 32 NFL teams winning the same Super Bowl. “It just doesn’t make sense,” he said. “You would think that someone is losing and someone else is gaining.”

AT&T‘s rivals have pointed the finger at its now year-old marketing blitz, which offered deep smartphone discounts for new and existing customers, as the start of a race to the bottom that could eventually hurt industry profitability.

AT&T‘s leaders have said their wireless customer growth is durable. They have cited smarter marketing and improving traction in the public-safety market, as well as discounts, among the factors helping their results.

Mr. Moore agreed and said Verizon is the most vulnerable to slumping customer growth this year because its retail marketing operation has lost ground to more aggressive rivals. A Verizon spokesman declined to comment. “There’s too much skepticism about AT&T,” the analyst said. “They’ve really turned around their results.”

Not all investors believe that. Jerry Braakman, chief investment officer at First American Trust, said his firm held AT&T shares in client portfolios for several years before selling them in December 2020. He said the pandemic’s reordering of the winners and losers in the film industry kept AT&T‘s WarnerMedia unit from delivering on its promise. “AT&T looked like their strategy was struggling, so we decided not to continue to ride something down,” he said. “Sometimes you have to cut your losses and move on.”

Write to Drew FitzGerald at [email protected] and Karen Langley at [email protected]