AT&T’s (NYSE: T) 3Q20 results have an “If it’s too good to be true …” aspect to them. For companies of AT&T’s size with $180 billion in annual revenues, performance typically flows in trends and not in a step function.
Take wireless postpaid connections, a key indicator for mobile network operators. At the end of 3Q20, AT&T had a total of 79 million postpaid and 18 million prepaid subscriber connections.
Going back to 3Q18, AT&T lost in each quarter an average of 203,000 postpaid net additions. Then in 3Q20, the company added nearly 1.1 million new postpaid subscribers to its customer base.
‘Wireless postpaid phone net additions’ show another unusual outcome. Over the same period, postpaid phone net additions grew at an average of 87,000 phones per quarter, then jumped to 645,000 in 3Q20 alone.
AT&T CFO John Stephens explained the anomaly in the company’s 3Q20 earning call. “Improved postpaid churn was driven by the strength of our network and straightforward pricing plans, including our premium unlimited plan, which includes bundling HBO Max,” said Stephens. The company may be catching a wave of pent up demand with its retail store re-openings and new promotions during the pandemic.
Wireless service revenues in the quarter did not reflect the robust subscriber gains. The $13.9 billion in 3Q20 increased less than 2 percent over 2Q20 and was essentially flat year-to-year with 3Q19. With new subscriber adds, wireless service revenues likely will increase in the coming quarters.
Capital expenditure patterns are another oddity.
For the past two years, AT&T’s consolidated capex has been front-end loaded with more than 50 percent spent in the first half of the year, then declining in the second half. Through 3Q20, the company spent 66 percent of its $20 billion full-year capex guidance.
This means the company will invest the remaining one-third or over $6.7 billion in 4Q20. That figure is up 74 percent over 3Q20 and up 77 percent over the $3.8 billion in 4Q19.
So where is the money going?
Wireless capex for 2020 is expected to be in the $9-10 billion range. With flat service revenues, capital intensity is over 14 percent reflecting network expansion, especially with 5G.
The company indicates that its 5G network now is operating nationwide along with Puerto Rico and the U.S. Virgin Islands, covering roughly 200 million people in 395 markets. AT&T has customers in large areas of the U.S. East Coast, Midwest and Great Plains that rely only on its 4G LTE service.
The company believes that its extensive holdings in 700 MHz low-band spectrum offer the best solution for 5G wide area coverage and in-building penetration, compared to mid-band and millimeter wave frequencies. Initial 5G wide area deployments will use Dynamic Spectrum Sharing to access the 4G LTE 700 MHz band.
Note that AT&T registered as a bidder but was a no-show in the mid-band 3.5 GHz CBRS auction. The company will participate in the upcoming 3.7 GHz C-band auction. AT&T already has over 100 MHz in 1.9 and 2.3 GHz mid-band spectrum.
With more than 1,000 MHz of mmW spectrum in 24 and 39 GHz bands, AT&T is using its nearly 800 MHz of 39 GHz spectrum to deliver what it calls 5G Plus (5G+) service that is available in parts of 36 cities in 18 states. To get signups, the company is offering a lineup of 5G-compatible phones with attractive purchase and trade-in offers.
The company appears to be underspending in its fiber networks. AT&T’s wireline footprint covers around 60 million households over a 22-state area of the former Baby Bells (Southwestern Bell, BellSouth, Ameritech, Pacific Telesis). The company’s fiber network passes 14 million homes in that area with 4.7 million homes connected representing a 33 percent customer take rate.
John Stankey, AT&T CEO, acknowledges the potential for greater fiber deployment, especially considering connectivity demand during COVID-19 in suburban work-from-home environments. He comments, “… we’re at this moment where fiber is the juice behind every single network. This notion of wireless versus fixed is blurry more and more. The mmW dynamic will drive to the integrated fiber network and we should be the leader in that space.”
By John Celentano, Inside Towers Business Editor