AT&T on Monday outlined a three-year financial and strategic plan, following a challenge last month from activist investor Elliott Management, which had slammed numerous aspects of the telecom giant’s business and called for changes.
The plan and outlook came alongside AT&T’s third quarter earnings that included the addition of 101,000 net postpaid phone connections, compared to 67,000 a year prior, and 227,000 net prepaid additions. Including tablets and wearables, AT&T reported losing 217,000 net postpaid connections. Postpaid phone churn for the quarter was 0.95%.
Wireless service revenues in Q3 ticked up 0.7% to $13.93 billion, while overall mobile revenues were down by $34 million, or 0.2%, year over year. Wireless EBITDA was $7.75 billion.
As part of the strategic plan, AT&T Chairman and CEO Randall Stephenson will stay on through at least 2020, after which those two job roles will be separated within the company. Two new directors will join AT&T’s board over the next 18 months, replacing members that will depart.
AT&T plans to deliver between 1-2% revenue growth annually, and fully pay down its Time Warner acquisition debt by the end of 2022, while halting any major acquisitions. AT&T committed to 2022 earnings per share (EPS) of $4.50-4.80 and consistent stock buybacks. The company will continue to review its portfolio and sell off certain assets.
As part of its efforts to pay down debt, earlier this month AT&T said it would sell its operations in Puerto Rico and the U.S. Virgin Islands to Liberty Latin America for $1.95 billion, and this week announced a deal for about $1.1 billion in cash for Central European Media Enterprises broadcast operations, which AT&T acquired a majority stake in through its Time Warner acquisition.
In 2019, the company expects to close about $14 billion from asset sales to reduce debt, and in 2020 anticipates $5 billion - $10 billion from non-strategic assets, including the two aforementioned deals.
Speaking on the company’s third quarter earnings call, Stephenson did not completely rule out a sale of AT&T’s DirecTV satellite operations. While its mobile network has continued to see improvement, the company’s video side of the house is bleeding subscribers. In Q3, AT&T lost approximately 1.16 million premium video subscribers, including its U-Verse and DirecTV services, as well as an additional 195,000 OTT subscribers of its AT&T TV service.
AT&T is also gearing up to launch its HBO Max streaming service, with an investor day scheduled for tomorrow.
In a statement Stephenson said that objectives laid out today had been central to AT&T’s plans for “many months,” but “as you would expect, our thinking has also benefited from our engagement with our owners, including Elliott Management.”
Elliott Management took a $3.2 billion stake in AT&T and in an open letter called out some of the company’s strategic decisions and leadership moves, including its DirecTV acquisition and the appointment of WarnerMedia chief John Stankey to also serve as COO of the entire telecom and media company.
“I’ve found our engagement with Elliott to be constructive and helpful, and I look forward to continuing those conversations,” Stephenson added.
Elliott released a statement in support of AT&T’s announcement saying the steps “will create substantial and enduring shareholder value.”
“We have worked closely and collaboratively with management and the Board on the initiatives announced today,” said Elliott partner Jesse Cohn and associate portfolio manager Marc Steinberg. “It is clear to us that AT&T is committed to and accountable for creating shareholder value over the near- and long-term.”
Despite the announcements, some Wall Street analysts remained skeptical Monday.
“Overall, despite AT&T’s likely better than expected growth guidance over the longer term, we believe T will remain a ‘show me’ story on account of its past execution track record,” wrote the team at Barclays in a note to investors, pointing to steep video losses and misses on free cash flow.
Part of the forecast revenue increases call for at least 2% growth in wireless service revenues, expected to be driven by improved network quality and AT&T’s FirstNet public safety network. The company also expects adoption of 5G smartphones to boost equipment revenues and step-ups in data plans.
Separately, CFO John Stephens noted that in addition to strong performance from its prepaid Cricket wireless brand, AT&T now sees opportunity for growth in its reseller business that had been flat, in part due to additional spectrum capacity from FirstNet.
“We have a lot of capacity in this network now,” said Stephens, and now the company is looking to monetize that efficiently, including potential partnerships with cable MVNOs and other resellers.
In terms of investing in purchasing additional spectrum, the new plan won’t impact AT&T’s ability to do so, as spectrum acquisition needs will be “more than offset” by money brought in from cleaning up and divesting certain portfolio assets, Stephenson noted on the Monday call with investors.
Stephens couldn’t comment on millimeter wave spectrum, as it’s currently the quiet period for the FCC’s third high-band 5G spectrum auction, but reiterated that AT&T is certainly still interested in participating at future auctions, including C-band. That proceeding is still under consideration at the FCC and it remains to be seen when an auction will take place.