AT&T recently finished a stellar second quarter where it smashed Wall Street expectations and racked up 789,000 postpaid phone net adds, and last month it announced a $5 billion network service deal with Dish Network.
So those were prime topics for AT&T CFO Pascal Desroches during a conference hosted by Oppenheimer today.
Echoing what AT&T CEO John Stankey said during the company’s second-quarter earnings call last month, Desroches described the transaction with Dish as a win-win for both companies.
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Wholesale deals have been a part of the industry since the beginning, and “this is no different. We have a great network; they recognize that and we have the ability to serve their customers on our network” without any disruption to AT&T’s service, Desroches said.
“The deal provides us with attractive margins,” he added. “It’s a win-win. I think we feel really good about the deal and from everything they’ve said, they do as well.”
The subject also came up during Dish’s second-quarter earnings call on Monday, where Dish Chairman Charlie Ergen reiterated his desire to work with companies that share a common goal of helping each other out. Ergen even quipped that he’s become “kinder and gentler” in terms of taking an approach that’s more partner-centric than maybe he did 30 years ago.
Spectrum questions
The network services agreement between AT&T and Dish allows for AT&T to use Dish’s spectrum to serve both Dish and AT&T customers.
So, considering that Dish has a “ton of spectrum” and AT&T has “tons” of infrastructure, does it make sense for them to light up that spectrum on a lot of AT&T’s existing infrastructure? Oppenheimer analyst Timothy Horan asked if that would be attractive to both parties.
“I’m not going to speculate on that,” Desroches said. “I think the deal makes sense and I think having a good relationship with Dish benefits us and it benefits them.”
Wireless operators, including AT&T, continue to add customers in a saturated market. Asked to comment on the most recent quarter, Desroches said: “I think what you saw is a very healthy consumer,” including in wireless, where the industry is growing faster than the population growth.
When it comes to wireless market share, where AT&T was losing market share for years, “management matters,” he said. Jeff McElfresh took over the management of the connectivity business in late 2019 and did several things, including de-centralizing the wireless organization structure.
Now the local teams have the ability to react to specific market conditions and operate “much more nimbly,” Desroches said. In addition, AT&T focused on key customer segments, such as FirstNet, where it created an offering tailored to first responders and provided them with priority access to the network.
It also provided its existing and long-time customers with its best offers, knowing that the lifetime value of those customers would provide “appropriate” returns, at a time when the industry was mostly focused on offering the best deals to new subscribers.
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Regarding the 5G buildout, AT&T covered around 200 million people as of the end of the second quarter, and that’s all before the C-band deployment, which starts later this year; most of that deployment happens in 2022 and 2023. AT&T plans to start turning on its C-band spectrum in 2022.
5G speeds will only continue to get better, and right now, while speed is the differentiating factor, he expects to see more specific use cases that will demonstrate the power that 5G brings to the market. For example, certain segments of the enterprise market will benefit from 5G, including autonomous vehicles and AR/VR.
Can AT&T still lower expenses as a result of further "cloudifying" its network? You bet, according to Desroches. With the evolution of hyperscalers, now is a good time to outsource portions of the software layer to third parties like Microsoft. That allows AT&T to differentiate itself in the core and provides an economical way to drive innovation in the software layer without having to invest at the scale that the hyperscalers do, he said.