AT&T ‘not backing off’ $6B cost cutting initiative

AT&T store
Excluding an overall impact of 5 cents per share from the pandemic, AT&T's said Q1 results were about what it expected. (Getty Images)

Although the full impact of the COVID-19 pandemic won’t show up until next quarter, AT&T’s wireless business showed resilience in the first quarter and the carrier has work underway targeting its distribution strategy to align with both cost-cutting initiatives and new customer behaviors.

Speaking on the AT&T’s first quarter earnings call, COO John Stankey said the carrier is “not backing off” its previously announced $6 billion cost and efficiency initiative. He said AT&T sees an opportunity to approach all of its businesses to better align with how the coronavirus has and will continue to reshape customer behavior and the economy.

One of two initiatives currently underway includes changes to retail and third-party distribution capabilities.

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“To address our distribution strategy we’ll be adjusting locations, location size, owned versus agency mix, point of sale support systems, compensation structures,” Stankey said on the call.

RELATED: AT&T eyes billions in cost-cutting initiative

This along with changes to field operations, including more self-installs and IT changes, are expected to yield over $1 billion in recurring cost improvement and benefit the overall customer experience, according to Stankey.

“This experience [coronavirus] will change many things including customer behaviors and expectations,” he said. “We’re evaluating our product distribution strategy, and we’ll be looking at volumes and required support levels we need in a down economy.”

In its mobility segment, AT&T’s wireless service revenue grew by 2.5%, while EBITDA increased 7% to $7.8 billion. The carrier acknowledged that equipment revenue was down 25% in March, as AT&T closed thousands of company-owned retail locations, but it also experienced a corresponding expense reduction in Q1.

RELATED: AT&T latest carrier to close retail stores in COVID-19 response

Changing up distribution options won’t necessarily be a challenge in terms of capabilities, but rather customer preferences, executives indicated. It remains to be seen when consumers might feel comfortable returning to stores or reducing social distancing.

When asked by analysts what proportion of wireless gross adds or upgrades were coming through online channels, executives did not provide exact figures but Stankey said it’s a matter of “can versus want.” BayStreet Research previously told FierceWireless that overall, online channels historically only accounted for an estimated 10% of carrier activations.  

“We can do virtually everything online, it’s what the consumer wants to do that’s more the question,” Stankey said.

Prior to the pandemic, customers wanted to spend more time in retail stores than online, as it relates to the percentage of AT&T’s gross adds, he noted. The mix became higher at certain times, though, such as major device launches. Historically, consumers have liked to go into stores, get hands on with a device and potentially purchase other items as well.

“I would fully expect that as retail capacity maybe diminishes and folks start to think differently about their behaviors … we’re going to start to see people experiment with all of the great tools that we have out there and all the abilities to actually complete a transaction online,” he said.

He sees this happening in a mixed environment though, where a customer buys a device online, and then AT&T fulfills it. “We’re in a great position” for that Stankey said, calling out AT&T’s concierge service, where it partners with third parties to deliver a preset handset to a consumer’s home.

RELATED: Big 4 could see device sales plummet

This process has been made cleaner since the coronavirus, with less contact to help make customers feel more comfortable, he added. AT&T’s also been doing more curbside pickup, where again, consumers order online and then go to a store location.

“I think we’re prepared to adjust to whatever the customer chooses to do after they decided they no longer want to suppress buying a handset and they need to go out and do something if traditional retail channels are unavailable,” he added.

The carrier still managed to add 163,000 postpaid net phone adds, and with new switching and change activity down, postpaid phone churn was down to 0.86%. AT&T’s subscriber count excludes customers who didn’t pay their bill but who AT&T agreed to continue service during the crisis.

AT&T is forecasting lower wireless net and gross adds going forward, but while new customer activity is lowered because of customers not going out and about to wireless stores, Stankey stressed that “engagement remains incredibly high.”

He said that’s also resulted in some customers choosing to move into higher priced service plans to accommodate increased usage. Last year, before the coronavirus, AT&T had anticipated an uptick in unlimited plan uptake this year, coinciding with the expansion of 5G coverage and availability of new devices.

AT&T’s postpaid average revenue per user (ARPU) for the quarter was up 0.7% to $55.68.

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