With a new CEO at its helm, AT&T is fundamentally staying course, the company’s finance chief said Tuesday.
AT&T CFO John Stephens, speaking today at a virtual MoffettNathanson investor conference, attributed the timing of long-time CEO Randall Stephenson’s recent retirement announcement simply to normal course of business once John Stankey was chosen as his successor.
In terms of strategy though, don’t expect much change from AT&T, which is proceeding with 5G deployments and the upcoming launch of its HBO Max streaming service.
“The overall strategic view of the company is going to be very consistent,” Stephens said regarding Stankey’s new leadership role, which takes effect July 1.
Pandemic could accelerate business demand for 5G
AT&T has long pointed to enterprise as early drivers of 5G, and Stephens indicated urgency to deploy the technology could increase in some cases for those businesses that come out of the COVID-19 crisis in good financial shape and want to take advantage of 5G-related cost efficiencies.
“Businesses that are going through this who do have solid balance sheets, solid capabilities, good technology – they may want to move quicker to 5G to ring out the cost savings and efficiencies,” he said, adding the situation remains wait and see.
Still, that’s only one side, Stephens acknowledged, and “certainly some opportunities will go away” from companies facing financial pressures and restrictions to credit amid the coronavirus-related economic downturn.
The timeline for monetizing consumer 5G hasn’t been impacted since AT&T didn’t expect to generate significant consumer service revenues from 5G any time soon, instead anticipating applications to follow business users.
“Those [business] applications will be turned into consumer applications over time, so we feel really good about getting the network out there before significant growing demand for 5G on the consumer side,” Stephens said.
Store closures and handset upgrade cycle
At the start of the year, AT&T had expected a major handset upgrade cycle, coinciding with its expanded 5G network deployment and HBO Max launch.
With a significant portion of retail stores closed, alongside high unemployment rates and possible tightened consumer spending, AT&T anticipates reduced activity – as was seen in March, when device sales dropped 25%.
Consumers may put off purchasing devices as they conserve financial resources, but a weak upgrade cycle won’t affect AT&T’s profitability, according to Stephens.
“The way we’re building toward 5G on an evolutionary basis, we are dramatically improving our LTE coverage and speeds along the way, so the customers we have get the benefit of what we’ve done with the equipment that’s in their hands today,” he said. “They don’t need to buy a new device," although they do expect 5G to provide the opportunity to do that if they opt to.
AT&T also expects the trend of customers' ability to move up into higher-value tier unlimited plans to continue, and could see additional opportunity from HBO Max, which it will be offered at no extra charge for subscribers on the carrier’s Unlimited Elite plan.
While it remains to be seen how strong consumer spending and retail traffic comes back as stores start to reopen post-coronavirus, AT&T feels “really positive” about its wireless business, which added 163,000 net postpaid phone connections in Q1. Second-quarter results, however, will have a full three months of coronavirus impact, versus part of March in Q1.
“We’ll see how [coronavirus] impacts us, but we’ll also quite frankly see the impact of HBO Max and how the ability to bundle that with Unlimited Elite will play out in this environment.”
In terms of midband spectrum compared to competitors, with T-Mobile’s new 2.5 GHz holdings and Verizon expected to participate in the C-Band auction later this year, Stephens said that AT&T’s work getting about 150 MHz of new spectrum into service has put the company in a favorable position for low-and mid-band spectrum.
He couldn’t comment on the upcoming CBRS auction but said C-band would be interesting to participate in and is confident in AT&T’s ability to fund spectrum acquisitions. Still, AT&T feels very good with its current spectrum holdings, which he stressed are already in service for customers.
“You can have spectrum but if it’s not in service, it doesn’t provide help to customers,” Stephens said, adding that AT&T’s 5G spectrum is supported in customer equipment today. “That’s really important.”