At one point last year, it looked as if AT&T’s balance sheet was going to impede its ability to get the C-band spectrum it needs to compete in today’s 5G world. Some questioned whether AT&T had the wherewithal to invest in the C-band auction and then actually use the spectrum.
The company is now saying that yes, it does have the finances to not only hold up its end of the bargain on its $23 billion C-band spectrum purchase, but to spend $6 billion to $8 billion in capex deploying it.
That follows Verizon’s disclosure earlier this week that it plans to spend $10 billion, potentially over a three-year period, to build out its C-band assets, for which it spent a walloping $45 billion before clearing costs.
Ahead of its virtual investor meeting on Friday, AT&T said it plans to begin deploying the first 40 MHz of its C-band spectrum by the end of 2021. The majority of its $6 billion-$8 billion spend will occur in the 2022-2024 timeframe, when another phase of the spectrum gets released.
AT&T and Verizon, especially, are counting on the C-band spectrum to level the playing field with T-Mobile, which just a few short years ago was the scrappy little “un-carrier” competing mostly on the low end of the subscriber range. Fast forward past its $26 billion merger with Sprint, and T-Mobile's got a bevy of 2.5 GHz spectrum already being deployed for 5G and plans to upend Verizon’s “best network” in LTE with its own “best network for 5G.”
Last year, T-Mobile surpassed AT&T as the No. 2 wireless carrier based on subscribers. Meanwhile, AT&T introduced plans designed to give its existing subscribers the same great deals that traditionally have been used to attract new customers.
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During AT&T's meeting with investors on Friday, Jeff McElfresh, CEO-AT&T Communications, alluded to its simplified rate plans, retention offers and a steady improvement in share of net adds and churn in the fourth quarter 2020.
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The changes are not dependent on one given promotion, and it’s guided to a service revenue growth in the 2% range in 2021, he said.
“I like the volume that we see today,” he said. “We’re not here just to preserve a base of customers. We’re No. 3 in the marketplace. We’ve got a great network. We’re going to continue to invest in that network and you’ll see us continue to grow, at least at our fair share, if not greater,” McElfresh said.
As of last year, AT&T had only 70% of its low- and mid-band spectrum deployed. AT&T secured 80 MHz in the C-band auction. It will begin deploying the first available 40 MHz toward the end of this year.
It’s already prepping the network and will be on pace to cover about 70 million to 75 million POPs with C-band by the end of 2022; it will surpass 100 million POPs early in 2023, he said.
As for how it funds its C-band investment, which totals $27.4 billion, AT&T said it expects to have access to cash totaling at least $30 billion, including cash on hand at the end of 2020 of $9.7 billion, commercial paper issued in January 2021 of $6.1 billion and financing via a term loan credit agreement of $14.7 billion.
The company expects to end 2021 with a net debt-to-adjusted EBITDA ratio of about 3.0x, reflecting an anticipated increase in net debt of about $6 billion to fund the C-band spectrum purchase.
AT&T has seen an increase in demand for its fixed network, in particular during Covid-19, and it’s a trend they expect to continue. It’s not betting big on fixed wireless access (FWA); it's ambitions are clearly focused on fiber.
“This increased dependence on the fixed network gives us confidence that AT&T’s hybrid fixed and mobile networks are well positioned to capture growth,” McElfresh said in prepared comments.
Looking ahead, they expect demand for high-quality bandwidth consumption to increase, driven by factors such as the number of connected devices in the home increasing to 32, growth in mobile consumption, shifts in the video content format and more streaming services.