Ever since Pascal Desroches started in his current role as CFO of AT&T over two years ago, the overall Wall Street sentiment has been that the wireless industry “is going to hell in a handbasket.”
Yet every quarter, “this industry continues to grow and you have a really healthy competitive dynamic,” he said during the Bank of America Media, Communications & Entertainment Conference today.
Throughout a series of fireside chats this week, BofA analyst David Barden has been asking executives at wireless carriers about the state of the industry. After some high-flying postpaid phone net additions in 2021 and 2022, there’s a “normalization” occurring. Pandemic-related subsidies have gone away, cable companies are taking a greater share and postpaid phone net adds are coming down. That’s creating anxiety, with some investors waiting for the other shoe to drop.
In Q2 2023, AT&T recorded 326,000 postpaid phone net adds compared with about 813,000 postpaid phone net adds in Q2 2022. Part of the Q2 2023 number reflected the loss of the VA contract, which amounted to about 75,000 fewer postpaid subscribers.
Desroches noted that AT&T was impacted by that decision to “step away” from what it considered an unprofitable contract, but taking that out of the equation, overall, “the industry is growing and we are getting our fair share,” he said. AT&T’s mobility service revenues were up 4.9% in Q2 2023.
It should be noted that T-Mobile has been consistently leading the wireless space with the highest share of gross and net additions each quarter. Verizon has been losing postpaid phone customers in its consumer division.
The rise of cable
As for cable companies gobbling up share, many of those customers can be explained via prepaid-to-postpaid migration and free lines that are being given away, Desroches said.
“Wireless is a discounting mechanism for cable,” he said, adding that most of the lines the cable companies are selling are one or two lines. At AT&T, more than two-thirds of its customer base come with more than two lines. “We are playing a whole different game than they are.”
He acknowledged that cable has grown wireless subscribers the last several years. However, "I look at our porting ratio versus cable. Hasn't moved. So it's not like anything that is happening out there is new. We've been operating in this way largely for the last three years," he said.
While Wall Street seems to judge wireless carriers on one main metric: postpaid phone net adds, other metrics are used to measure the overall health of the business. AT&T has grown service revenues more than anybody in the space, he said.
“I’m trying to disprove … that this is a bad business when all the facts are that it’s a great business and people would die to be in this business and there aren’t a lot of people who could do that,” he said. “There aren’t a lot of companies that can do that … growing revenues, growing earnings, growing cash. Only three players can provide this at scale. I kind of like that business and it’s something - not a lot of businesses have that characteristic.”
Each competitor is taking a different approach to higher prices, but are higher prices going to be a regular part of the business going forward? Desroches noted that wireless is a critical service and operators every year are giving customers more, suggesting that operators should be able to “price up for that.”