AT&T CEO John Stankey sounded like he was taking a victory lap during the company’s Q2 earnings call today as he noted the progress AT&T had been making in its mobility and broadband revenues the past year or so.
“For the last three years, our teams have executed on a strategy that enabled us to go from annually losing share to now delivering with the right combination of continued postpaid phone adds, low postpaid churn, growing average revenue per user and profitability growth,” Stankey said in prepared comments. “Specifically, over the past three years, we’ve added 8.3 million postpaid phone net adds. That’s up from fewer than 1 million in the three years prior to July 2020.”
Stankey, a long-time AT&T veteran, took the CEO post in July 2020.
But the positive vibe was quickly overruled by the concerns about lead in telecom networks that have been on the minds of investors since the Wall Street Journal’s July 9 exposé.
Before jumping into the Q&A part of the earnings call, Stankey gave a brief history of the role of lead in the telecom industry over the decades and explained how AT&T is cooperating with Environmental Protection Agency (EPA) and others to get to the bottom of the matter. AT&T also added a voluntary testing program, offered on company time and at company expense, for employees who have worked with lead cables, he said.
Remarkably, Stankey wasn’t probed about “the lead situation” until near the end of the Q&A, when Bank of America analyst David Barden posed a series of questions, prefaced by an acknowledgment that Stankey probably had a list of talking points in front of him on the subject.
Stankey said he’s limited on what he can say due to pending litigation in Lake Tahoe. But he did say that AT&T is proud of its track record on workplace safety and is working with its labor union. AT&T is sharing the same information with credit agencies as it is with analysts and others, he said. See this Fierce Telecom article for more.
Q2 mobile metrics
In sum, AT&T reported 326,000 postpaid phone net adds, which was in the expected range conveyed by CFO Pascal Desroches at an investor conference in June. AT&T added 424,000 postpaid phone net adds in the first quarter of 2023, but the big drop in the second quarter was attributed in part to the loss of one big government contract and higher churn.
AT&T posted 123,000 prepaid phone net adds during Q2. Postpaid phone churn was 0.79% compared with 0.75% in the year-ago quarter. Postpaid phone ARPU was $55.63, up 1.5% compared with the year-ago quarter, due in part to prior-year price increases, higher international roaming and a shift to higher-priced unlimited plans.
Total mobility segment revenues of $20.3 billion were up 2% year over year. Wireless service revenue was $15.7 billion, up 4.9% year over year. Wireless EBITDA was $8.7 billion, which was above most analysts’ estimates.
AT&T has been very deliberate and knows the consumer channels where it can get traffic, Stankey said. He feels the market is healthy and AT&T’s tactics continue to be durable. They’ve been focused on ensuring they’re getting the “right kind” of growth.
“I don’t want empty calorie growth. We want customers that come in and pay good recurring rates” for a long period of time. AT&T also has the ability to co-market multiple products, which makes them stickier and drives up lifetime values, he said.
FirstNet’s contributions
FirstNet added about 350,000 connections during the quarter, ending with more than 5 million FirstNet connections across more than 26,000 agencies.
FirstNet is a powerful contributor to AT&T’s overall subscriber results and probably accounted for most, if not all, of the 326,000 postpaid phone additions, according to New Street Research (NSR) investment analysts.
“At first blush, one might think that all the growth is coming from business, like Verizon, but AT&T attributes as much as two-thirds of the FirstNet connections to Consumer (family members of FirstNet employees),” wrote NSR’s Jonathan Chaplin in a note for investors today.
Yesterday, Verizon reported net losses of 136,000 from its Consumer group and 144,000 net adds from its Business group, ending the second quarter with postpaid phone net additions of 8,000. T-Mobile reports Q2 results on Thursday.
Internet Air for FWA
AT&T has not been nearly as bullish about fixed wireless access (FWA) as its rivals T-Mobile and Verizon have been, but it did start offering Internet Air, its version of an FWA service.
Asked about Internet Air, Stankey said it’s “performing well.” It will be key for certain parts of its customer segment, mainly to serve customers where it shuts down old copper infrastructure but isn’t building fiber. He likes it in particular for the business segment.
“We will use it surgically and selectively,” he said, adding that he’s not quite satisfied with the self-install rates on it, but “that’s not problematic” and typical at this stage.
Capex
In the first half of the year, AT&T spent just over $12 billion, putting it more than halfway through its guidance of $24 billion for 2023. Plans call for reaching 200 million people with its mid-band spectrum by the end of this year.
For 2024, the company hasn’t provided capex yet, but Desroches said AT&T doesn’t expect to be at the same levels of capital that it was in 2022 and 2023.