AT&T, Post WarnerMedia, Charts New Course, Says 5G Deployment is on Track

AT&T also reported it lost more than 400,000 postpaid phones as a result of the shutdown of its legacy 3G network (see 2202240002). AT&T’s stock jumped 4% Thursday to close at $20.21.

The media sales is “a critical step in the repositioning of our business,” CEO John Stankey said on a call with analysts. “We're now able to focus intensely on what we believe will be multiyear … tailwinds in connectivity,” he said: “We now have the right asset base and financial structure to devote our energy to becoming America's best broadband provider.” The morning call ended hours before reports surfaced that new Warner Bros. Discovery management decided to pull the plug April 30 on the fledgling CNN+ streaming service.

AT&T expects “a fivefold data increase on our networks” over five years “and we plan to capitalize on the growing desire from consumers and businesses for ubiquitous access to best-in-class connectivity,” Stankey said. With the WarnerMedia-Discovery transaction, AT&T “monetized more than $50 billion of assets since the beginning of 2021” and cut debt $40 billion in April alone, he said.

Stankey acknowledged but downplayed supply chain concerns. “There are going to be some supply chain pressures,” he said: Keep in mind that “the North American market is an incredibly profitable market for providers of equipment on a global basis. If you were to start ranking it relative to other continents, it is the most profitable market of any continent out there. … If you're an equipment manufacturer, you have the motivation to make sure that you supply your most profitable market first.

Among positive notes, a wireless growth trend continues as the provider added a net 691,000 postpaid phone subscribers in the quarter, which executives said were the best numbers for the quarter in a decade. AT&T also reported 113,000 prepaid phone net adds. Postpaid phone churn was 0.79%.

The carrier reported 289,000 fiber net adds and Stankey said the fiber footprint now covers 17 million locations, up 2.4 million in a year. “In fiber, we continue our great build velocity,” he said. HBO Max and HBO subscribers were 76.8 million, up 12.8 million year over year. AT&T reported revenue of $38.1 billion, down from $43.9 billion in the year-earlier quarter, just below analyst estimates. Net income was $4.8 billion, down from $7.5 billion a year ago.

“Year-over-year earnings declines were primarily driven by WarnerMedia and, to a lesser extent, certain one-time costs in the communications segment,” said Chief Financial Officer Pascal Desroches.

Analysts think AT&T still faces headwinds. “Whether AT&T, and the industry, can raise prices is the $64,000 question not just for AT&T but for wireless as a whole,” MoffettNathanson’s Craig Moffett told investors. “The problem with an industry that can’t raise prices is the flashing red light in today’s Q1 earnings report,” he said: “Costs are rising … while prices are not. Yes, AT&T has been able to manufacture subscriber growth; net additions for wireless and fiber were good. But ARPU [average revenue per user], margins, EBITDA, and free cash flow were not.”

“Management’s key message to the equity markets is that trends are improving because the organization is now focused on maximizing the value of the Communications assets,” said New Street’s Jonathan Chaplin: “The market isn’t buying this message yet; this is evident from the valuation gap between AT&T and peers. It is also evident from our conversations with investors. They don’t trust the disclosures. They are braced for acquisitions, once the current slate of divestitures is complete.”