New analysis from Wall Street research group MoffettNathanson says AT&T still faces challenges now that the WarnerMedia spin-off to Discovery has finally closed.
Impact: AT&T has said all along that it would shift its focus back to its core telecom business after it made deals last year to divest DirecTV and WarnerMedia. Now that both of those deals are complete with the April 8 close of the deal that merged Discovery and WarnerMedia into Warner Bros. Discovery, the challenges facing AT&T on the telecom side are front and center. AT&T will need to find a way to make its core mobile and wireline businesses successful in the face of significant competition on both fronts.
But rather than viewing AT&T’s strategic shift as a refresh for the company, MoffettNathanson researchers have concerns about its ability to generate significant growth from its core mobile and wireline businesses. On the plus side of the WarnerMedia deal, AT&T was able to rid itself of $38.5 billion in debt. On the minus side, that means it’s still left with a debt load of $177 billion. But because the deal means AT&T has also shed $6.6 billion in cash flow, Moffett views the debt and cash flow as cancelling each other out. The upshot of the analysis is that AT&T doesn’t have a “discernible competitive advantage in any of its business segments,” as FierceWireless put it. So it needs to figure out a way to gain the upper-hand in business segments where competitive pressure is coming from all sides.
Of particular concern to the analysts is the intense level of competition AT&T faces in the mobile sector, where it has fallen well behind in 5G. This is especially true now that Verizon has leapt ahead with much more significant C-band deployments than what AT&T has accomplished this year. Meanwhile, T-Mobile is so far ahead of both AT&T and Verizon in the 5G arena that it’s possible neither will ever catch up, or if they do, it will be years down the road. While AT&T has been able to maintain strong wireless subscriber adds each quarter, that’s largely thanks to its aggressive promotional strategy. But principal analyst Craig Moffett says that subscriber growth has come at the expense of revenue for AT&T, meaning the company has to find ways to generate stronger revenue gains if it wants to successfully grow on the wireless side. Might that mean a foray into 5G fixed wireless access service like its rivals? Only time will tell. In the meantime, if AT&T can successfully accelerate its C-band and other mid-band spectrum deployments over the next year or two to get within shouting distance of Verizon and T-Mobile, analysts will likely start looking more favorably on its wireless business.
On the wireline side, anyone reading our GIGTRAK+® updates knows AT&T is all about fiber, with the most ambitious fiber deployment strategy of any wireline broadband provider that aims to cover 30 million locations by the end of 2025 and the recent launch of multi-gigabit Internet service across parts of every market within its footprint. But that still leaves AT&T with a significant amount of copper left in its network, and Moffett believes the fiber deployment – massive as it is – will only generate low single-digit revenue growth. It seems likely AT&T will experience some success with its fiber deployments and multi-gigabit Internet offerings, but that will take some time and require a significant outlay of capital in the meantime. In addition, AT&T’s business wireline makes up most of its total wireline revenue and has reported mostly negative revenue growth over the past two years.