AT&T Has Postpaid Growth, Warns of C-Band Supply Chain Issues

AT&T had a wireless growth surprise in Q1, with 595,000 postpaid phone net adds and postpaid churn of 0.76%, better than analyst expectations. Verizon reported Wednesday it lost postpaid subscribers (see 2104210060). AT&T CEO John Stankey warned on a Thursday call with analysts that supply chain issues could complicate C-band deployments.

AT&T's wireless adds were the best for a Q1 in more than 10 years, said Stankey: “Our subscriber momentum is strong, and we're taking share.” The carrier has cut how much it spends for adds, he said.

Pressed on the C-band buildout, Stankey said there are unknowns, but the first markets will come online this year. AT&T was the No. 2 bidder in the record auction, behind Verizon (see 2102250046). The technology “is relatively new, vendors have commitments, [and] we're waiting on specific units. Global supply chains are stressed right now across the board,” Stankey said: “We could see certain element shortages that start to crop up as everybody's racing to put stuff up on towers in May.”

AT&T is interested in the 3.45 GHz auction (see 2104150054), which will start in October and offer more midband spectrum for 5G, Stankey said. “There could be an opportunity there,” he said: “We're going to be looking at it and saying, 'Do we like the valuations, and does it make sense and … fit into our network portfolio?'” AT&T has participated in, or looked closely at, every FCC wireless auction, he said.

The carrier made $23 billion in payments for C-band spectrum in Q1, said Chief Financial Officer Pascal Desroches. The company’s debt load likely reached its peak in the quarter, he said.

The company reported net revenue of $43.9 billion, up 2.7% over a year ago, with earnings of $7.7 billion, up 2.3%. AT&T added 235,000 fiber customers.

WarnerMedia’s strategy of releasing the full 2021 Warner Pictures film slate to stream exclusively on subscription VOD service HBO Max for a month at the same time the titles release theatrically worldwide is “playing out exactly as we kind of laid out for you,” said Stankey. “We’ve got more of the year to get through to see what that balance is between theatrical revenues versus SVOD. But when you look at the customer growth on SVOD, and you see some of the early data coming back on movies like Godzilla vs. Kong in theaters, I think you can all see that there’s probably a pretty compelling rising tide lifting all boats in this case. We feel it was the right call for the moment we were in with the pandemic.”

The ad-supported version of HBO Max is on track for June launch, said Stankey. There were 44.2 million HBO and HBO Max U.S. subscribers in Q1, up from 33.1 million in the 2020 quarter, before HBO Max launched May 27. Though advertising-free HBO Max, at $14.99 a month, is “a premium product and warrants what we charge in the market today,” the service doesn't fit everyone's wallets, conceded Stankey. “The AVOD product actually pairs well with some of our prepaid offers and how we might position it, because it tends to line up on a more price-sensitive socioeconomic dynamic.”

Results were better than expected, especially for wireless, New Street’s Jonathan Chaplin told investors. Management attributed the wireless improvement to “lower bad debt and lower acquisition costs (both industrywide themes),” he said. “We are surprised these were sufficient to offset retention efforts. Strong adds with better margins and a return to EBITDA growth this quarter certainly doesn’t support our dim view of their strategy in Wireless; however, it is early days.”

“Today’s results provide more fodder for the bulls,” MoffettNathanson’s Craig Moffett told investors: “HBO Max is growing nicely, Mobility margins held up and Warner Media is poised for at least a cyclical recovery.” The analyst wants more focus, noting that wireless, HBO Max and broadband require big financial commitments: “Does AT&T have the resources to fight three wars?”