After Verizon lowers expectations, AT&T raises them

News Analysis Mike Dano, Editorial Director, 5G & Mobile Strategies 1/25/2023

If Verizon is the 5G operator that failed to live up to its too-high aspirations, AT&T is the one that managed to exceed its relatively modest targets.

Specifically, AT&T said it now expects its wireless service revenues to grow "at least" 4% during 2023. That's an improvement from the "low single digit" growth the company forecast during its analyst day early last year.

Meanwhile, Verizon at the beginning of 2022 predicted it would notch 3+ percent revenue growth during 2023. But earlier this week it revised that to growth between 2.5% and 4.5%. Broadly, Verizon had hoped to post accelerating revenue growth throughout 2022 and 2023, but now it expects that growth to slow down.

"Unlike Verizon, AT&T didn't have to lower street expectations to get them to a point where they could confidently meet them. We expect a positive reaction to results," wrote the financial analysts at New Street Research in a note to investors following the release of AT&T's fourth quarter 2022 earnings Wednesday.

Indeed, Verizon's stock remained relatively unchanged after the company reported its quarterly results Tuesday, but AT&T's stock rose roughly 5 percent in trading Wednesday after it reported its own results.

"Bottom line, 4Q and the '23 guide should be enough to satisfy the [AT&T] bulls," wrote the financial analysts at Wolfe Research in a note to investors following the release of AT&T's quarterly results.

AT&T's mobile performance and strategy

During the fourth quarter, AT&T reported postpaid phone net customer additions of 656,000 – surpassing both the 217,000 that Verizon reported during the period and T-Mobile's 314,000. Postpaid phone customers are often the most profitable ones.

AT&T attributed part of its growth to its FirstNet effort, which sells wireless services to first responders like police, firefighters and others. The company said it now counts a total of 4.4 million FirstNet connections across more than 24,000 agencies.

So what's AT&T's 5G strategy heading into 2023? "Do it again," according to CEO John Stankey. He said the company would work to maintain its relatively straightforward promotional strategy in order to attract profitable customers. He suggested the company would not pursue market share at the expense of profits.

And in 5G, Stankey said AT&T would continue building out its speedy midband network. Like Verizon, he said AT&T would be mostly done with its 5G network buildout project by the end of 2023.

Interestingly, he said the company now covers a total of 150 million people with its midband 5G network – or more than double the company's initial projections for the end of 2022.

A market slowdown

During the company's earnings conference call, AT&T officials again reiterated their belief that growth in the US wireless market would begin to "normalize" this year. The US wireless industry in general has been enjoying several years of outsized growth, but analysts have been suggesting that such growth ought to start slowing.

"We expect industry [customer] adds to slow from close to 9 million to close to 6 million this year," wrote the analysts at New Street. "As industry adds slow, retention will become an increasingly important driver of net adds. AT&T is entering this environment in a stronger position than most expected."

However, the analysts suggested that cable companies like Comcast and Charter Communications may now be in position to exceed expectations in mobile during the fourth quarter, given the relatively sluggish performance of AT&T, Verizon and T-Mobile during the period.

Comcast and Charter are scheduled to report their earnings later this week.

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— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano