AT&T's CEO warns what inflation means for telecomAT&T's CEO warns what inflation means for telecom
'We are seeing inflationary pressures,' said AT&T CEO John Stankey. He suggested that AT&T may pass on those pressures to its customers through price increases. 'We know how to do that, and we can do that.'
April 21, 2022
AT&T CEO John Stankey said the company could raise prices on its customers – and salaries for its employees – due to inflation.
And he made it clear he wants to do neither.
"We are seeing inflationary pressures," he said Thursday during AT&T's quarterly conference call. And he suggested that AT&T may pass on those pressures to its customers through price increases. "Our history would suggest that we know how to do that, and we can do that."
Those comments dovetail with Stankey's recent statements on the topic to The Wall Street Journal. "You'll probably start to see it over the next several quarters, not just telecom – more broadly in the economy because of the patterns that we're seeing," he told the publication.
"We'll be very smart and judicious as we have to apply it," he continued. "But running this business and not sitting here and evaluating where we have options to move on pricing and be successful, I wouldn't be doing my job properly."
As for whether AT&T might pay its employees more due to inflation, Stankey said that's an option too. He said AT&T is "in the middle of some negotiations right now" with its unionized employees about such issues.
"People stick around and work here because we have great benefits for middle class folks and they often go beyond the wage that somebody gets paid. And as a result of that, we've been managing through the dynamics of the wage, the labor market pretty well."
However, "obviously, we'd like to pay less in wages," he said.
Some analysts are skeptical about AT&T's ability to raise prices on its mobile services due to inflation.
"Can they pass those cost increases through to customers? At least for now, they are not," wrote the financial analysts with MoffettNathanson in a note to investors following the release of AT&T's first-quarter results. "One way to do that would be to pull back from promotions. But that seems unlikely given the importance of showing subscriber growth, and given the increasingly entrenched expectation of consumers for subsidized handsets."
The analysts added that increased mobile competition from T-Mobile and US cable companies could put AT&T in a very difficult position.
Figure 1: (Source: Robert K. Chin - Storefronts/Alamy Stock Photo)
But other analysts have a more positive outlook on AT&T in general following its exit from the media industry paired with a refocus on 5G and fiber.
"We think the fiber business AT&T is building is a source of unrecognized value, though the market doesn't seem ready to give ILECs [incumbent local exchange carriers, like AT&T] credit for fiber investment yet," the financial analysts with New Street Research wrote in a note to investors.
In its first quarter results, AT&T posted gains among its mobile customers that largely outstripped analyst expectations. AT&T reported 691,000 new postpaid phone customers, close to double what most Wall Street analysts had forecast.
"Our teams are executing well," Stankey said of the company's mobile gains.
AT&T's results were particularly noteworthy given widespread expectations that overall growth in the US wireless industry will start to slow sometime this year. AT&T executives acknowledged that they too do not expect to continue to see the kinds of outsized growth figures they enjoyed during 2021. But they said that, at least in the first quarter, the good times continued to roll.
"And I feel really good about that, especially given the nature of some of the promotional activity that occurred during the fourth quarter of last year, that we chose not to chase," Stankey added, arguing that AT&T hasn't engaged in some of the aggressive buy-one/get-one promotions that others have offered. "We've been very stable in our approach."
Midband ambitions and supply chain worries
Stankey said that AT&T has already started working to beef up its 5G network with midband spectrum. The operator spent a total of around $27 billion in the FCC's C-band spectrum auction last year, and a total of around $9 billion in the FCC's recently completed auction of 3.45GHz-3.55GHz spectrum (Auction 110) this year. The operator expects to cover 200 million people with a total of 80MHz of midband spectrum by the end of next year.
And Stankey said AT&T doesn't expect any troubles getting the necessary networking equipment for the project, despite ongoing supply constraints among vendors. He said that's partly based on a belief that vendors will prioritize their shipments to AT&T.
"What you should keep in mind is that the North American market is an incredibly profitable market for providers of equipment on a global basis," he said. "And so as a result of that, if you're into a situation where there's some degree of constraint, I think if you're an equipment manufacturer, you have the motivation to make sure that you supply your most profitable market first."
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