AT&T blasts past expectations on 5G buildout, customer growth

AT&T said it expects to cover 100 million people with its speedy 5G network, running in its midband spectrum holdings, by the end of this year. Separately, the carrier said it gained a total of 813,000 net postpaid phone customers during its second quarter.

Both figures were far ahead of expectations.

However, AT&T lowered its 2022 free cash flow target by $2 billion to $14 billion. The carrier blamed the decrease on a variety of factors including the cost of 5G network equipment. At the same time, its new mobile customers helped AT&T raise its expectations for wireless service revenue growth during 2022. The carrier said it now expects that growth to reach 4.5% to 5% in 2022, above its earlier forecast of 3% or better.

Figure 1: (Source: Roman Tiraspolsky/Alamy Stock Photo)

Broadly, investors appeared somewhat concerned about AT&T's position, sending the company's shares down slightly in trading immediately after the release of its second quarter results.

Exceeding expectations

Nonetheless, analysts largely cheered the company's performance in the US wireless industry – particularly considering 2022 started off with widespread concerns about a slowdown in customer growth.

"Wireless smashed with much better-than-expected net adds (again)," wrote the financial analysts at New Street Research in a note to investors Thursday morning, immediately after the release of AT&T's second quarter figures.

Indeed, the financial analysts at Evercore noted that AT&T's new customer additions of 813,000 was almost double what most analysts had expected for the period.

"AT&T delivering a monster Q2. Best wireless net adds in more than a decade," tweeted analyst Roger Entner of Recon Analytics.

And in terms of its 5G network buildout, AT&T reported that it's roughly six months ahead of the schedule it set earlier this year. The carrier said it now covers 70 million people with its midband spectrum holdings – a mixture of C-band and 3.45GHz – and expects to cover 100 million by the end of this year. Previously, the carrier had hoped to cover around 70 million people by the end of 2022.

However, AT&T is still behind both T-Mobile and Verizon in terms of its midband 5G buildout.

Capex and inflation drag

AT&T officials acknowledged the company still faces headwinds.

"We're clearly operating in different times," AT&T CEO John Stankey said during the operator's quarterly conference call. He noted that AT&T's customers appear to have digested the operator's recent price increases without much complaint. However, "the current environment is not easy to predict."

Further, company officials said that AT&T's customers are now taking around two days longer on average to pay their bills than they did a year ago, likely a reflection of increased inflation and a tightening economy. That situation helped to drag on AT&T's finances. Company officials speculated the situation might get worse before it gets better.

But AT&T's Stankey said he still isn't seeing any indication of a broad slowdown in customer growth in the wireless industry. That sets the stage for Verizon's quarterly report, scheduled for Friday morning. Analysts are generally expecting Verizon to report another troubled quarter in terms of customer gains.

Another drag on AT&T's results: Higher capital spending. The operator spent $6.7 billion during the quarter on capital expenses (capex), far higher than the $5.2 billion that the New Street analysts had expected. AT&T's finance chief explained that the operator spent heavily during the quarter to build its fiber and 5G networks, and that it still expects to spend a total of $24 billion on capex in 2023.

"We're certainly seeing some pressures" in relation to the cost of network equipment and labor, admitted Stankey during the operator's call. However, he said AT&T in some cases has agreed to pay its suppliers more in order to ensure they remain financially healthy. "Some increase in our build cost ... is not the end of the world for us," he said.

Stankey's comments are noteworthy in light of efforts by suppliers ranging from Nokia to Cisco to increase the cost of their equipment in response to inflation.

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