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5G

Should T-Mobile and Verizon start worrying about AT&T now?

As the dust settles on AT&T's decision to exit the content industry, one driving question is now starting to ripple across the US wireless industry: How will the move affect T-Mobile and Verizon?

After all, AT&T pitched the combination of its WarnerMedia business with Discovery as its opportunity to "unlock value" by allowing it to focus on 5G and fiber "to meet substantial, long-term demand for connectivity."

Specifically, AT&T said it expects to spend $24 billion annually on capital expenditures after the transaction closes next year, which is significantly more than the $21 billion anticipated by the financial analysts at Evercore. With that increase in spending, AT&T said it expects to reach 30 million locations with fiber by the end of 2025 (slightly below Evercore forecasts of 33 million) and roughly 200 million people with C-band midband spectrum for 5G by the end of 2023 (an update to the company's prior goal of covering 100 million by "early" 2023).

Should AT&T's increased focus on connectivity – and its increased capex spending – create concerns among the leadership of T-Mobile and Verizon?

According to some financial analysts, the answer is a firm "maybe."

The third horse

AT&T is now "unequivocally better positioned" to face T-Mobile, Verizon and other connectivity providers, according to the financial analysts at New Street Research. In a note to investors this week, the analysts pointed to AT&T's plans to reduce its debt, increase its capex and pair its shareholder dividend as factors that will give the company a boost.

Indeed, the analysts upgraded the company's stock to "buy" following its dip this week.

Other analysts though aren't so sure.

Even after its Discovery deal, AT&T is still poised "to be third in a three-horse race to 5G. T-Mobile has a much stronger spectrum position and a years-long head start on deployment. Verizon is years ahead in small cell deployment and densification," wrote the financial analysts at MoffettNathanson in a note to investors this week.

However, they too acknowledge that AT&T's move away from Hollywood "unquestionably makes them a more viable competitor in wireless than would otherwise have been the case."

Trailing in branding and spectrum

To be clear, AT&T's fundamental position in the US wireless industry remains unchanged following its decision to offload its content operation. The company's brand perception continues to decline amid T-Mobile's "uncarrier" upswing. And the company's overall spectrum holdings for 5G trail both Verizon and T-Mobile, even after AT&T agreed to spend almost $28 billion on midband C-band spectrum for 5G.

In fact, there appears to be very little difference between AT&T's pre-Discovery 5G plans and its plans following the transaction. AT&T in March said it would cover 100 million people with C-band spectrum in "early" 2023, and this week said it would cover 200 million people with C-band by "year-end 2023." Meaning, the company didn't necessarily change its C-band buildout strategy but simply extended its public deployment timeline with buildout targets that were probably already laid out in private.

And how does that compare with T-Mobile's and Verizon's midband spectrum buildout plans for 5G? As noted by the MoffettNathanson analysts in an earlier report to investors, T-Mobile expects to cover 270 million people with its 2.5GHz midband spectrum by 2023, while Verizon expects to cover 175 million with its C-band midband spectrum by that time.

The only ways that AT&T could materially change its 5G network position would be to either add more small cells and cell sites to its network – an expensive proposition – or to acquire additional spectrum. Thus, the company could turn to small cell vendors like Crown Castle for additional cell sites, and it might consider bidding heavily in the FCC's upcoming 3.45GHz-3.55GHz spectrum auction.

Promotions and bundles

More immediately though, AT&T continues to face an increasingly competitive wireless market. For example, Verizon has been offering discounts to customers with cracked phone screens, while T-Mobile has been touting its new free 5G phone promotion. And Comcast recently announced new Xfinity Mobile pricing that will appeal to families.

AT&T, for its part, continues to offer free phones to existing and current customers, an aggressive promotion it launched late last year. Whether AT&T will continue that promotion – or if it will up the ante – remains to be seen. Company executives have promised AT&T will continue chasing wireless growth.

The MoffettNathanson analysts speculated that AT&T might be driven to be even more aggressive with wireless promotions following its WarnerMedia exit. "One might imagine that AT&T's leadership team will now feel that it is imperative to demonstrate growth (and by growth, we mean subscriber growth, since that is clearly what they are most focused on for the moment) in the period pending the deal closing," they wrote.

But AT&T's overall mobile offering might change in the coming months. After all, as noted by CNBC, Verizon and T-Mobile continue to flesh out their own content strategies even as AT&T pulls back from its content ambitions. Verizon, for example, has bundled Disney+ and Discovery+ into its mobile service, while T-Mobile's bundles can include Netflix, MLB TV, YouTube TV and Philo.

It's unclear how AT&T might respond, considering it loudly positioned HBO Max as part of its own content bundle prior to its decision to offload and combine that business with Discovery.

Katibeh's checkbook

Regardless, there is one clear takeaway from AT&T's decision to exit the content industry and refocus on its connectivity business: Mo Katibeh will be busy. As Light Reading recently reported, Katibeh was recently put in charge of leading AT&T's overall network infrastructure plan, design and build organization.

"Mo and his team manage the majority of AT&T's capital budget designing and building the company's next-generation fiber and mobile networks, including AT&T's aggressive fiber build expansion and nationwide 5G deployment," AT&T confirmed to Light Reading.

If AT&T's capex spending does increase following the close of the WarnerMedia and Discover deal, Katibeh will be the one to handle that work.

Related posts:

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

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