AT&T plans to spend up to $8 billion upgrading its 5G network with critical midband spectrum.
But some financial analysts remain decidedly underwhelmed.
"What is AT&T's value proposition? For whom will they be able to claim their network is the best choice?" wondered the financial analysts at MoffettNathanson in a recent note to investors recounting AT&T's recent analyst event. "It was rather striking that they didn't even try to make the case that theirs would be the best network in the era of 5G."
"AT&T appears to be ceding the fight in wireless with a network plan that doesn't even attempt to close the gap with T-Mobile and Verizon," argued the financial analysts with New Street Research in a note to investors. "They must realize that ambitions of growing customers under these circumstances are wildly optimistic. They can't have chosen this strategy; it must be a result of difficult choices amid scarce resources. The company is making the right investments in HBO and fiber; however, we wonder whether those resources might not be better spent on the [mobility] business that still accounts for well over half of their EBITDA [earnings before interest, taxes, depreciation, and amortization]. AT&T remains a collection of challenged assets in difficult markets with too much leverage and no easy path back to stability."
In 5G, the analysts generally argued that AT&T now trails both Verizon and T-Mobile in terms of overall spectrum ownership, which could make it difficult for the operator to keep pace in pricing, network capacity and speed.
AT&T executives have acknowledged their situation but have argued the company will continue to aggressively pursue the kinds of expensive promotions – including free iPhones for new and existing customers – that AT&T began employing in the fourth quarter.
"We're not here to just preserve a base of customers," argued AT&T's Jeff McElfresh, CEO of the company's communications business, during the operator's analyst event last week. "We're No. 3 in the marketplace. We've got a great network. We're going to continue to invest in that network, and you'll see us continue to grow at least at our fair share, if not greater."
But some analysts aren't convinced. "Our sense is that ... the value of those promotions will wane seasonally," wrote the financial analysts at Sanford C. Bernstein & Co. in a recent note to investors.
Overall, the analysts at New Street Research argued that AT&T's 5G positioning – that its services will be good enough – could eventually put the company on the same trajectory that it previously traveled in the early days of DSL.
"The debate around how-much-speed-is-enough is a tough one to resolve," they wrote. "AT&T made the same argument about upgraded copper in their fixed broadband business, and it proved to be disastrously wrong. They have deployed fiber to 15 million homes over the last four years, and they are deploying fiber to another 15 million homes so that they can increase the speeds from 75Mbit/s to 1Gbit/s. It is reasonable to assume that the factor that drove share in fixed will do so in mobile too."
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