AT&T's fiber sub base surpasses its 'non-fiber' base
AT&T's broadband future is all about fiber, and the telco's third quarter 2022 results reflected that as AT&T's fiber customer base surpassed that of its non-fiber base.
AT&T tacked on another 338,000 fiber subs, up from year ago additions of 289,000. That left AT&T with a fiber base of 6.93 million.
AT&T shed 367,000 "non-fiber" (largely U-verse Internet) customers in Q3 2022, widened from a year-ago loss of 261,000. AT&T ended the quarter with 6.86 million non-fiber subs, putting it a smidge below AT&T's fiber customer base.
But AT&T's fiber ads in the quarter weren't enough to offset non-fiber sub losses, resulting in a total Q3 broadband loss of -29,000 subs, versus a year-ago net gain of 28,000. Analysts were expecting AT&T, which ended the period with 13.79 million total broadband subs, to gain about 30,000 total broadband subs in the quarter.
That broadband figure does not include legacy DSL customers. AT&T lost another 33,000 DSL subs in the quarter, leaving it with just 340,000, down from a year-ago DSL subscriber base of 460,000.
AT&T's fiber strategy is driving average revenue per user (ARPU) upward. AT&T's fiber ARPU for Q3 clocked in at $62.62, up from $58.17 in the year-ago period. Its general broadband ARPU in Q3 hit $58.63, up from $55.16 a year ago.
Fiber buildout speed not as fast as expected
AT&T added another 500,000 fiber locations in Q3, extending its total to 18.5 million. Though the analysts at New Street Research thought that build cadence was a bit weak (they've been expecting AT&T to pass a fiber build rate exceeding 1 million per quarter this year), AT&T CEO John Stankey said on today's earnings call that the company remains on track to achieve a target of 30 million-plus fiber locations by the end of 2025.
AT&T's fiber penetration in Q3, at 37%, was unchanged even as the company continues to build out and light up more fiber locations. Stankey stressed that AT&T has been able to hit penetration rates of 30% "relatively quickly" with fiber, but acknowledged that the "next 20% takes a little bit longer."
He's happy with the speed at which AT&T has been able to ramp up penetrations in new areas. "I think the biggest change that's occurred and penetration is how quickly we're getting to the 20% level, versus historic numbers," Stankey said. "But we've not made any assumption that once you hit that 30% level that the back end is going to go any faster."
AT&T was also pressed for an update on the company's fixed wireless access (FWA) strategy. Stankey said that is largely unchanged, reiterating that it "has a place in our portfolio" but that fiber will remain AT&T's primary focus for home and business broadband.
The place for FWA, he added, "is not broad scale deployment in every operating territory and geography that we operate in ... The way I would characterize it, I'd rather take a million new fiber customers a year than a million new fixed wireless customers a quarter. The value equation of those million fiber customers is a far superior value equation for the long haul for our shareholders."
Mum on fiber JV report
Several analysts pressed AT&T for comment on a Bloomberg report that AT&T is talking to infrastructure investors about expanding fiber buildouts even further, and has hired Morgan Stanley to help drive interest. Such a joint venture, which could be formed this year or slip into sometime in 2023, reportedly would be valued at $10 billion to $15 billion.
Stankey declined to acknowledge or comment specifically on the speculation regarding a potential fiber joint venture. But he did point to comments made earlier this year that outlined some criteria and circumstances that AT&T reviews within its existing footprint. Those include whether AT&T is the first fiber provider in the area, if it can generate penetrations that provide a solid economic return, and if the dynamics with local municipalities help ease the build path. So, it's clear that such criteria would also apply if AT&T were to explore build opportunities outside its existing footprint.
But Stankey did add this: "It's my duty to always keep my mind open to new ideas ... The wireless business was built with partners."
He also pointed to build opportunities that are on the horizon due to government money being freed up to reach unserved and underserved areas. "We should use that same set of criteria and that same model as we think about other opportunities for us to pair our capital, with possibly the public capital, to open up opportunities that we might not have pursued otherwise," he said.
Though AT&T is being relatively mum about the Bloomberg report, analysts are already weighing in on the idea. Such a JV "could be modestly positive for AT&T" in part because it would open the door to faster broadband subscriber growth, the analysts at New Street Research explained in a research note. "[W]ith adequate subsidies, the fiber deployment in unserved markets will deliver attractive returns."
But they don't expect such a JV to be "transformative."
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— Jeff Baumgartner, Senior Editor, Light Reading