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AT&T to pump nearly $50 billion into its networks

Born-again telco AT&T plans to spend eye water-watering sums of money on fibre and 5G, as it prepares for life after WarnerMedia.

The US operator said in a strategy update late last week that it wants to double its fibre footprint to more than 30 million locations, at an annual rate of 3.5-4 million. It also plans to offer 120 MHz of mid-band 5G coverage to more than 200 million people by the end of 2023, complementing its existing 5G footprint, which currently reaches more than 255 million. To hit those targets, AT&T plans to spend $24 billion on capex this year and next, followed by around $20 billion from 2024 onwards.

“We will be a simpler, more focused company with the intent to become America’s best broadband provider. We plan to ramp up investment in our key areas of growth – 5G and fibre. And at the same time, we will retain our focus on growing customer relationships, continuously improve our execution to enhance the customer experience and deliver growth and returns for our shareholders,” said AT&T CEO John Stankey, in a statement.

The money for all this has to come from somewhere, and fortunately AT&T is on the verge of receiving a hefty windfall from the $43 billion merger of its WarnerMedia business with cable channel Discovery. A chunk of the change will also come from improvements in cash flow resulting from the continued migration away from copper-based broadband, with fibre expected to account for 75 percent of AT&T’s network footprint by 2025. It also plans to simplify its business product portfolio and reduce the number of legacy products and rate plans by 50 percent.

In addition, AT&T also said that exiting media and overhauling its core operations should help it to save $6 billion by the end of 2023. It also expects to save a further $2.5 billion by reducing costs in corporate general and admin, supply chain and technology platforms.

Any investors that might be feeling twitchy about all this spending can rest easy. AT&T said it plans to continue to distribute a little over $8 billion via dividends after the WarnerMedia-Discovery deal closes. This represents a payout of about 40 percent on projected 2023 cash flow of $20 billion, which AT&T said makes it one of the best dividend-yielding stocks in the US.

AT&T also reiterated its 2022 guidance of low single-digit revenue growth compared to 2021, when it turned over $118.2 billion. Breaking that down a little, wireless revenue is expected to grow 3 percent, while broadband revenue is expected to grow 6 percent. The telco expects adjusted EBITDA of $41-$42 billion, up from $40.3 billion last year. Looking further ahead, AT&T expects to maintain its current trajectory in 2023, with low single-digit revenue growth and adjusted EBITDA of $43.5-$44.5 billion.

“Today we are at the dawn of a new age of connectivity, and AT&T is positioned to take advantage of a strong and unique market opportunity that plays into the DNA of our company,” said Stankey.

Lets not forget though it was Stankey who was instrumental in ushering in the last ‘new age’ at AT&T when, as COO, he tried to alter the company’s DNA by spending huge sums of money trying to transform it into a media and telecoms company. That transformation included the acquisitions of Time Warner and DirecTV, which together cost around $152 billion. Those assets formed a launchpad for multiple streaming services and apps that not only had to face off against well-entrenched rivals like Netflix, Comcast and then Disney, but also seemingly with each other. Quarter after quarter, AT&T reported huge customer losses at its media division.

A watershed moment in AT&T’s journey from successful telco to struggling media conglomerate came in 2019, when activist investor Elliott Management took a stake in AT&T and called for sweeping changes in order to revive the company’s share price. Right near the top of Elliott’s list of demands, funnily enough, was an end to AT&T’s costly shopping spree and a renewed focus on execution.

Friday’s strategic update was all about execution, and demonstrates that even though Elliott sold its AT&T stake in late 2020, its intervention made an indelible mark on the telco.

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