AT&T outlook hit by Ericsson Open RAN deal

The US operator posted what was essentially a solid set of financials for the fourth quarter and full-year 2023, particularly at its consumer business, which is helping to mask weakness on the business side. And while the telco highlighted the fact that it expects to return to annual profit growth in 2025, it was impossible to ignore the fact that its earnings-per-share prediction for the coming year was on the low side.

Profit from continuing operations turned positive in 2023 at $15.6 billion, but adjusted EPS came in at $2.41, down from $2.57. And in full-year 2024 it puts the figure at $2.15-$2.25, the primary cause of the slide being "an expected ($0.17) higher depreciation expense, including accelerated depreciation from our open radio access network (Open RAN) transformation."

In other words, the $14 billion Open RAN deal it awarded Ericsson at the back end of last year – that triggered an outlook downgrade at incumbent vendor Nokia – will hit AT&T's profit in the short term.

From a telecoms perspective, that's not a bad thing. The move to Open RAN was never going to be without cost. But as far as the market is concerned, it's not good news. As Reuters reported, that 2024 EPS prediction came in below market estimates and pushed the telco's share price downwards.

Fundamentally though, AT&T's results look pretty good and the operator itself was naturally keen to highlight the positives.

"We accomplished exactly what we said we would in 2023, delivering sustainable growth and consistent business performance, resulting in full-year free cash flow of $16.8 billion, ahead of our raised guidance," declared AT&T CEO John Stankey.

Free cash flow, which was up by $2.6 billion on the previous year, was boosted by a $6.4 billion contribution from the fourth quarter. AT&T expects more growth this year, including a free cash flow target of $17 billion-$18 billion in its 2024 guidance.

Turnover for the full year came in at $122.4 billion, an increase of 1.4% on 2022 and buoyed by 2.2% on-year growth to $32 billion in Q4. The company attributed this to higher revenues at its Mobility arm and, to a lesser extent growth in Mexico, aided by favourable forex, and at Consumer wireline.

It was eager to shine a light on "profitable 5G and AT&T Fiber subscriber gains," but was more forthcoming about the latter than the former.

It recorded 273,000 AT&T Fiber net adds in Q4 and 1.1 million in the full year, making 2023 its sixth year in a row in which fibre additions have exceeded the 1 million mark, it said.

On the mobile side, AT&T counted 526,000 postpaid phone net adds in the fourth quarter and 1.7 million for the full year. Its Mobility service revenues came in ahead of guidance and the division posted its best ever operating income for the full year.

However, AT&T's performance on the consumer side helped to draw attention away from its Business arm, which did not fare quite so well.

Business wireline revenues were down by 10.3% to $5.1 billion in Q4 "due to lower demand for legacy voice and data services and product simplification, partly offset by growth in connectivity services," AT&T said.

That's reminiscent of the situation at Verizon, which last week announced a $5.8 billion writedown at its Business division ahead of its own full-year results presentation.

Business challenges aside, there are plenty of positives in AT&T's numbers. But they also serve as a stark reminder that this is an expensive industry to be a part of.