AT&T is becoming a telco – it's crazy but it might just work

AT&T this week shared a groundbreaking new strategy: to focus on being a telco.

That’s right, the once media-obsessed US operator is concentrating its energies on fixed broadband and mobile services, which hardly comes as a shock given it’s decision last week to merge WarnerMedia with cable channel Discovery.

The partial sale of those assets – AT&T gets US$43 billion plus a 71% stake in the merged entity – will enable the firm to increase investment in its networks, both fixed and mobile, and roll out a 5G fixed wireless product over the coming few years, AT&T chief executive John Stankey said in an interview at JP Morgan’s Global Technology, Media and Communications conference on Monday.

When the WarnerMedia/Discovery deal closes, “that’s going to allow us to take some of that cash and reinvest it back in the business at really attractive returns, both in our wireless business and pushing further in our broadband business,” Stankey said, adding that the firm will still pay a dividend of $8 billion-$9 billion; that seems like a decent payout for shareholders, and indeed it is, but it’s significantly lower then the $15 billion AT&T shelled out last year, incidentally.

Naturally, Stankey did not share specifics on how much more AT&T might be able to invest in 5G and fibre as a result of the Discovery transaction. “We need to invest at the right level in the wireless business,” to maintain recent momentum on net adds, he said. “And we’re going to take a portion of that additional cash flow and put it toward more aggressive deployment of fibre infrastructure.”

However, he did provide some information on the telco’s plans for fixed wireless, a product it currently only offers to enterprise customers on 5G, unlike major rival Verizon.

“I want to make sure that we have the cash flows necessary to bring out a great broadband wireless product to our customer base,” Stankey said. He sees widespread deployment of a 5G fixed wireless product in starting in 2023 and continuing through the middle of the decade. “I would expect with our stepped-up investment, you’ll see that happen in what I would call a more ubiquitous fashion. Starting in ’23s, you get into the majority of the US population. And I think it’s going to take into ’24 and ’25 to start delivering the kind of speeds nationwide that probably the FCC and the government will ultimately end up defining as the new standard of broadband,” he said.

“The connectivity business is an incredible place to be over the next decade,” as evidenced by the Covid-19 pandemic, Stankey noted, adding that he does not expect the demand for connectivity engendered by the pandemic to slip back as recovery kicks in.

“I want three businesses growing when this is all said and done,” Stankey said. “I want a consumer fixed business growing; I want an enterprise business that’s growing; and I want a wireless business that’s growing.”

However, the chief exec contested the suggestion from JP Morgan senior analyst Phil Cusick that he has reversed close to six years of strategic change at AT&T in just three months, insisting it has been a “deliberate process,” which may even have predated him stepping into the CEO role in July.

Nonetheless, it’s hard to argue that Stankey has rung the changes at telco.

“The first thing is we need to be the best core connectivity provider in the market for both fixed and mobile,” he said, summing up AT&T’s strategy. “We have to have the best products out there, and I don’t want to underestimate the work that has to be done to make that happen, and I’m not naive that that means we have to change our brand position,” as well as working on customer support processes, he said. “We need to thin down this business to be more focused and agile in that regard. And that is the job that’s at hand for this management team right now as we go through completing the transaction and really getting focused.”

So there you have it. Ma Bell is transforming itself into a telco. Who’d have thought it?

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