AT&T Chief Executive Officer Provides an Update at JP Morgan Conference

Randall Stephenson, chairman and chief executive officer of AT&T*, provided an update to investors while speaking at the JP Morgan Technology, Media and Communications conference.

Stephenson reiterated the company’s priorities for 2018, including closing AT&T’s pending acquisition of Time Warner and integrating the two companies. The company expects a ruling on June 12 in the suit brought against the companies by the U.S. Department of Justice.

AT&T’s other priorities for this year include building out its Gigabit network; developing its next-generation streaming video platform and targeted advertising capabilities; enhancing the growth and profitability of its Mexico wireless operations; and maintaining an industry-leading cost structure.

Network evolution

Stephenson noted that the company is focused on building the best Gigabit network in the United States over the next three years. Key to this is AT&T’s public-private partnership with the First Responder Network Authority. In March, AT&T launched the FirstNet network core, the first core dedicated to first responders when they need it, giving them always-on priority access and preemption, with 3 levels of priority to meet their shifting needs. Stephenson said to date, nearly 650 agencies across 48 states and territories are subscribing to FirstNet services.

As AT&T builds out the FirstNet platform, it is deploying the accompanying 20MHz of 700 MHz spectrum to towers across its network. The company is simultaneously deploying additional commercial spectrum using hardware that is 5G ready while putting that spectrum in use today. Once the company is ready to upgrade to 5G, this will let it efficiently enable that hardware for 5G via a software update. In the meantime, Stephenson said the company plans to reach 500 markets with 5G Evolution by the end of 2018.

Leading the transition in video

In video, as the move from linear video to over-the-top (OTT) services continues across the industry, AT&T expects to build on its successful history of managing technology transition. AT&T today launched new capabilities and options for DIRECTV NOW, including a new user interface. Customers can now add a third simultaneous stream for an additional $5 per month and will also get a beta version of cloud DVR functionality with 20 hours of free storage. This summer, AT&T plans to roll out an option to purchase 100 hours of storage for $10 per month.

AT&T will continue to introduce new video options tailored to the needs of different customer segments. Following the close of the Time Warner deal, the company plans to introduce WatchTV, a skinny package without local programming or sports-only channels. WatchTV will be priced at $15 per month but will be offered for no additional charge for some of AT&T’s unlimited wireless subscribers.

The company also expects to launch a premium streaming experience that will compete with traditional linear TV products for in-home use. The product will be app-based with a small device that connects to customers’ TVs and home broadband. This service will offer the content available on traditional linear TV with a great user experience and lower price points. With the product’s lower capital intensity and acquisition cost, there is an opportunity to achieve a higher return on investment and comparable margins to traditional satellite video. The company expects to launch the service by the end of 2018.

Opportunities in advertising

Discussing the company’s opportunities in advertising, Stephenson cited the vast ad inventory AT&T will have across its platforms following the Time Warner acquisition. He said that the company will be able to collect additional data and insights from its broad base of mobile and video subscribers, as well as subscribers to other properties like Otter Media and Turner Digital. While Stephenson said it may take some time to fully develop these capabilities, the ability to deliver more targeted advertising gives AT&T an opportunity to significantly improve ad-generated revenues.

Growth in Mexico

AT&T is the fastest-growing wireless company in Mexico, with more than 3 million subscribers added over the past 4 quarters. The company covers nearly 100 million people with 4G LTE and expects continued subscriber growth. AT&T expects its Mexico operations to be profitable by the end of 2018.

Cost structure improvements

Stephenson noted that AT&T’s network-related costs have trended down as it has moved to a software-defined network. The company previously said that 55% of its network functions were virtualized at the end of 2017. He also said that the company’s cost structure was helped by improving sales and distribution costs. 

Wireless trends

Despite continued high levels of competition in U.S. wireless, Stephenson said the company is hopeful it can return to wireless service revenue growth on a comparable basis in the second half of 2018. He said that the company has invested in its subscriber base with new offers and noted that the ability to bundle wireless with video gives AT&T additional opportunities to attract and retain customers. Stephenson also said that he believes the company will add postpaid phone subscribers for full-year 2018.

A replay of the webcast will be available later today at https://investors.att.com/.