In anticipation of closing the pending WarnerMedia transaction with Discovery, Inc. in the second quarter, AT&T is laying out its updated strategy and financial outlook for the company moving forward. This includes detailed operational and financial expectations through 2023.
“Now that the close of the WarnerMedia deal is approaching, we are near the starting line of a new era for AT&T,” said John Stankey, AT&T chief executive officer. “The transformation we’ve undergone over the past 18 months while delivering outstanding operational results has brought us to this point. 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 fiber. 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.”
“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. With our assets, skills and valuable customer base, we are ready to deliver as new business models requiring pervasive, high-performance connectivity continue to emerge.”
America’s Best Broadband Provider
AT&T intends to become America’s best broadband provider, underpinned by a best-in-class network with fiber at its foundation. And by owning and operating both fiber and wireless, AT&T’s owner’s economics will provide better flexibility to deliver high-quality broadband in more places for businesses and consumers.
As part of this strategy, AT&T plans to double its fiber footprint to 30-plus million locations,2 including increasing its business customer locations by 2x to 5 million. In doing so, the company expects to add 3.5 million to 4 million customer locations each year. The company also expects to enhance the nation’s best and most reliable 5G network by deploying 120 MHz of mid-band spectrum to cover more than 200 million people by the end of 2023. Enabling faster speeds, increased capacity and lower latency, this valuable mid-band spectrum complements the company’s existing 5G footprint, which covers more than 255 million people in more than 16,000 cities and towns.
At today’s event, the company will address in more detail how it plans to drive sustainable revenue and earnings growth by:
Leveraging Consistent Go-to-Market Strategy to Drive Customer Growth in Mobility and Fiber. Building on the company’s success in 2021, during which it led the industry in postpaid voice net additions, AT&T expects to drive additional customer growth through its consistent go-to-market strategy and by tapping into underpenetrated segments of the mobility market. AT&T also expects to continue benefitting from the migration of customers to its unlimited plans, particularly to higher-ARPU Unlimited Elite — the company’s fastest-growing rate plan. In addition, as its fiber footprint expands, the company expects to continue gaining share in the consumer broadband market where it offers fiber, building upon the momentum it has established with four consecutive years of 1 million or more fiber subscriber additions.
AT&T’s opportunity is driven by its ability to deliver symmetric solutions for consumers and businesses and expansion into the underpenetrated small and midsize business customer segment. These customers want reliability, speed and simplicity, and AT&T provides all three: reliable fiber and 5G networks with the fastest fiber speeds in the nation and a simplified experience with straightforward pricing.
Optimizing Returns on Legacy Businesses Helps Fuel Investment. As more network traffic moves to fiber and 5G, AT&T expects to drive significant savings by reducing the company’s legacy copper footprint. By 2025, AT&T expects that 75% of its network footprint will be served via fiber and 5G and that it will have reduced its copper services footprint by 50%. At the same time, the company will successfully navigate the timing and profitability of the migration from legacy to next-generation products to optimize returns.
The simultaneous ongoing shutdown of AT&T’s copper services footprint with expansion of its fiber footprint will help drive cost savings while creating new revenue opportunities. AT&T is also focused on simplifying its business product portfolio, with plans to reduce the number of products and legacy rate plans by 50%. This simplification enables the company to focus on a repeatable playbook to deliver core connectivity and transport solutions with attractive owner’s economics.
AT&T is also developing software solutions on top of its connectivity, collaborating with valued partners to develop new solutions for businesses. These include Network Edge solutions through alliances with Microsoft Azure and Google Cloud; Private 5G services offering businesses, universities and the public sector private cellular networks that seamlessly integrate with AT&T’s nationwide macro network; and solutions to provide safe, secure connectivity in today’s hybrid work environments.
Ultimately, as it makes these transitions, AT&T plans to use cash flow from more mature businesses to help fuel its planned $24 billion in annual capital investment in 2022 and 2023, with incremental cost savings hitting the bottom line.3
Executing Against Targeted Cost Reduction Initiatives. As a standalone company, AT&T will also continue to pursue its transformation initiatives and sees significant opportunities to optimize its cost structure. By the end of 2023, the company expects to reach $6 billion in run-rate cost savings. By the end of 2021, it had achieved more than $3 billion in cost savings, which were primarily reinvested into the company’s growth engines.
In addition to its network pivot from copper to fiber and 5G, the company is focused on enhancing the customer experience and streamlining operations in areas like corporate G&A, supply chain and technology platforms to yield further cost benefits. And in 2022 and 2023, AT&T expects an additional $2.5 billion in cumulative cost savings, which will increasingly fall to the bottom line, driving growth in adjusted EBITDA.4
A Total-Return Focus on Capital Allocation
Management today also will discuss in depth AT&T’s total-return oriented capital allocation strategy, focused on investing for growth, strengthening the company’s balance sheet and delivering returns to shareholders while paying an attractive dividend.
Investing to Drive Growth. AT&T will ramp investment to deploy fiber and 5G and drive sustainable earnings growth. In 2022, AT&T expects capital investment in the $24 billion range. The company expects 2023 capital investment to be similar to 2022 levels and then to begin to taper to the $20 billion range starting in 2024. As it moves through this investment cycle, the company expects several tailwinds to help drive sustainable returns: a recovery in international roaming revenues in wireless; subscriber growth in wireless and fiber following recent upfront investments in advertising and promotion; and tapering of transformation-related costs.
Attractive Cash Returns to Investors. Even as it steps up investment, AT&T expects to continue to deliver just over $8 billion in cash via annual total dividends to its shareholders after the close of the WarnerMedia-Discovery transaction. This represents a payout of about 40% against expected 2023 free cash flow in the $20 billion range and will position the company’s stock among the best dividend-yielding stocks in the United States — near the top of the Fortune 500.1 While the decision on AT&T’s common dividend payout is always made by the board at the time each dividend is declared, given expectations that the WarnerMedia transaction will close in early second quarter, AT&T expects the May dividend to be paid according to the previously announced annual common dividend amount at $1.11 per share.
Strengthened Balance Sheet Driving Additional Financial Flexibility. AT&T continues to expect to use free cash flow after dividends to reduce its net debt to adjusted EBITDA ratio to the 2.5x range by the end of 2023.5 As it approaches this target, the company will have additional flexibility to consider share repurchases and increased success-based investments.