AT&T CFO touts ‘dramatic’ lead in spectrum

As AT&T gears up to deliver nationwide 5G coverage this year, its finance chief on Wednesday touted the carrier’s spectrum position, saying it has a significant lead over competitors.

“I’m not really sure the industry, or everybody, understands the dramatic lead we have in spectrum capabilities and the fact that over the last five years we’ve really focused on getting our spectrum alignment,” said AT&T EVP and CFO John Stephens, speaking at the Citi 2020 investor conference.

AT&T has nearly 160 megahertz of sub-6 GHz spectrum it’s putting into service, what Stephens called a “tremendous lead” over its competition in terms of low and mid-band spectrum, “as well as the millimeter wave strength.” Stephens had to limit his comments on millimeter wave spectrum because of the FCC’s high-band spectrum auction currently ongoing.

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“One and a half times [the spectrum] your nearest competitor and you’re hotwiring it all with the FirstNet buildout, pretty impressive,” he said.   

Securing the FirstNet contract has been key to AT&T turning on additional spectrum and network capabilities as it builds out the dedicated first responder network while simultaneously upgrading cell sites with LTE-Advanced technologies and 5G-capable equipment.

Verizon has been focused on 5G deployments using millimeter wave spectrum, and expressed plans to use dynamic spectrum sharing (DSS) technology this year so it can utilize spectrum currently allocated to 4G for both LTE and 5G. Mid-band spectrum is scarce right now in the U.S., and Verizon’s (and others) eyes are on C-band spectrum, but exactly when those resources might be available is still unclear. T-Mobile has been rolling out 5G using its 600 MHz assets, and is hoping to get its hands on 2.5 GHz holdings through its pending merger with Sprint, but still needs approval from a U.S. District judge.

Stephens acknowledged that if AT&T wants to invest in additional incremental spectrum purchases it will have to find a way to self-fund that through asset sales, as it works to reduce debt and meet financial targets. 

That includes self-funding coveted mid-band spectrum buys, which could come with a higher price tag

“The simple response is we better go find a way to fund it by selling assets and by doing so, making sure we meet that 2 to 2.25 [net debt leverage target],” Stephens said of mid-band spectrum.

Content and owner’s economics

In addition to spectrum, Stephens also talked about the ability to bundle AT&T’s upcoming HBO Max product with wireless, and stressed the importance of owner’s economics.

T-Mobile offers free Netflix with on certain plans, while Verizon has added a free year subscription for Disney’s new Disney+ streaming service on unlimited plans.

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 “I kind of look at my competitors in the wireless side and see one of them bundling Netflix and you see another one bundling Disney and I get that,” Stephens said. “When I think about it, I actually smile because it reinforces our thought processes on HBO Max. The difference is, is I have owners' economics, and I have the umbrella of ownership of both.”

AT&T is aiming to put to work the Time Warner entertainment assets it acquired, including HBO, while competitor Verizon has followed a different strategy of partnering with content providers rather than owning assets outright.

Ian Greenblatt, leader of J.D. Power’s Technology, Media and Telecommunications Intelligence in a recent FierceWireless article credited AT&T for having “joined other major brands in disrupting the disruptors with its compelling introduction of HBO Max into the competitive streaming space,” adding the service has critical and commercial appeal, showing AT&T’s capable of an agile response.

HBO Max is due out in May, and AT&T has promised double the content of its current HBO offering, while maintaining the same price tag of $14.99 per month. It will be offered to the approximately 10 million current HBO subscribers on AT&T's distribution platform, at no additional charge. Customers with premium video, wireless and broadband services will be able to get bundles that include HBO Max for free.  

“I'm really excited about HBO Max and what it can do for the wireless side,” Stephens said.

Stephens said that as 5G comes out, AT&T is going to have “a really unique intersection,” with HBO Max, alongside new 5G devices and AT&T’s bolstered 5G network.

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AT&T expects people to continue to consume broadband data similar to how they do do today, but with higher demands for speed, and continued growing demands for bundling and video.

“We feel like we're going to be really extremely well-positioned to play in that market,” he said.

The HBO platform also creates stickiness, according to Stephens, with AT&T seeing lower churn from wireless customers who get HBO with its highest-level packages, and therefore also bring in higher service revenue. AT&T has said it expects to increase wireless service revenues in 2020 as part of its larger 3-year financial plan.

And that stickiness is without the forthcoming HBO Max, Stephens noted. “Expect, if anything, it could get better with that because HBO Max has deeper content,” he said.