- AT&T beat Q3 expectations but its stock still fell (Thanks Elon)
- AT&T CEO John Stankey pushed back on the Starlink Mobile threat, saying that building a scaled network takes years (Just ask Charlie Ergen)
- About 98% of mobile traffic happens where AT&T has already built out and a significant amount of traffic originates indoors, where satellites can't easily compete
AT&T reported strong Q3 results in financial and operating metrics, but is that enough when Elon Musk is breathing down your neck?
Not hardly, as AT&T CEO John Stankey had the unenviable task of addressing shareholders and the broader market one day after Musk talked on SpaceX’s surprise Q3 earnings call about how they’re going to topple the U.S. mobile industry.
AT&T’s shares, at $22.25, were down 5% in early trading today. Verizon was down 2.25%, to $43.38. Even the old(-ish?) Wall Street darling T-Mobile was down about 1.88%, to $154.77.
And SpaceX? Its shares at one point were up more than 10%, to $162.62.
Good quarter, but …
Stankey said AT&T’s 3.8% year-over-year growth and consolidated service revenue resulted in the company’s best performance in more than four years.
In wireless, it certainly looked to be solid. AT&T added 379,000 net postpaid phone subscribers in the quarter, which was in line with what Wall Street was expecting. Postpaid phone ARPU, at $58.90, was better than expected. Postpaid churn was 0.92%.
But one of the first questions from analysts had to do with Starlink Mobile’s ambitions to leverage its low Earth orbit (LEO) satellite constellation and build a terrestrial mobile network to take on the Big 3 U.S. wireless carriers. On Tuesday’s earnings call, SpaceX COO Gwynne Shotwell reiterated that SpaceX intends to build out a terrestrial network.
On his own earnings call, Stankey said it takes a lot to build a converged, scaled network and that maybe he’s not the best person to “reference on that,” suggesting that’s a good question for “Charlie.”
EchoStar Chairman Charlie Ergen’s Dish Wireless business is now in Chapter 11 bankruptcy after failing to launch a fourth facilities-based wireless network in the U.S. – and years of spectrum acquisitions on Ergen’s part.
“You should talk to him and ask him what it took and how many years and complications that come up in doing those types of things. It's not something that gets done overnight,” Stankey said.
SpaceX’s 800 MHz buy
SpaceX announced earlier this month that it’s buying 14 megahertz of paired 800 MHz spectrum from Grain Management, in a deal that’s believed to be worth about $8 billion.
Since then, wireless carrier stocks have been in a tailspin as investors worry that SpaceX and its Starlink Mobile brand will obliterate the incumbent wireless operators in one fell swoop. In response, wireless executives from across the industry continue to sound the horn that establishing a nationwide network isn’t exactly a slam dunk, as Ergen discovered.
Stankey didn’t elaborate on Ergen’s experience – it’s a long story.
It just so happened that Ergen claims he was forced to sell valuable spectrum after the Federal Communications Commission (FCC), led by Chairman Brendan Carr, launched an investigation and threatened to take it away. Then, EchoStar sold the spectrum to AT&T and SpaceX in separate deals worth more than $40 billion – and EchoStar is getting a ~2% equity stake in SpaceX when their transaction closes in 2027.
AT&T CEO: Put it in perspective
With that in the background – back to the Q3 earnings call.
Referring to SpaceX’s 800 MHz buy, Stankey said he didn’t want to “over rotate” on “what I could call one carrier of low-band spectrum. Let’s put this in perspective.”
In AT&T’s scaled network, between six to eight carriers of low band spectrum are running in comparison to SpaceX’s one. In addition, “that [AT&T] spectrum is not just housed on macro antenna sites; it exists on every indoor building system and high rises and hospitals and stadiums,” Stankey said.
Somewhere between 40% to 45% of the traffic on any given day originates from inside of a building, and as a result of that, “how you perform indoors, of course, is extremely important. And we shouldn't think about those as being nominal loads. There are significant loads, even with robust Wi-Fi networks that are out there,” he said.
“I think it takes a lot of years and a huge level investment to get to the kind of performance levels that customers have become accustomed to in scaled networks that are running on the infrastructure that most of the incumbent providers have today,” he said, adding that there will be continued advances.
AT&T and the D2D JV
AT&T, along with T-Mobile and Verizon, formed a joint venture focused on pooling spectrum resources so they can compete effectively in the direct-to-device (D2D) market, which it bears repeating is not exactly bringing in piles of revenue.
T-Mobile, which has the most experience offering D2D at scale, says D2D accounts for about 0.0003% of its overall network usage even in the busiest summer months when people are visiting national parks where terrestrial cellular is often unavailable.
Nonetheless, AT&T’s Stankey said they’re excited about the advances in LEO technology and how it might help at the edge of the network to prevent folks from walking off the network.
It’s certainly going to help in rural, less populated areas where wireless operators have struggled to maintain expensive towers. “Maybe we can lower our cost structure rather than putting less used macro sites in place,” Stankey said.
All told, “we’ve got the scale where the scale matters,” he said, noting that 98% of the traffic for mobile services happens where they’ve already built out.
“Customers have become accustomed to a level of service that is pretty high, and rightfully so. They pay us a lot for what they get from us, and they should expect it to work,” he said. “I feel really good that we're going to have the best converged set of assets out there, both with fiber and our robust wireless network, to meet those expectations moving forward, especially in the upstream.”
New Street’s quick take
In a brief note for investors today, New Street Research analyst David Barden if its results were the only thing that mattered to AT&T’s stock, it would be comfortably up.
“Other narratives, however, can have a disproportionate impact. Elon Musk’s assertion yesterday evening during the SpaceX results call that Starlink plans to build a wireless network may play mind tricks on investors and could overpower a solid results impact on the stock,” he said. “We think ‘building a terrestrial network’ is far from as easy as it sounds and will take many years to be felt as a fundamental part of the business, if ever.”
More on AT&T’s Q2 results
- AT&T’s Q3 revenues totaled $32.3 billion, up 5.3% year over year
- Advanced internet additions of 769,000 were better than consensus estimates of 686,000. Net additions from fiber and fixed wireless access (FWA) also were higher than expected, at 442,000 and 327,000, respectively.
- Some of the credit for the quarter’s results can be attributed to the company’s fiber reach, deeper mid-band spectrum position, positive seasonal dynamics and strong update of introductory pricing, according to CFO Pascal Desroches.
- They expect advanced home internet additions to moderate in the fourth quarter as they typically see lower demand during the holiday season, he said.
- Capital expenditures related to continuing operations in Q3 were $5.1 billion; capital investment was $5.6 billion.
Read more about AT&T on Fierce Network:
SpaceX’s 800 MHz spectrum grab threatens Big 3 mobile carriers even more
AT&T beats Q2 expectations with 432K phone net adds
Fiber gets the spotlight in earnings from Verizon, T-Mobile, AT&T