Stankey characterized current wireless industry demand trends as healthy, noting that any seasonal uptick in competition remains broadly in line with historical trends. He remains confident in the sustainability of AT&T’s wireless momentum, which he attributed to a number of factors including rising share in previously underpenetrated segments of the market (e.g., first responders), improved customer experience, better network performance and AT&T’s simplified and consistent go-to-market strategy. Stankey reiterated prior comments that AT&T’s outlook for 2022 and beyond does not assume a continuation of outsized industry net adds experienced in 2021. Should recent wireless industry trends continue, he believes the changes made to AT&T’s go-to-market strategy puts the company in a better position to capitalize on healthier than expected demand.
Looking forward, Stankey sees AT&T’s 2022 postpaid phone ARPU remaining stable with 2021 levels. Continued opportunity to upgrade customers to higher-ARPU unlimited plans and improved international roaming is expected to offset the impact of amortization accounting for device promotions. Notably, fewer than a quarter of gross adds and upgrades in the third quarter traded in newer devices for premium promotional offers. Only about 20% of AT&T’s postpaid smartphones are on Unlimited Elite – the company’s highest-ARPU and fastest-growing rate plan.
AT&T’s 5G deployment plans are on track. Stankey indicated he does not anticipate any material impact from the proactive accommodations made to address Federal Aviation Administration concerns around the deployment of C-band spectrum. In addition, the company remains comfortable with its fiber build plan. In the coming years, Stankey expects multiple opportunities from the country’s largest fiber network, including improved consumer and business penetration and the ability to simultaneously support a robust 5G network. Having reached an inflection point in Consumer Wireline revenue and EBITDA1 growth, Stankey expects AT&T to continue improving its broadband position through the expansion of its fiber footprint.
Regarding the pending WarnerMedia-Discovery transaction, Stankey said the regulatory review process is proceeding as expected. Stankey reiterated expectations of leverage levels of 2.6x at the close of the deal and 2.5x by yearend 2023. Post transaction close, the company expects an aggregate annual dividend of $8 billion to $9 billion, which equates to a ~40% payout ratio assuming $20 billion in free cash flow the first full year after the close of the transaction.2 AT&T continues to expect the transaction to close by mid-2022.
<fineprint>1 EBITDA is operating income before depreciation and amortization.<fineprint>
<fineprint>2 Dividend payout ratio is total dividends paid divided by free cash flow. Free cash flow is a non-GAAP financial measure that is frequently used by investors and credit rating agencies to provide relevant and useful information. Free cash flow is cash from operating activities minus capital expenditures, and AT&T will include cash distributions received from DIRECTV, including those reported as investing activities, as part of Free Cash Flow. Due to high variability and difficulty in predicting items that impact cash from operating activities and capital expenditures, the company is not able to provide a reconciliation between projected free cash flow and the most comparable GAAP metric without unreasonable effort.<fineprint>