It’s tempting to chalk up AT&T’s postpaid wins to its promotional activity, but CEO John Stankey says that’s not the sole driver of what’s going on at the company.
During the Goldman Sachs Communacopia + Technology conference on Monday, analyst Brett Feldman noted that AT&T added just over 3 million postpaid phone customers in the past 12 months. In fact, he said, the business has seen much greater momentum over the past two years or so since AT&T debuted the “same deal for all” model.
What’s working and how long can it be sustained?
There isn’t a single answer to that question, according to Stankey.
A lot of things are working well, he said. “We are actually gaining customers in a lot of different places and a lot of different ways,” he said. “I know a lot of folks want to continue to go back and say, ‘well, it’s a high level of promotion that’s doing it,’” and that’s not correct.
AT&T’s growth in the public safety sector is one example. “That’s based on sustained investment and building the best public safety network that this country has seen,” he said. “It’s allowed us to penetrate into a segment that we were previously grossly underpenetrated in.”
Indeed, Verizon still boasts that it has the lion’s share of the public safety market, but AT&T won the contract for FirstNet to supply public safety with the first dedicated LTE network for their use. Last quarter, AT&T reported that it had about 3.7 million FirstNet connections across more than 21,800 agencies.
AT&T is also seeing a similar dynamic play out in the upper and mid-part of the business market, where its share performance has improved. And these are not typically places where the promotional dynamics are driving anything, Stankey said.
Last month, analysts at Moffett Nathanson lowered their price target for AT&T shares to $17, down from $19. They said it’s now been more than two years since AT&T adopted its “aggressively promotional stance” in wireless and while that has led to accelerated subscriber growth, it comes at the cost of repeatedly cutting free cash flow and dividend coverage forecasts.
Economic uncertainty
Asked about the economy and inflationary pressures, Stankey said customers’ willingness to use AT&T’s products and services still remains really strong. However, “we are seeing input rising – cost of inputs rising literally at every portion of the business and having to work really aggressively to carry that through.”
AT&T had a “real aggressive approach on costs in place before,” he said. “We’re working even harder now looking for other opportunities to move through that because I think that will be the best way to give us the runway we need as the policy effects start to work their way into the economy and maybe get things back at some point to a little bit more predictable level of inflation.”
AT&T earlier this year increased prices on some of its older wireless plans by up to $6 for a single line and up to $12 per month for families.