AT&T (T, Financial) has had a rough couple of years. Encroaching competition, reactionary management and declining sales have all taken a hard toll on the company. Share prices still haven’t returned to pre-recession levels, and some of AT&T’s key investments aren’t making the big returns shareholders had been hoping for. That doesn’t mean it’s too late for AT&T.
Investors have been losing faith in the telecoms giant for a while now. Warren Buffett (Trades, Portfolio) dumped 21% of his stake in AT&T last quarter, and a large gaggle of small shareholders inevitably followed suit. And while the company’s Q4 results didn’t necessarily validate an exodus of that nature, they didn’t instill much confidence, either.
The picture we were given for FY2015 roughly mirrored Wall Street’s expectations. AT&T brought in a decent 22% spike in quarterly revenue at $42.1 billion, thanks largely in part to its pricey acquisition of DirecTV (DTV, Financial) last summer. That being said, analysts were expecting the broadcast service to make a far bigger impact on AT&T’s bottom line. Meanwhile, operating income dropped by around $2 billion.
That being said, the outlook for 2016 is pretty good. We’ve been told to expect double-digit growth, stable consolidated margins and capital spending in the range of $22 billion. Yet in the short term, the company’s dwindling consumer base might be cause for concern.
AT&T added plenty of wireless customers last quarter, outpacing rival Verizon (VZ, Financial) Wireless and matching fast-paced upstart T-Mobile (TMUS, Financial). Yet AT&T has actually lost 256,000 postpaid customers – signifying the company's fifth consecutive quarter of postpaid losses. The company’s landline U-verse video business isn’t faring much better. Thanks to an underperforming marketing department, around 240,000 U-verse customers ditched the service in Q4.
It’s not all doom and gloom, though. After all, numbers are up in the company’s prepaid department; however, prepaid purchases don’t bring in the big bucks. In order to deliver on the major growth we’ve been promised, AT&T will need to give us something far better than value prepaid packages.
Fortunately, it looks like something far better is already in the works.
Last week, AT&T announced plans to kickstart the first phase of an ambitious rollout of its ultra-fast 5G network. If the company delivers on its promises, AT&T might actually start to outperform its competitors for the first time in years.
The Dallas-based company has been playing around with 5G since early last year. Engineers from Ericsson and Intel (INTC, Financial) have both been working closely with AT&T in order to develop a 5G network that doesn’t rely on the cellular technologies we’d commonly associate with 4G. Instead, AT&T’s new network will focus on using wireless broadband to create ultra-fast connectivity in complete dead zones. In turn, users have been told to expect speeds of up to 100 times faster than the average 4G LTE connections we enjoy today.
That would certainly give customers a good reason to come back to AT&T. By delivering a unique combination of software-defined networking, big data security and open source software, a 5G AT&T will inevitably become a one-stop shop for millions of tech-savvy millennials. That will boost subscription services, lift sales and give AT&T the leverage it needs to retain some of the cultural relevance it’s been losing as of late.
That being said, you shouldn’t expect to see a transformation like that taking place any time soon. Why? Officials haven’t even decided how to regulate 5G yet. The FCC probably won’t unveil its official standards until 2018 – meaning AT&T’s fancy new experiments won’t reach consumers for at least 24 months.
So, what does all this mean in the short term? Absolutely nothing. AT&T will need to rely almost exclusively on its prepaid mobile services and DirecTV in order to maintain a shred of competitiveness across 2016. The next two fiscal years will be defined by relatively sustainable growth and so-so revenues. They will not be exciting in any way, shape or form. Yet in the long run, it’s fair to say we can expect big things from AT&T. Just be patient.
