DALLAS ó In anticipation of closing the pending WarnerMedia transaction with Discovery, Inc. in the second quarter, AT&T (NYSE:T) is laying out its updated strategy and financial outlook for the company moving forward. This includes detailed operational and financial expectations through 2023.
America's Best Broadband Provider
AT&T intends to become America's best broadband provider, underpinned by a best-in-class network with fiber at its foundation. And by owning and operating both fiber and wireless, AT&T's owner's economics will provide better flexibility to deliver high-quality broadband in more places for businesses and consumers.
As part of this strategy, AT&T plans to double its fiber footprint to 30-plus million locations, including increasing its business customer locations by 2x to 5 million. In doing so, the company expects to add 3.5 million to 4 million customer locations each year. The company also expects to enhance the nation's best and most reliable 5G network by deploying 120 MHz of mid-band spectrum to cover more than 200 million people by the end of 2023. Enabling faster speeds, increased capacity and lower latency, this valuable mid-band spectrum complements the company's existing 5G footprint, which covers more than 255 million people in more than 16,000 cities and towns.
At today's event, the company will address in more detail how it plans to drive sustainable revenue and earnings growth by:
Leveraging Consistent Go-to-Market Strategy to Drive Customer Growth in Mobility and Fiber
Building on the company's success in 2021, during which it led the industry in postpaid voice net additions, AT&T expects to drive additional customer growth through its consistent go-to-market strategy and by tapping into underpenetrated segments of the mobility market. AT&T also expects to continue benefitting from the migration of customers to its unlimited plans, particularly to higher-ARPU Unlimited Elite ó the company's fastest-growing rate plan. In addition, as its fiber footprint expands, the company expects to continue gaining share in the consumer broadband market where it offers fiber, building upon the momentum it has established with four consecutive years of 1 million or more fiber subscriber additions.
Optimizing Returns on Legacy Businesses Helps Fuel Investment
As more network traffic moves to fiber and 5G, AT&T expects to drive significant savings by reducing the company's legacy copper footprint. By 2025, AT&T expects that 75% of its network footprint will be served via fiber and 5G and that it will have reduced its copper services footprint by 50%. At the same time, the company will successfully navigate the timing and profitability of the migration from legacy to next-generation products to optimize returns.
AT&T is also developing software solutions on top of its connectivity, collaborating with valued partners to develop new solutions for businesses. These include Network Edge solutions through alliances with Microsoft Azure and Google Cloud; Private 5G services offering businesses, universities and the public sector private cellular networks that seamlessly integrate with AT&T's nationwide macro network; and solutions to provide safe, secure connectivity in today's hybrid work environments.
Ultimately, as it makes these transitions, AT&T plans to use cash flow from more mature businesses to help fuel its planned $24 billion in annual capital investment in 2022 and 2023, with incremental cost savings hitting the bottom line.
Executing Against Targeted Cost Reduction Initiatives
As a standalone company, AT&T will also continue to pursue its transformation initiatives and sees significant opportunities to optimize its cost structure. By the end of 2023, the company expects to reach $6 billion in run-rate cost savings. By the end of 2021, it had achieved more than $3 billion in cost savings, which were primarily reinvested into the company's growth engines.
In addition to its network pivot from copper to fiber and 5G, the company is focused on enhancing the customer experience and streamlining operations in areas like corporate G&A, supply chain and technology platforms to yield further cost benefits. And in 2022 and 2023, AT&T expects an additional $2.5 billion in cumulative cost savings, which will increasingly fall to the bottom line, driving growth in adjusted EBITDA.
A Total-Return Focus on Capital Allocation
Management today also will discuss in depth AT&T's total-return oriented capital allocation strategy, focused on investing for growth, strengthening the company's balance sheet and delivering returns to shareholders while paying an attractive dividend.
AT&T has reiterated its guidance for 2022 and provided guidance for 2023, both of which are presented on a pro forma basis excluding WarnerMedia and Xandr. For comparability, pro forma financial information for 2020 and 2021 reflecting the exclusion of these businesses is available on the company's Investor Relations website.
For 2022, the company expects:
- Low single-digit total revenue growth, up from $118.2 billion on a pro forma basis in 2021, driven by 3% or better growth in wireless service revenues and 6% or better growth in broadband revenues.
- Adjusted EBITDA of $41 billion to $42 billion, up from $40.3 billion on a pro forma basis in 2021, even with about $600 million in headwinds from 3G shutdown costs and absence of CAF II credits, which are weighted to the first half of 2022.
- In addition to revenue growth, the company expects adjusted EBITDA to benefit from incremental cost transformation savings of about $1 billion versus 2021 levels.
- Adjusted EPS of $2.42 to $2.46, compared to $2.41 on a pro forma basis in 2021, with growth in adjusted EBITDA and operating income partially offset by a higher effective tax rate.7
Capital investment in the $24 billion range, including about $5 billion to deploy 5G spectrum, compared to $20.1 billion on a pro forma basis for 2021.
For 2023, the company expects:
- Continued low single-digit revenue growth, driven by low single-digit growth in wireless service revenues and a ramp in broadband revenue growth to the mid to high single-digit range.
Adjusted EBITDA of $43.5 billion to $44.5 billion, with approximately $1.5 billion in additional cost transformation savings.
- Adjusted EPS of $2.50 to $2.60.
- Capital investment in the $24 billion range with consistent investment in 5G spectrum deployment in the $5 billion range.
Read the full announcement here.