Why is AT&T Not Bear Hugging FWA Like Its Peers?

November 30, 2022 | Coming off Q3 2022 earnings season, it was interesting to note the different talking points around Fixed Wireless Access (FWA) offerings.  Two carriers (T-Mobile and Verizon) are quite bullish while AT&T continues to take a more conservative stance.  The question is why?

Clearly T-Mobile and Verizon continue to see much momentum with their respective FWA offerings.  Earlier this year, VZ promised to grow FWA subs each quarter in 2022.  And they have done just that through the first 9 months of the year. When I was an analyst, I remember VZ saying a large reason they were pursuing so much mmWave spectrum was to drive the “un-cabling of cable”.  Management (perhaps rightly) believed that customers would no longer need a dedicated wireline broadband connection and a dedicated wireless broadband connection - VZ could be the holistic wireless provider of both.  We are beginning to see this play out.  At a recent conference, VZ CFO Matt Ellis made a very interesting observation noting:

“A little over two-thirds of our consumer fixed wireless customers are already a wireless customer. But that means that those other fixed wireless adds that we have now become a wireless sales opportunity as well or mobility opportunities…..”.

If the new “bundle” is wireless and broadband, FWA allows VZ to open up its cross selling platform for broadband well beyond a seven state franchise wireline footprint in the Northeast corner of the US.

For TMUS, it is a bit of a different approach.  TMUS is the carrier with the most spectrum. This of course came from its 2020 acquisition of Sprint. According to TMUS’s President of Technology Neville Ray, Sprint enabled TMUS to increase its capacity by 14x.   This spectrum position was only further enhanced through the recent FCC Auction #108. Operating from such a position means TMUS looks at FWA as somewhat of a cherry on top of a big magenta sundae!

TMUS C-Suite used these words to describe FWA for the carrier:

“it's an excess capacity model.”

Customers are tapping into this additional spectrum capacity, yet the deep spectrum position TMUS has allows it to be able to offer FWA in a way so as NOT to cannibalize its own wireless customers. Simply put, think of TMUS as the airplane and FWA as the empty seats on a plane an hour before take-off. Ray himself noted just last week:

“….the fact of it is that with spectral efficiency, the density, the robust spectrum assets that we have, we can create a network that can just create a volume of capacity, which is effectively unheard of….. where we've already deployed mid-band footprint, we're adding more spectrum….We're seeing usage on fixed wireless kind of on a medium basis, about the same as cable, about 400 gigs per month, which tells you the product works.”

Four hundred gigs on a wireless network is something many would never think possible a few short years ago. But the big jet plane with lots of “seats” (aka spectrum) makes this a new reality.

But this brings us back to AT&T. As mentioned, AT&T has been much less front-footed in its FWA approach. Like VZ, with FWA, AT&T has the opportunity to expand its holistic wireless footprint beyond the borders of its ~23 state franchise wireline footprint.  What is driving AT&T’s lack of FWA love?  We believe it is due to two things they are not publicly saying: spectrum and capital.

First on spectrum, as compared to VZ, AT&T is significantly lagging in terms of mmWave spectrum holdings.  Specifically, AT&T has an average of 1,040 MHz nationwide of high-band millimeter wave spectrum. Whereas Verizon has 2,024 MHz of millimeter wave spectrum nationwide, almost double that of AT&T.  In C-Band, AT&T is also meaningfully behind Verizon. Specifically, VZ owns ~158MHz of C-Band spectrum per market vs. ~78MHz / market for AT&T.

Second on capital.  At the Morgan Stanley conference just last week, when asked about its FWA thoughts, CFO Pascal Desroches said clear as day:

“[FWA]is not one [area] where we think we want to prioritize our scarce capital going after.”

For a company with a  ~$8B dividend, that already slashed its cash flow outlook earlier this year, the word “scarce” may send shivers up many an investor spine.  In AT&T’s defense , it has continued to say it prefers fiber to FWA. Fiber as the superior technology is not debatable but it is much more costly to deploy and the US is a very large geography to cover. By standing down in its FWA enthusiasm, one has to wonder if its missing on that cross selling opportunity which VZ spoke to above.

While we tend to agree with AT&T’s reasoning as to why not to aggressively bear hug FWA (fiber preferred, better just as a catch product to legacy copper markets), the question becomes is AT&T operating more from position of vulnerability vs. strength in making this decision.

But like life, things can always change in an instant. And if recent trade press speculation about AT&T pursuing an outside capital partner to help build its fiber footprint (perhaps even outside its wireline footprint), this position could all change on a dime. While the devil is always in the details, depending on who this partner is,  AT&T could begin to have much more control of its own destiny and move its game from a defensive one to an offensive one (something the Chicago Bears are lacking these days!).

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