Will 2024 Represent the Year When the Dominoes Game Really Begins?

March 4, 2024 | With all the earnings news and analyst days in the telecom space the past few weeks, one important talking point that seemed to be missed by almost every analyst report I read, but may be an important harbinger of things to come, came from AT&T’s CEO John Stankey on AT&T’s recent earnings call. The line was a part of his prepared remarks on the call, so indeed very purposeful. Here was the money quote:

“We [AT&T] also expect 2024 to be the proven year for our Gigapower initiative, and we plan to explore other unique opportunities to extend the AT&T brand on a converged basis beyond our traditional footprint.”

The implications of this statement are very far-reaching – and go well beyond AT&T. Thoughts below.

AT&T - For AT&T specifically, this could imply Gigapower (its fiber JV with Blackrock) is step #1 on a long (and hopefully not too winding!) path of moving its fiber and other network connectivity outside its traditional franchise wireline footprint. This footprint – which covers 20+ states – is not small. However, if AT&T can successfully tap into additional private capital and / or government subsidies (i.e. BEAD) to allow it to push fiber outside of these states, it has the potential to make its wireless subs (living beyond the borders of its legacy wireline footprint) all the more sticky. The mention of the words ‘converged basis’ in the above statement may be a not so subtle hint that that is very much a part of the plan.

Incumbent Wireline Providers In Gigapower markets - As AT&T widens its Gigapower “net” it also has an impact to its competitors, both wireless and wireline. The Gigapower JV is now building out in five states: Alabama, Arizona, Florida, Nevada and Pennsylvania. Just this past week, Gigapower added a new state to the target list – New Mexico. Specifically, it is building out Albuquerque. While we all agree building out fiber takes time and the US geography is far reaching, as AT&T (and other fiber overbuilders) move into other legacy wireline carriers’ franchise footprints it has implications for these incumbent players’ service pricing and, thus, the direction of the forward-looking ARPU.

Wireless Competitors - On the wireless side, AT&T’s comments also have implications for others.

Verizon - AT&T’s closest wireless competitor has chosen a different path to attack the out of region broadband market. Verizon’s strategy for its out-of-footprint broadband reach seemingly centers entirely around Fixed Wireless Access (FWA). At its analyst day earlier this month, Verizon was clear it does not see the economic value of building fiber outside its ILEC footprint. When you spend over $50B on spectrum and have as much as 200MHz in some markets, FWA makes a lot of sense. With now over 3MM FWA subs in the base (375K of which were added in Q4’23), Verizon’s goal of achieving 4-5MM subs by YE 2025 seems like a very low bar.

T-Mobile, with no “franchise footprint” to protect, seems to be betting on multiple horses. With just under 5MM FWA subs, they have led the way in this model and have quickly emerged as one of the largest ISPs in the US. However, while they have not backed off their goal of reaching 7-8MM FWA subs, they did not rule out other avenues of growth. When pushed on its outlook for FWA’s future growth trajectory, CEO Mike Sievert noted:

“…we also don’t know ….whether that’s really the final destination or not, whether or not there may be other models that allow us to extend past that.”

Interesting comment. We know that TMUS has agreed to be the anchor tenant on some regional open access fiber players, but this quote adds more fuel to the fire that TMUS may be thinking of making a more formal move toward a fiber partnership / ownership.

Back to that Stankey quote, watch AT&T’s next move here carefully as it may represent the first domino to fall, like the game everyone has played at one time in their life. And as we all know, once the first piece is in motion, it sets off a chain reaction around it.