Mobility and fiber growth power AT&T to beat expectations in Q3 2022
AT&T beat expectations for Q3 2022. Strong mobility and fiber subscriber growth led the way for AT&T, which managed 708,000 postpaid phone net additions in the quarter and 308,000 fiber net additions; the second best quarter for fiber net additions on record. Total postpaid phone net additions for the year are now at 2.2 million, which is likely to be an industry best. Verizon is far behind in postpaid phone subscriber growth this year and T-Mobile would need massive postpaid phone net additions this quarter to surpass AT&T.
Strong Q3 subscriber growth puts AT&T in pole position for postpaid phone net adds
Primarily a result of strong subscriber growth, AT&T’s mobility service revenues increased 5.6% YoY and 2.2% QoQ. Service revenues are also being driven up by a richer mix of unlimited plans as well as increased roaming. Consequently, AT&T also saw impressive ARPU growth for the mobility segment in Q3 2022. Postpaid phone-only ARPU increased 2.4% YoY and 1.6% QoQ. Between strong subscriber growth and steady growth in ARPU, AT&T is advising towards the upper range of its profit per share for full year 2022, from around $2.44 per share to above $2.50 per share.
Despite strong subscriber growth and ARPU growth, there were downsides worth mentioning. This quarter saw some impact from inflation-driven plan price increases, with net subscriber growth dropping compared to Q2 2022, mostly due to increased postpaid phone churn of 0.84%, which is up compared with 0.72% this time last year and 0.75% this time last quarter. AT&T also removed some of the perks from its plans in June, including free HBO Max subscriptions, making AT&T services less appealing to customers. This had minimal impact on AT&T’s performance, however, as strong headline promotions on the Samsung Galaxy Z Flip 4 5G and Fold 4 5G devices, and the iPhone 14 series, including up to $1000-off with qualifying trade-in and an unlimited plan offered to new and existing customers, helped mitigate any downside impact. In fact, strong promotional offerings led to increased postpaid phone sales as well as a higher mix of premium smartphones sold, resulting in equipment revenue growth of 7.2% YoY. AT&T has the highest mix of Apple sales out of all the postpaid carriers according to Counterpoint’s US Channel Share Tracker. The current array of promotions and offerings will continue driving strong mobile subscriber growth and ARPU growth through Q4 2022.
Strong promotions and demand for the iPhone 14 series will help drive subscriber growth through the year end. AT&T will offer its headline promotion of up to $800-off flagship devices for both existing and new customers with qualifying trade-in and an unlimited plan through the holiday season. This will continue to shift mobility services towards higher revenue plans and improving ARPU. It will also help drive customer acquisition. Customer acquisition and smartphone demand will likely moderate because of economic headwinds in H1 2023.
AT&T reaches major fiber milestone
AT&T delivered strong results for its fiber business, with 338,000 fiber net additions in Q3 2022, up 7% QoQ and 17% YoY. In a first for the company, AT&T fiber broadband customers outnumbered non-fiber broadband customers. As a result of growing fiber penetration of wireline customers, which now stands at over 50%, broadband ARPU increased 2% QoQ and 6% YoY to $58.63. Consumer broadband revenues increased 1.5% QoQ and 6% YoY to $2.43 billion due to higher fiber mix. But despite strong financial results from fiber uptake, AT&T saw total broadband subscriber contraction as customers churned from non-fiber services at a higher rate than new fiber customers were acquired.
Scale continues to be a growth constraint for AT&T’s consumer broadband business, but fiber customer location growth is increasing at a faster than anticipated rate. Fiber locations reached 18.5 million in Q3 2022 and are expected to surpass 20 million by EoY 2022. This puts AT&T well on its path towards reaching 30 million fiber locations by 2025. In AT&T’s earnings call, CEO John Stankey stated that he would not be opposed to partnering to expand AT&T’s fiber footprint to new regions outside its historic broadband footprint.
AT&T’s mid-band blitz
AT&T also made strides in expanding its 5G mid-band footprint. Now reaching over 100 million POPs, AT&T now expects to cover about 130 million POPs with C-band spectrum by the end of the year. This is nearly double the initial expectation of 70 million by the end of 2022. CEO John Stankey also mentioned that customers are experiencing improved speeds as a result of the buildout, which should help add further impetus to consumers to adopt unlimited plans, as 5G connections tend to push users towards more data consumption.
Economic woes temper 2023 outlook
AT&T delivered strong mobility and fiber growth in Q3 2022 and is expected to continue delivering growth in these areas through the end of the year, driven by strong promotions in the mobility segment, and strong value offerings in the broadband segment. Next year could be a different story. While consumer spending continues to be resilient, macroeconomic headwinds could catch up in H1 2023 impacting demand as economic growth slows and unemployment rises because of recent interest rate hikes. AT&T’s core business remains resilient, however, and postpaid subscribers will be more insulated from economic woes than the low-end of the market.