AT&T is juggling a lot of things right now. After missing analyst expectations in the third quarter, the company pushed forward to announce one buyout and execute another. Meanwhile, smaller telecom rivals launched campaigns to steal subscribers from AT&T and Verizon, and the regulatory environment is in flux.
To clear the air regarding some of these issues, AT&T executives hit the road. Speaking at industry conferences from coast to coast, Ma Bell's C-suite leaders presented their take on these issues and much more.
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Here are five of the most important things AT&T's executives wanted to tell you. Sorry, they didn't discuss the ongoing wireless spectrum auction due to a quiet period the FCC enforces around that event. But there was still plenty to talk about.
AT&T CEO Randall Stephenson. Source: AT&T.
The big picture behind DIRECTVStarting in mid-November, AT&T CEO Randall Stephenson hit the Wells Fargo Technology, Media & Telecom Conference in New York City.
The discussion with Wells Fargo analyst Jennifer Frizsche quickly turned to AT&T's pending buyout of satellite TV operator DIRECTV , and Stephenson explained exactly why he's interested in that asset:
So, in Stephenson's mind, the biggest benefits of the DIRECTV acquisitions are an overall profitable TV service as DIRECTV's economies of scale start applying to U-Verse, as well as a more complete service offering outside of AT&T's wireline service areas.
I would add that DIRECTV also extends AT&T's reach in Latin America. That's why the recently announced buyout of Mexican wireless operator Iusacell makes more sense if the DIRECTV deal is completed. A complete package of mobile and television services is much more valuable than just one of these products, after all.
Fighting the price warsRegarding the low-price assaults being mounted by Sprintand T-Mobile, Stephenson didn't see much need to join the fray:
In other words, don't expect AT&T to lower the lance for a full-tilt pricing attack on its smaller rivals. Much like Verizon, AT&T prides itself on offering a larger and better network, and it shouldn't have to pair this quality with rock-bottom pricing in order to attract subscribers.
That argument isn't crazy, but Stephenson will still always have to balance his margins against the potential for faster growth. As the wireless industry matures, the growth transforms into customer retention. How many high-margin subscribers can Stephenson afford to lose before responding with lower service and device prices?
That's a question for the ages. For now, don't expect Ma Bell to execute any drastic price drops.
Debt targets and cash flowsFour weeks later, AT&T CFO John Stephens showed up at the UBS Global Technology Conference just three blocks away from Stephenson's appearance.
First, he spoke about how AT&T is thinking about debt levels and cash flow allocations these days:
AT&T has indeed seen debt ratios rising uncomfortably high in the past, only to push them back down again:
In the past, these adjustments have been a combination of higher EBITDA profits and large debt repayments. This time, Stephens is aiming for very generous debt retirement budgets to counteract the mountains of new debt from the DIRECTV transaction.
DIRECTV itself comes with $17 billion of net debt, and AT&T could tap the bond market for more than $7 billion of fresh financing for the deal.
And it's not like AT&T can just sit on its hands while the debt pile grows. Allowing the debt-to-EBITDA ratio to climb above 3.0 would trigger defaults on much of AT&T's existing debtand an existential crisis for the company itself.
So Stephens has to have a plan for flattening out the debt balance, and it's all about quick repayments powered by excess cash flows. Don't expect any miraculously large dividend increases until that debt-shrinking process is complete.
AT&T CFO John Stephens. Source: AT&T.
Is $18 billion not enough?On that note, AT&T has lowered its capital expenses from $21 billion in 2013 to an expected $18 billion for all of 2014. UBS analyst John Hodulik asked Stephens if this drastic reduction might actually add risk to the stock. Shouldn't AT&T be spending more on its wireless network upgrades and maintenance?
Stephens shrugged this risk off with a laugh:
Touche, Mr. Stephens.
AT&T is indeed the biggest spender in America when it comes to capital expenses. It's not even a close race. According to data from S&P Capital IQ, the company currently outspends Verizon, in second place, by nearly 30%.
Even if AT&T pulls back a little bit from that breakneck investment pace, it will still be an unparalleled network builder. The last couple of years have seen a massive investment in 4G LTE networks, and that's what Stephens is backing away from now.
Ask again when the next, next-generation network technology pops up...
John Donovan, AT&T's SVP of architecture and technology. Source: AT&T.
What's so great about 4G networks?Finally, AT&T SVP of architecture and technology bounced clear across the country to San Francisco, where Barclays held its global technology conference in mid-December.
There, John Donovanexplained why AT&T is champing at the bit to retire its aging 2G networks in favor of newer, faster, and more efficient 4G alternatives:
AT&T has committed acres of high-quality radio spectrum to technologies that, quite frankly, nobody should use anymore. Compared to the old 2G networks, 4G technologies like HSPA+ and LTE simply make far better use of their spectrum assets. A roughly tenfold increase in spectrum efficiency helps AT&T increase its service speeds, improve network reliability, and also lower the cost per megabit of data delivered.
Donovan went on to note that customers are generally happier with 4G LTE then anything else, which only adds to the technical benefits. "The LTE network is the preferred network and we get customers on there, they are happier, it's the most efficient use of spectrum that I've got today to deploy, it's also the most economical thing that we can do," he said.
That's why the big telecoms always run at the bleeding edge of new networking technologies. These upgrades improve the business case for wireless networking in so many ways. Thinking back to Stephens' financial discussion, it's also why analysts worry when AT&T drops its capital expenses drastically.
Again, this pause lets the company focus its efforts on the big DIRECTV acquisition, and the next technical breakthrough is always right around the corner. Smoke 'em if you've got 'em, right?
The article 5 Things AT&T Inc.'s Management Wants You to Know originally appeared on Fool.com.
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