AT&T on Wednesday published its consolidated financial report for the fourth quarter of 2018, describing a mediocre financial period that came with few surprises, none of which are positive.
The company posted $48 billion in revenue and $4.9 billion in operating profit over the final three months of 2018, delivering adjusted earnings per share of $0.86, a notable improvement over $0.78 reported for the last quarter of 2017.
AT&T focused on those basic performance metrics while trying to frame its newest financials in a positive light and maintain investor optimism despite a near-term plan that’s primarily concerned with reducing debt, hence being the exact opposite of what the Wall Street would deem exciting. The firm’s efforts to improve its bottom line and redirect a significant portion of its profits to dealing with many burdens leveraging its assets are now reflecting on its growth, which is what made its shares drop by some four percentage points after trading started on Wednesday.
Despite recent diversification efforts, AT&T remains a wireless company, and wireless is where it fell short in the fourth quarter of 2018; with just 134,000 postpaid phone additions, AT&T delivered about two-thirds of what most analysts have been expecting, and that’s accounting for its debt-focused strategy which wasn’t exactly a secret up until now, as the firm repeatedly said it will work toward reducing the leverage of its assets as soon as it completes the Time Warner purchase.
After the troubled acquisition was closed in mid-2018, AT&T rebranded its new subsidiary into WarnerMedia and immediately started working toward reducing its debt, describing the $85.6 billion buy as a long-term bet that it had to make in order to ensure its sustainability moving forward. However, an even more inevitable and burdensome investment is about to leverage AT&T’s operations, coming in the form of the fifth generation of mobile networks. The company is starting large-scale 5G deployments this year and while estimates — including its own — somewhat vary, it appears the costs of nationwide 5G deployment will be in the tens of billions of dollars.
AT&T was $180 billion in debt last June, immediately following the completion of the Time Warner acquisition. It paid off around $9 billion over the next six months and is hoping to reduce it by much more throughout 2019. How doable that task ends up being in the context of 5G rollouts remains to be seen but AT&T at the very least appears to be willing to take a hit on growth, i.e. wireless additions.
While the company’s performance wasn’t as disappointing outside of the postpaid space, postpaid subscribers are by far the most important metric of sustainable growth in the industry given how they statistically spend more and show a significantly higher degree of loyalty than prepaid customers.
On the tech front, AT&T is already expected to lose the 5G race to T-Mobile and it’s still unclear how it will fare against Verizon. Coverage remains the biggest issue, both for AT&T and its rivals, as 5G’s reliance on millimeter-wave spectrum requires massive investments in countless small cell stations, essentially turning most use cases into last-mile-delivery scenarios.