AT&T and Discovery completed their previously announced deal to coming the WarnerMedia business with Discovery. This creates a a premier standalone global media and entertainment company, Warner Bros. Discovery, Inc., leaving AT&T to focus on its exclusively on its connectivity mission.
“We are at the dawn of a new age of connectivity, and today marks the beginning of a new era for AT&T,” said John Stankey, AT&T chief executive officer. “With the close of this transaction, we expect to invest at record levels in our growth areas of 5G and fiber, where we have strong momentum, while we work to become America’s best broadband company. At the same time, we’ll sharpen our focus on returns to shareholders. We expect to invest for growth, strengthen our balance sheet and reduce our debt, all while continuing to pay an attractive dividend that puts us among the top dividend paying stocks in America."
Under the deal, at close AT&T received $40.4 billion in cash and WarnerMedia’s retention of certain debt. Additionally, shareholders of AT&T received 0.241917 shares of WBD for each share of AT&T common stock they held at close. As a result, AT&T shareholders received 1.7 billion shares of WBD, representing 71% of WBD shares on a fully diluted basis. Discovery’s existing shareholders own the remainder of the new company. In addition to their new shares of WBD common stock, AT&T shareholders continue to hold the same number of shares of AT&T common stock they held immediately prior to close.
AT&T is setting its sights on becoming "America's best broadband provider" based on a strategy of owning and operating both fiber and wireless. In light of closing its pending WarnerMedia transaction with Discovery, AT&T updated its financial expectations for 2022 and 2023, saying it will shift Capex to fiber and 5G.
“Now that the close of the WarnerMedia deal is approaching, we are near the starting line of a new era for AT&T,” said John Stankey, AT&T chief executive officer. “The transformation we’ve undergone over the past 18 months while delivering outstanding operational results has brought us to this point. We will be a simpler, more focused company with the intent to become America’s best broadband provider. We plan to ramp up investment in our key areas of growth — 5G and fiber. And at the same time, we will retain our focus on growing customer relationships, continuously improve our execution to enhance the customer experience and deliver growth and returns for our shareholders.
Key elements of the plan:
- AT&T plans to double its fiber footprint to 30-plus million locations,2 including increasing its business customer locations by 2x to 5 million. In doing so, the company expects to add 3.5 million to 4 million customer locations each year.
- AT&T plans to deploy 120 MHz of mid-band spectrum to cover more than 200 million people by the end of 2023. This complements the company’s existing 5G footprint, which covers more than 255 million people in more than 16,000 cities and towns.
- AT&T also expects to continue benefitting from the migration of customers to its unlimited plans, particularly to higher-ARPU Unlimited Elite — the company’s fastest-growing rate plan. In addition, as its fiber footprint expands, the company expects to continue gaining share in the consumer broadband market where it offers fiber, building upon the momentum it has established with four consecutive years of 1 million or more fiber subscriber additions.
- AT&T expects to drive significant savings by reducing the company’s legacy copper footprint. By 2025, AT&T expects that 75% of its network footprint will be served via fiber and 5G and that it will have reduced its copper services footprint by 50%. At the same time, the company will successfully navigate the timing and profitability of the migration from legacy to next-generation products to optimize returns.
- AT&T is also focused on simplifying its business product portfolio, with plans to reduce the number of products and legacy rate plans by 50%. This simplification enables the company to focus on a repeatable playbook to deliver core connectivity and transport solutions with attractive owner’s economics.
- AT&T is also developing software solutions on top of its connectivity. These include Network Edge solutions through alliances with Microsoft Azure and Google Cloud; Private 5G services offering businesses, universities and the public sector private cellular networks that seamlessly integrate with AT&T’s nationwide macro network; and solutions to provide safe, secure connectivity in today’s hybrid work environments.
- AT&T plans to use cash flow from more mature businesses to help fuel its planned $24 billion in annual capital investment in 2022 and 2023, with incremental cost savings hitting the bottom line.3
- By the end of 2023, the company expects to reach $6 billion in run-rate cost savings. By the end of 2021, it had achieved more than $3 billion in cost savings, which were primarily reinvested into the company’s growth engines.
- In addition to its network pivot from copper to fiber and 5G, the company is focused on enhancing the customer experience and streamlining operations in areas like corporate G&A, supply chain and technology platforms to yield further cost benefits. And in 2022 and 2023, AT&T expects an additional $2.5 billion in cumulative cost savings, which will increasingly fall to the bottom line, driving growth in adjusted EBITDA.
For 2022, the company expects:
- Low single-digit total revenue growth, up from $118.2 billion on a pro forma basis in 2021, driven by 3% or better growth in wireless service revenues and 6% or better growth in broadband revenues.
- Adjusted EBITDA of $41 billion to $42 billion, up from $40.3 billion on a pro forma basis in 2021, even with about $600 million in headwinds from 3G shutdown costs and absence of CAF II credits, which are weighted to the first half of 2022.
- In addition to revenue growth, the company expects adjusted EBITDA to benefit from incremental cost transformation savings of about $1 billion versus 2021 levels.
- Adjusted EPS of $2.42 to $2.46, compared to $2.41 on a pro forma basis in 2021, with growth in adjusted EBITDA and operating income partially offset by a higher effective tax rate.7
- Capital investment in the $24 billion range, including about $5 billion to deploy 5G spectrum, compared to $20.1 billion on a pro forma basis for 2021.
For 2023, the company expects:
- Continued low single-digit revenue growth, driven by low single-digit growth in wireless service revenues and a ramp in broadband revenue growth to the mid to high single-digit range.
- Adjusted EBITDA of $43.5 billion to $44.5 billion, with approximately $1.5 billion in additional cost transformation savings.
- Adjusted EPS of $2.50 to $2.60.
- Capital investment in the $24 billion range with consistent investment in 5G spectrum deployment in the $5 billion range.
Analyst Day materials are posted online.
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