AT&T Hit by COVID-19, Expects Worse News in Q2
The first of the major wireless carriers to report since the start of the COVID-19 pandemic, AT&T's took a hit. Executives said the full effect is expected in Q2. The telco withdrew guidance for 2020 because of COVID-19 uncertainty. It reported a $605 million hit to Q1 revenue and $433 million to EBITDA. Bad debt, cutting some customers a break on payments and production shutdown costs meant lower earnings, AT&T said. Verizon reports Friday.
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“It’s impossible to overstate the effect of COVID-19 on all of us,” CEO Randall Stephenson told investors. “I expect it will have long-lasting implications for many things we used to take for granted. … We have very little visibility into the broader economic situation.” The “full effect” will be felt this quarter, said Chief Financial Officer John Stephens.
“It has been a chaotic few weeks for all of us and the COVID pandemic had a significant impact to our first quarter,” Stephenson said. About half of the company's employees, including executives, are working from home, he said. The carrier gave all staff four additional weeks of paid time off and implemented procedures to protect those who must stay in the field, Stephenson said. “We’re seeing unprecedented volumes of voice calls, texts and video streaming and our network is performing very well,” he said. “FirstNet is doing exactly what it was designed to do.”
Overall revenue was $34.2 billion in the quarter down 2.6% year over year due to declines in the entertainment group, wireless equipment and business wireline. Operating income was $7.5 billion versus $7.2 billion. WarnerMedia, which took the biggest hit, reported $7.4 billion in revenue, down from $8.4 billion.
Stephenson said AT&T will continue to invest in 5G, broadband and HBO Max and remains committed to its dividend. The company reported 163,000 postpaid phone net adds and 227,000 postpaid smartphone adds, offset by net losses from 244,000 postpaid tablet and other branded computing devices. Postpaid churn was 0.86%, down from 0.92%.
The wireless service provider expects nationwide 5G deployment this summer but faced construction and permitting delays due to COVID-19, said President John Stankey. HBO Max remains “a high priority” and is to launch May 27 (see 2004210044), he said: “Streaming that appeals to all demographics is in high demand.”
“As with most companies, you can throw out AT&T’s pre-COVID-19 guidance,” MoffettNathanson’s Craig Moffett told investors. All previous targets aren’t “remotely attainable anymore,” the analyst said: “Last week, the market was seemingly discounting a rapid re-opening and V-shaped recovery. This week, it seems to acknowledge a slower path, with high unemployment (and accompanying demand destruction) stretching through 2021 and into at least 2022.”
New Street’s Jonathan Chaplin emailed investors that the report is a sign of what’s to come among the major communications players. “Wireless and broadband are resilient, while pay-tv and media have been hit hard,” the analyst wrote. “The prognosis for the rest of the year is grim: some of the benefits in Wireless will likely unwind, while revenue trends and margins in Entertainment and Warner Media will likely get worse.”
Wells Fargo’s Jennifer Fritzsche noted a change in 5G timing. “Had been saying mid-2020 prior and now saying ‘summer 2020,’” she said.