AT&T’s Financial Performance: Navigating Challenges and Opportunities

Overview AT&T Inc. is a leading provider of nationwide wireless service and equipment, as well as advanced business and consumer wireline services. The company operates three main segments: Mobility, Business Wireline, and Consumer Wireline. In the first quarter of 2024, AT&T also began offering a fixed wireless access product that provides internet services delivered over its 5G wireless network.

Financial Performance AT&T’s financial results for the third quarter and first nine months of 2024 were mixed, with decreases in overall operating revenues but increases in operations and support expenses.

Revenues Total operating revenues decreased 0.5% in the third quarter and 0.4% in the first nine months of 2024 compared to the same periods in 2023. This was primarily driven by declines in Business Wireline service revenues and Mobility equipment revenues, partially offset by growth in Mobility service, Consumer Wireline, and Latin America revenues.

Expenses Operations and support expenses increased 15.8% in the third quarter and 5.0% in the first nine months, largely due to a $4,422 million non-cash goodwill impairment in the Business Wireline reporting unit. This was partially offset by lower Mobility equipment costs and expense declines from AT&T’s transformation efforts.

Depreciation and amortization expense also increased, up 8.1% in the third quarter and 8.5% in the first nine months, primarily due to the shortening of estimated economic lives of wireless network equipment that will be replaced earlier than originally anticipated with the company’s Open RAN network modernization.

Operating Income and Margins Operating income decreased 63.4% in the third quarter and 24.6% in the first nine months. The operating income margin declined from 19.1% to 7.0% in the third quarter and from 20.1% to 15.2% in the first nine months.

Segment Performance Looking at AT&T’s business segments:

Mobility Mobility revenues increased 1.7% in the third quarter and 0.9% in the first nine months, driven by growth in service revenues, partially offset by declines in equipment revenues. Mobility operating income grew 3.5% in the third quarter and 2.8% in the first nine months, with margin expansion from 32.7% to 33.3% in the third quarter and from 31.9% to 32.5% in the first nine months.

Key Mobility metrics:

• Postpaid phone net additions of 403,000 in Q3 and 1,171,000 in the first nine months
• Postpaid churn of 0.93% in Q3 and 0.89% in the first nine months
• Postpaid phone-only churn of 0.78% in Q3 and 0.73% in the first nine months

Business Wireline Business Wireline revenues decreased 11.8% in the third quarter and 9.8% in the first nine months, driven by lower demand for legacy services and the absence of revenues from the cybersecurity business that was contributed to a new joint venture. Business Wireline operating income declined from $350 million to a loss of $43 million in the third quarter and from $1,124 million to $123 million in the first nine months.

Consumer Wireline Consumer Wireline revenues increased 2.6% in the third quarter and 3.0% in the first nine months, driven by growth in broadband services, partially offset by declines in legacy voice and data services. Consumer Wireline operating income grew 22.5% in the third quarter and 40.5% in the first nine months.

Key Consumer Wireline metrics:

• Total broadband and DSL net additions of 10,000 in Q3 and 82,000 in the first nine months
• Fiber broadband net additions of 226,000 in Q3 and 717,000 in the first nine months

Latin America The Latin America segment, which provides wireless services and equipment in Mexico, saw a 3.0% increase in total operating revenues in the third quarter and a 12.2% increase in the first nine months. Operating income improved from a loss of $29 million to a gain of $10 million in the third quarter and from a loss of $98 million to a gain of $19 million in the first nine months.

Liquidity and Capital Resources AT&T maintained a strong liquidity position, with $2,586 million in cash and cash equivalents as of September 30, 2024. Cash provided by operating activities was $26,875 million in the first nine months of 2024, compared to $26,936 million in the same period of 2023.

Cash used in investing activities totaled $12,127 million, primarily for capital expenditures of $13,420 million. Cash used in financing activities was $18,855 million, mainly for debt repayments, dividend payments, and vendor financing.

AT&T had $129,012 million in total debt as of September 30, 2024, with a weighted average interest rate of approximately 4.2%. The company’s debt ratio was 52.2%, down from 53.5% at the end of 2023.

Competitive and Regulatory Environment AT&T’s operations are subject to federal and state regulatory authorities in the United States, as well as national and supranational regulatory authorities in the markets where it provides service internationally. The company continues to support regulatory and legislative measures to reduce inappropriate regulatory burdens and ensure a level playing field, while also seeking to prevent the extension of legacy regulations to newer technologies and services.

Key regulatory developments include:

• The FCC’s reclassification of broadband internet access services as telecommunications services subject to broader regulation, which is currently being challenged in court.
• State-level net neutrality rules in some states, with the potential for more states to follow.
• The Infrastructure Investment and Jobs Act, which provides $65 billion to support broadband deployment and adoption, with AT&T participating in some of the grant programs.
• The FCC’s new rules to “facilitate” equal access to broadband and prevent digital discrimination, which are also being challenged in court.
• Ongoing uncertainty around the federal government’s ability and intent to make sufficient spectrum available for 5G and future services.

Outlook and Conclusion AT&T faces a mix of challenges and opportunities in the coming period. The company’s Mobility segment continues to perform well, with growth in service revenues and expanding margins. However, the Business Wireline unit is experiencing a faster-than-expected decline in legacy services, leading to the significant goodwill impairment.

The Consumer Wireline business is seeing positive trends, with broadband revenue growth and fiber expansion, but legacy voice and data services continue to decline. The Latin America segment is also showing improvement, with revenue and operating income gains.

Overall, AT&T’s financial results for the third quarter and first nine months of 2024 reflect the company’s efforts to navigate industry-wide shifts and transform its business. While the goodwill impairment and other cost pressures have weighed on profitability, the company’s focus on growth areas like Mobility, fiber, and 5G deployment positions it for long-term success. Continued execution on strategic initiatives and managing the evolving regulatory landscape will be critical for AT&T to capitalize on emerging opportunities and deliver value for shareholders.