AT&T's Genius Strategy May Bolster Expansion by 2025
In recent years, telecom giant AT&T (T 0.50%) has been racking up wins in the wireless and fiber internet game. Over a two-year stretch ending on September 30, the company added around 7.5 million new wireless subscribers and over 2 million fiber subscribers, all while dealing with a drop in demand for old-school wireline services.
One major factor contributing to AT&T's growth is its remarkably low customer churn rate. As of late, postpaid phone churn sat at a historic low of 0.78%, a stark contrast to the past and a testament to few customers jumping ship to competitors. Factors contributing to this include sluggish phone upgrade rates.
Ditching the Discounts for Dependability
To attract new customers, many wireless providers rely on promotional offers – like giving away heavily discounted smartphones in exchange for multiyear agreements. While this strategy works for the initial jolt, the costs can be substantial, and there's no guarantee the customer won't skip town once their contract expires.
AT&T is thinking outside the box this year with its new AT&T Guarantee program. The company is offering both wireless and fiber customers automatic bill credits for outage-related downtime, with thresholds of 20 minutes or more for fiber and 60 minutes for wireless. And, in the event of a major outage, the costs could add up. However, by attracting frustrated customers who have had enough of their current providers and lowering the chances of existing subscribers jumping ship, AT&T could be on to a winner.
Give Customers What They Want
AT&T's Guarantee program could hit the sweet spot for home internet customers with limited options for service. Laying down fiber requires a substantial upfront investment, and it can take time for passed homes and businesses to become customers. As of now, AT&T's consumer fiber penetration rate sits at just 40%, leaving plenty of room for improvement.
Steady as She Goes
Given the company's vast scale, AT&T's growth may be slow going, but any improvements in churn or subscriber gains due to the new bill-credit policy could push the company's results closer to or even beyond its targets. However, if competitors throw similar perks into the ring, the advantage could dwindle.
2025 looks promising for AT&T. The company expects mobility service revenue to climb by 2% to 3% annually, with consumer fiber revenues growing at a mid-teens rate. The fiber network is slated for significant expansion, with AT&T aiming to pass over 50 million homes and businesses by 2029 – up from its current 29.8 million. And, the company projects free cash flow of $16 billion in 2025, with that figure reaching $18 billion by 2027.
With a customer-centric strategy kicking things off in 2025, AT&T seems well-positioned for a solid year. And, with the stock trading under 10 times the 2025 free cash flow target, now might be the perfect time to hop on board the AT&T train.
In terms of financial planning, AT&T has begged to consider investing in its Guarantee program, as it could potentially attract new customers and reduce churn rates, thereby boosting its revenue streams. Moreover, the company's customer-centric strategy and expansion plans for its fiber network, as revealed for 2025 and beyond, make it an attractive prospect for financially-savvy investors.
