AT&T executives are celebrating the government’s new tax law that allows U.S. corporations to repatriate offshore earnings at a lower tax rate. During AT&T’s fourth quarter 2017 earnings call with investors yesterday, CEO Randall Stephenson said the tax reform will result in an extra $1 billion in capital expenditures bringing AT&T’s anticipated capex spending for 2018 to $23 billion (excluding the $2 billion investment in FirstNet).
Stephenson said the extra $1 billion will likely be funneled toward fiber deployment, which the company will need to supplement its 5G network. The company already has a fiber footprint of more than 1.1 million global route miles.
Interestingly, AT&T also said that it expects the new tax law and accompanying lower tax rate will result in about $3 billion more in free cash flow for operations.
The company reported consolidated revenues of $41.7 billion in the fourth quarter compared to $41.8 billion a year ago. Net income for the quarter was $19 billion, compared to $2.4 billion in the year ago quarter. The company said that the dramatic difference is attributable to the Tax Cuts and Jobs Act especially related to the re-measurement of deferred tax liabilities.
For the full year, AT&T reported consolidated revenue of $160.5 billion compared to $163.8 billion a year ago. The company said the drop in revenue was due to declines in the wireline business and in wireless service revenues.
5G Will Launch With a Puck?
Stephenson touted the fact that the company is planning to launch mobile 5G later this year in 12 markets. But he noted that 5G smartphones will probably not be available when the company launches its network. Instead AT&T will sell what Stephenson called a “puck,” or what is more commonly known as a mobile hotspot. “Getting handsets at scale penetrated in the market is slow,” he said.
According to Steve Vachon, analyst with Technology Business Research, AT&T may gain bragging rights for being the first operator to launch mobile 5G in the U.S. but the revenue generation opportunities will be limited initially. In a research note, Vachon said that Internet of Things (IoT) use cases that require 5G connectivity, like autonomous cars and advanced healthcare solutions, will not be prevalent for at least a few more years.
Vachon said that AT&T will initially have the greatest benefit from better performance and cost efficiencies.
That may be why Stephenson said during the investor call that he thinks the most exciting use case will be having a nationwide broadband footprint that could serve as a fixed line replacement. Stephenson also noted that applications like autonomous cars and virtual reality will depend upon low latency in the network combined with a distributed cloud. Those are two areas that he believes AT&T will shine because of the way it has focused on virtualizing its network.
He also noted that AT&T achieved its goal of virtualizing 55 percent of its network by year-end 2017, this is up from 34 percent at year-end 2016.