AT&T leaned on recent 5G network achievements to offset investor concerns about a decline in financial performance during the second quarter of 2020. The mobile network operator claims its 5G network running on low-band spectrum is now available “nationwide,” covering a potential population of 205 million people in 395 markets across the country. 

The COVID-19 crisis effectively cost the company $2.8 billion in revenue during the quarter, according to AT&T’s calculations, and the resulting impacts of the pandemic “are going to be with us for some time,” AT&T’s new CEO John Stankey said during the earnings call. 

“We’re planning on operating under the assumption that significant accommodations for COVID will be the business norm well into next year,” he said. AT&T previously warned investors that the COVID-19 crisis may slow the adoption of 5G.

AT&T’s wireless business, which accounted for almost $17.15 billion in revenues or nearly 42% of the company’s total revenues during Q2, posted substantial subscriber losses, which the company attributed to 340,000 non-paying customers with service being subsidized by federal and state-run programs during the pandemic. 

Mobile service revenues were down 0.8% on a year-over-year basis and nearly 1.4% from the previous quarter. AT&T blamed much of that decline on lost international roaming revenue and waived overages and late fees. 

AT&T Hangs Outlook on Massive Cost Cutting

Calamity brought on by the global pandemic has strengthened AT&T’s resolve in achieving its ongoing transformation efforts, according to Stankey. Those plans include a goal to cut $1.5 billion in labor-related costs this year and a cumulative $6 billion in savings during the next three years.

“If anything, COVID has led us to ramping these efforts,” Stankey said, adding that the company is pursuing 50 work streams across 10 broad initiatives to identify opportunities to cut costs. “Our workforce realignment and reduction of labor costs is underway,” he added.

AT&T scored a new $5.5 billion loan at the beginning of the quarter, but hinted at possible cuts that could include more job losses. AT&T shed 20,420 jobs last year, representing a 7.6% decline from 268,200 jobs in 2018 to 247,800 employees at the end of 2019.

A significant portion of those job losses are attributable to AT&T’s six-year effort to virtualize its core network functions with SDN and a more recent push to move more of its non-network applications to the cloud. The company recently recommitted to virtualize 75% of its core network functions by the end of the year.

“Our market and product focus will drive simplification into our operations and resize our operating and technology footprint, all while taking further advantage of our evolution to cloud and virtualized services,” Stankey said on the earnings call.

“To grow, we know we have to be more effective and efficient in our execution,” he said, adding that AT&T expects ongoing pressure in the lower-end of the business market. “We’re continuing to invest significantly in our growth areas of fiber, 5G, which is nationwide as of today, FirstNet, and HBO Max.”

Analysts Predict Inevitable Break-Up of AT&T

Analysts at MoffettNathanson concluded that AT&T’s financial challenges are growing and unlikely to level off soon. “Nothing in today’s results provides all that much insight into how AT&T will emerge from the recession,” the firm’s analysts wrote in a research note. 

“Weakness outside of their mobility segment threatens their ability to compete inside it as well,” the research firm wrote. Moreover, it questions if AT&T has the balance sheet to compete for licenses in the FCC’s upcoming auctions for mid-band spectrum. “T-Mobile already has a huge spectrum advantage over AT&T and Verizon. Verizon is expected to pay handsomely to close that gap. Can AT&T afford to do the same?” the analysts wrote.

“Wireless, while widely viewed as ‘defensive’ at the industry level, is facing a market share challenge at the company level, as T-Mobile’s service is both cheaper and, increasingly, boasts a better network,” MoffettNathanson analysts added. “Real change will have to wait for a full on break-up of the company, which still looks to us to be a ways down the road, but also looks to us to be inevitable.”

AT&T said it spent $4.5 billion on capex during the quarter and invested $1 billion in new 5G spectrum. The company banked $1.56 billion in net income on $40.95 billion in revenue during the quarter. Profit was down 60% from the year-ago period and 68.5% from the previous quarter, and revenue was down 8.9% year over year and nearly 4.3% from the previous quarter.