Pascal Desroches, Senior Executive VP and CFO, AT&T Inc. Source: AT&T

AT&T prepared investors for strong recession-led operational headwinds during the second half of the year, which the telecom giant said will impact its bottom line. However, it remains committed to investing in its network operations, including a focus on its 5G and fiber-related assets.

As part of the carrier’s second-quarter earnings release, CFO Pascal Desroches told investors that AT&T was bracing for a delay in consumers paying their bills due to surging recession concerns. He explained that “it’s taking about two more days than last year to collect customer receivables,” which resulted in a $1 billion impact in Q2, and that AT&T had around $130 million in higher bad debt expense.

“While bad debt is now slightly higher than pre-pandemic levels, it is being offset by better than expected customer revenue growth,” Desroches spun, citing recent price increases.

Desroches also warned that AT&T was cutting its full-year free-cash-flow guidance from $16 billion down to $14 billion due to ongoing economic and recession uncertainty. That cut was significant, but looked modest next to the carrier only posting $4 billion in free cash flow for the first half of the year, which was well below expectations.

The executive explained that AT&T had front-loaded its $24 billion in full-year capex due to its mid-band 5G and fiber deployments. This will lessen second-half spend needs, though AT&T remains committed to spending another $24 billion on capex in 2023.

“It underscores the importance of transitioning to our own operating connectivity services as well as rolling 5G and fiber integrated solutions,” Desroches said of its capex push. “In fact, our connectivity services revenue growth continues to accelerate as we are up nearly 15% year over year. Both areas, business 5G and fiber, continue to perform well.”

AT&T has previously stated that its ability to tie together its 5G and fiber networks allow it to better support enterprise SD-WAN, secure access service edge (SASE), and security needs. The carrier has struck a number of deals with vendors like Cisco, Fortinet, and Palo Alto Networks to power these SD-WAN, SASE, and security initiatives.

“As people migrate away from VPN and we have a more dense fiber base, we're selling more fundamental underlying transport, frankly, at higher speeds and therefore higher connection values in that segment of the market, and that's where our future is,” added AT&T CEO John Stankey on the Q2 call.

Operationally, AT&T posted flat results for its now dominate communications segment, which includes its 5G wireless, wireline, and fiber operations. Segment revenues increased 2% year over year to $28.7 billion. However, increased costs and a loss of wireline customers dropped segment operating income by 2.1% to $7.2 billion.