AT&T officials expect greater FirstNet adoption as Band 14 deployment remains ahead of schedule

AT&T expects greater public-safety adoption of FirstNet in 2019, as subscribers to the system benefit from the carrier’s plans to execute an aggressive coordinated deployment of FirstNet and 5G throughout much of the U.S. during the year, AT&T executives said today during the company’s quarterly earnings call.

John Stephens, AT&T’s senior executive vice president and chief financial officer (CFO), said the FirstNet buildout is “well ahead of schedule,” with 40% of the overall deployment of the 700 MHz Band 14 spectrum licensed to the FirstNet Authority completed as of the end of 2018. AT&T is contracted to complete the contracted FirstNet buildout by the end of March 2022.

“We’re at 40% at the end of the year. I would suggest to you that we’ll continue at a comparable pace that we were at last year for most of this year, [but] I won’t give you a specific number,” Stephens said during the conference call. “I will tell you that … they did a phenomenal job at overperforming last year, so I’m not going to hold them up to those standards, but we’re clearly on track to get this thing done well before the five-year [deadline].”

AT&T had $23 billion in overall capital expenditures during 2018, with $1.7 billion being reimbursed by the FirstNet Authority, according to an AT&T slide. Capital expenditures are expected to increase to $24 billion this year, with about $1 billion of that figure being reimbursed by the FirstNet Authority.

Stephens reiterated AT&T’s deployment strategy, which calls for crew installing equipment to support FirstNet Band 14 operations to also install gear for the carrier’s WCS and AWS-3 spectrum—work that increases AT&T’s spectral capacity at each site by more than 50%. In addition, these crews also prepare the site for AT&T’s 5G Evolution service, which allows the sited to be transformed to 5G via a remote software upgrade.

AT&T’s 5G deployment strategy “works hand in glove with the FirstNet build,” Stephens said, noting that AT&T is on pace “to get the majority of the country covered by 2020 with standards-based, mobile 5G.”

AT&T Chairman and CEO Randall Stephenson said he believes the improved coverage and capacity will begin to impact commercial customers’ experience during this second and third quarters of this year.

“It is going to be a discernible difference, from a customer-experience standpoint, as we turn it up—and it’s going to be a discernible difference for the customer, without the customer having to change handsets,” Stephenson said. “The lion’s share of our customers will just experience this as we turn it up.

“We’re deploying FirstNet across the country. As we deploy FirstNet, we turn all of this spectrum up, so that FirstNet becomes the driver for our overall customer base experiencing this benefit. We have a lot of conviction that this is going to be a step-change improvement. Our customers will experience it, and it’s going to be a significant help, in terms of driving churn down.”

Stephenson said AT&T expects to see growth in the FirstNet subscriber base throughout 2019.

“We have some fairly strong expectations on customer adds from FirstNet,” he said. “We think FirstNet is going to be a significant driver of customer additions as we move into the second, third and fourth quarter of this year.”

Stephens said that more than 5,000 FirstNet-qualified organizations have subscribed to more than 450,000 to date. While many of these were AT&T commercial customers, that dynamic is expected to change significantly this year, he said.

“A significant amount of those early adopters were migrations—maybe close to two-thirds or 60%, or so—but we are now getting a lot of new adds,” Stephens said. “As this buildout gets past the existing 40% [threshold] and into 50%, 60% and 70%—as we continue to make that progress—I think you’ll see us grow that new-customer share and numbers significantly.”

Some analysts have expressed concern about AT&T’s debt load, which reached $180 billion after the company merged with Time Warner that was complete in June 2018. After generating a record $22.4 billion in free cash flow during 2018, AT&T reduced its debt amount to $171 billion by the end of 2018, according to a company slide.

AT&T expects to generate about $26 billion in free cash flow this year, and about $12 billion of that amount will be used to reduce the company debt. Combined with “monetization efforts”—for example, sales of real estate and non-core assets—AT&T official project the debt total at the end of 2019 would be about $150 billion, which would represent about 2.5 times the company’s adjusted EBITDA for the year.