AT&T CEO says FirstNet buildout 60% done, with 70% mark targeted by end of year

AT&T’s FirstNet 700 MHz Band 14 deployment was about 60% finished at the end of June, and the carrier giant hopes to reach the 70% completion mark by the end of the year, AT&T CEO Randall Stephenson said this week.

Under its contract with the FirstNet Authority, AT&T was not required to reach the 60% buildout mark for the nationwide public-safety broadband network (NPSBN) until the end of March 2020. The current buildout pace is about nine months ahead of the contracted schedule.

“At the end of the quarter, we were about 60% complete with our FirstNet coverage—ahead of plan,” Stephenson said during AT&T quarterly conference call highlighting the company’s second-quarter financial performance. “We’re now targeting 70% completion by year end.”

Stephens reiterated AT&T’s FirstNet deployment strategy, which calls for crews installing equipment to support FirstNet Band 14 operations to also install gear for the carrier’s WCS and AWS-3 spectrum—work that will increase AT&T’s overall spectral capacity by more than 50% by the end of the year. 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.

“Our FirstNet build is accelerating our 5G deployment,” Stephenson said. “As we deploy FirstNet, we’re installing hardware that can be upgraded to 5G with a simple software release. As a result, we’re on track for nationwide 5G coverage by the first half of 2020.”

While AT&T will not have 5G deployed on its low-band and mid-band spectrum until next year—5G on millimeter-wave spectrum is being built out at a slower pace—the impacts of the network investments already are being realized, as the carrier recently has won numerous awards for network performance.

“The piece that’s not inconsequential—in fact, it’s probably the most important of all of this—is that AT&T now has claimed the network-quality mantle,” Stephenson said. “Network quality is ours, and we feel very strongly about this. We’ve been rated the best, the fastest and the most reliable network by people who do this for a living on an independent basis.

“As a marketing position, that’s a great place to be, and we’re starting to see the impacts of this in key-segment customer churn. We’re starting to see it in terms of gross-add capability. And just having a strong-network-quality brand and message in the marketplace—by itself—is a growth strategy. So, bottom line, we’re feeling pretty bullish about the wireless business right now.”

AT&T Chief Financial Officer John Stephens said that the company has generated $29.1 billion in free cash flow during the past 12 months, and AT&T raised it free-cash-flow guidance for 2019 from $26 billion to $28 billion. Stephens acknowledged that figure could be higher but wants to ensure that capital money is available to fund efforts to accelerate the FirstNet and 5G network deployments, if needed.

“Our network team that is putting in FirstNet is, quite frankly, ahead of schedule,” Stephens said during the conference call. “They’re being really efficient, but if they need more capital, I want to have the flexibility to do that and still meet what our guidance is. If we can get software releases out quicker with regard to 5G and put those in place, I want to retain the flexibility to do that.

“The 60% achievement level that we’re at is nine months ahead of schedule. If we can keep doing this, and the impacts on the overall wireless business are really showing up in lower churn and customers—we’ve had a million [new] voice customers in the last year and 355,000 just in the last quarter. We feel really good what it’s doing, so I want to be ready to support those really quality efforts.”

Stephens also noted that the progress of the FirstNet buildout has a financial benefit to the company.

“If we get 70% of this complete by the end of this year—and our network guys have surprised me to the positive side before—we’re going to have a lot of the capex [associated with the FirstNet deployment] behind us on the build side, and the remaining piece will be software upgrades,” Stephens said. “So, we feel really good about the financial aspect of this process, also.”

Under its contract with the FirstNet Authority, AT&T is eligible to receive $6.5 billion by completing the planned buildout of the FirstNet system. AT&T can be paid a portion of this total each time the carrier reaches a buildout benchmark—for example, hitting the 60% threshold is one of those—in terms of providing planned network coverage in both urban and rural areas.

Stephenson said that these FirstNet-driven rural initiatives already are having a “quite significant” impact on the carrier’s subscriber totals.

“As we build out the FirstNet network, we’re moving into markets where we have had a pretty thin presence in the past—these are rural communities,” Stephenson said. “And as we move into these communities, we are standing up brand new distribution in many communities.

“And everybody … who’s followed this business for awhile knows what the penetration numbers look like when a new entrant comes into a community. The first market share comes to you quick, and we’re starting to see that as we stand up distribution in new communities. We’re at the very front end of this—we’re 60% built out on our coverage. We have 40% more to go, so there’s a lot of opportunity left here.”

Stephenson also clarified AT&T’s strategy regarding 5G deployments that utilize millimeter-wave spectrum, which requires extremely dense cell sites but also delivers data speeds of more than 1 GB/s and even more than 2 GB/s. But AT&T initially will deploy millimeter-wave technology only in targeted areas—primarily for enterprise customers—that require the high data throughput and low latencies that millimeter-wave 5G provides.

“The really high-performance, millimeter-wave spectrum is going to come market by market, and it will take awhile to deploy the really high-speed spectrum. As we turn it up, our focus will be a little different than some of our competitors—it’s a business-driven focus at the go down.

“We can deploy this technology if somebody needs a connected factory or a connected plant—we’re doing this in Austin now. You will see us do that. If somebody needs a Wi-Fi replacement for their business operations, we can deploy and we can replace that. If somebody has IoT applications, we can begin to deploy this and roll these services out kind of commensurate with the network deployment.”

One key driver of making millimeter-wave 5G available on a broader basis is the availability of millimeter-wave handsets, which are in short supply today but are expected to be more plentiful by the end of next year, according to Stephenson.

“As we get broad coverage of the millimeter wave and as our customers begin to get handsets into their hands that can use this technology … then you’ll see us ratchet up the marketing and the promotion,” he said. “We don’t want to get too aggressive with the consumer right now where there aren’t handsets in the marketplace and there isn’t significant coverage. That will happen as we go through the course of next year.”