AT&T’s CEO sees growing opportunities in the mid-sized business market

Jan. 25, 2024
The telco is moving to create new packages tailored to the segment’s diverse needs.

AT&T is a well-known commodity in the sizeable multinational business sector, but the provider continues to look to make a bigger splash in the mid-market business segment. Like small businesses, the medium-sized business segment has been continually poached by aggressive cable operators that have built out sizeable networks to businesses.  

John Stankey, CEO of AT&T, reiterated to investors during the telco’s fourth-quarter earnings call that it is making headway with mid-market business customers. “We're shipping into the mid-market and trying to be a much more effective provider,” he said. “And we are seeing the green shoots of that occurring.”

However, he cautioned that the mid-market is “moving a little slower” because it requires different processes and product approaches. This includes repricing, new systems and capability for third parties.

 

“It requires us to open up entirely new distribution channels and cultivate new relationships with ways to represent our products than what we've traditionally done through what I would call directly owned and operated channels,” Stankey said. “It requires us to bundle and repackage the products a bit differently to be effective in that space, which we've been doing.”

Interestingly, AT&T’s aggressive fiber push also affects the small and medium business segments. “We're starting to see that instantiate itself in fiber-driven revenues that are coming on the products and services we want to sell, which are connectivity-based products and services,” Stankey said.

Wireline revenue challenges continue

However, compelling its movement into the mid-market is that the AT&T Business Wireline segment struggled from a revenue perspective in the fourth quarter.

Business Wireline revenues were $5.1 billion, down 10.3% year over year due to lower demand for legacy voice and data services and product simplification, partly offset by growth in connectivity services.

EBITDA declined about 19% in the quarter. The service provider’s wireline business segment was impacted by about $100 million of items, primarily discrete intellectual property transaction revenues in the fourth quarter of 2022 that did not repeat in the fourth quarter of 2023.

Stankey said lower wholesale service revenues affected Business Wireline’s results. “The piece that probably further impacted that segment was wholesale revenues were weaker than what we expected,” he said. “Those are essential revenues in the Business Wireline segment because they tend to be higher margin, more resilient, subscription-based services.”

He added that there have been various factors that have been affecting access services and wholesale. “Some of it's been driven through M&A consolidation; some of it is a new technology,” Stankey said.

However, there were some bright spots as AT&T saw connectivity growth through 5G, and fiber expansion enabled share gains in small/medium businesses.

As CFO of AT&T, Pascal Desroches, said, "We expect trends in Business Wireline EBITDA to improve on a full-year basis in 2024."

Wireless influence grows

Like earlier quarters, AT&T’s business segment continued to see continued wireless growth. AT&T Business Solutions wireless services grew 5.9%, and FirstNet added over 260,000 connections.

Stankey said that while the company reports Business Wireline as a segment, AT&T sees the business market as an important one it serves. “On a combined basis, wireless and wireline, we're still growing EBITDA in that segment,” he said. “Some of it is being driven by the goodness of more and more businesses that can run their company's core on a wireless infrastructure.”

While AT&T has not been as aggressive with broadband wireless as its peer Verizon, it could leverage its Internet Air product to deepen its ties with business customers. “When we talk about things like fixed wireless assets and AT&T Internet Air being an opportunity for us, we will be in a much better position this year on the cash to do some of that,” Stankey said.

Besides its wireless and fiber assets, AT&T plans to lure and maintain existing business customers through its experience.

“Our brand plays incredibly well, so we can walk in and have credibility,” Stankey said. “We've got the right products that ultimately customers want if we can distribute them properly. And I am highly optimistic that as convergence becomes more important, we will further distinguish ourselves in the mid-market.”

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