Telecom giant AT&T (T 0.81%) has been steadily gaining wireless and fiber internet subscribers over the past few years. Over the two-year period that ended on Sept. 30, AT&T grew its total wireless customer base by about 7.5 million subscribers. The company also added more than two million fiber subscribers over that time off a much smaller base, which helped to offset slumping demand for legacy wireline services.
Part of the reason why AT&T has had so much success growing its subscriber count is its incredibly low churn rate. Postpaid phone churn was most recently just 0.78%, a historically low level for the company that indicates that very few customers are jumping ship to competitors. There are multiple factors at play, including sluggish phone upgrade rates.
A smart alternative to promotions
One tool that wireless providers use to pull in new subscribers is enticing promotions for new customers. Heavily discounted smartphones, often tied to multi-year agreements, are commonplace in the industry. The downside of this approach is the cost. Giving away a brand-new iPhone for little or nothing to a new subscriber is an expensive way to win a customer, and there’s no guarantee that that customer won’t jump ship for a competing offer once their contract ends.
AT&T is trying something different this year. Under its new AT&T Guarantee program, the company is offering both wireless and fiber customers automatic bill credits for qualifying outages. For fiber customers, downtime of 20 minutes or more qualifies for bill credits. For wireless customers, the threshold is 60 minutes. This program also applies to businesses, where a loss of connectivity could mean lost sales and frustrated customers.
While a major outage would be costly for AT&T under this program, it could help draw in wireless and fiber customers frustrated with their current providers as well as lower the odds that existing subscribers will consider switching. Winning new subscribers without having to resort to expensive promotions is a win.
AT&T’s Guarantee program may be particularly attractive to home internet customers with few options for internet service. Laying down fiber is a capital-intensive endeavor, and only a fraction of passed homes and businesses ultimately become customers. AT&T’s consumer fiber penetration rate is just 40%, so there’s plenty of room for improvement.
Steady growth ahead
AT&T’s customer-friendly move will likely help it hit its growth targets for 2025 and beyond. Through 2027, the company expects mobility service revenue to grow by 2% to 3% annually, while consumer fiber revenue is expected to grow at a mid-teens annual rate. The fiber network is set for a major long-term expansion, with AT&T now targeting more than 50 million homes and businesses passed by the end of 2029. That’s up from just under 30 million locations passed today.
Free cash flow is also expected to rise. AT&T is targeting free cash flow of $16 billion this year, with that figure growing to more than $18 billion by 2027. These estimates exclude any contribution from DIRECTV, since AT&T has struck a deal to sell its remaining stake in the satellite TV company.
While AT&T’s growth will be slow and measured no matter what, given its massive scale, any improvements in churn or incremental subscriber gains driven by the new bill credit policy could push the company’s results toward or even past the high-end of its targets. One caveat: Competitors could end up rolling out similar benefits, which might nullify any benefit.
With a customer-friendly approach to kick off 2025, AT&T is setting itself up for a solid year. With the stock trading for less than 10 times the 2025 free cash flow target, now is a great time to invest in the telecom giant.
