Telecommunications giant AT&T (NYSE:T) announced its first-quarter earnings results on Wednesday. The results were relatively mixed, with revenue falling short of expectations and earnings per share (EPS) hitting the mark. AT&T's shares declined modestly on news from the report.
If you own AT&T stock or are considering investing in the company, there were three key points covered during the Q1 earnings call that you need to know about. They are:
1. 5G pricing has profit potential
On the call, AT&T CEO Randall Stephenson pointed out that, today, "the pricing regime in wireless doesn't look like the pricing regime you see in fixed line."
Put simply, internet service providers will often offer customers different price tiers based on download speed, ranging from cheaper, relatively slow lines to more expensive, extremely fast ones. By contrast, in the world of wireless, it has historically been more common to pay for a certain amount of monthly data usage rather than for a peak data rate.
That, Stephenson said, could change in a 5G world.
"We expect there's going to be demand and that there will be price differentiation for speed as you move into a 5G environment," he said.
This could have huge -- and positive -- implications for wireless carriers, as the opportunity to up-sell consumers on higher-speed connections could help boost average revenue per user, and ultimately drive revenue and profit growth.
2. WarnerMedia is delivering the goods -- so far
AT&T dropped a whopping $85.4 billion to acquire Time Warner in a deal that closed last year. The good news is that this asset seems to be performing reasonably well for its new owner, with sales up 3.3% and operating income rising 11.6% from a year ago.
As far as that deal goes, Stephenson said that the company's "merger-related synergies are on track, and we expect to hit $700 million in run rate by the end of the year."
Additionally, Stephenson explained that John Stankey, CEO of WarnerMedia, and his team "have reorganized the business to compete in a world of streaming and streaming content." He also highlighted that AT&T has "brought in some great new talent like Bob Greenblatt ... [who] is running WarnerMedia Entertainment, and he is also leading the [subscription video on demand] development project for us." Greenblatt was previously the chairman of NBC Entertainment.
It will be a while before it's clear whether this acquisition was the right use of capital for AT&T, but so far, things seem to be going well.
3. Debt reduction is on course
One thing that is probably of interest to many AT&T investors is the progress it's making in bringing down its debt levels. Put simply, AT&T added a lot of debt after it bought Time Warner, pushing its overall debt level to $180 billion.
But the company has been throwing the free cash flow that it generates after paying out its dividend, as well as the additional funds generated from its asset monetization efforts, toward retiring that debt. By the end of Q1, AT&T had cut its net debt load to $169 billion, and management reiterated its confidence that it would get the number down to around $150 billion by the end of the year.
"So, bottom line, we committed to driving our net-debt-to-EBITDA ratio to around 2.5 times by year-end, and we are right on track for achieving that," Stephenson said.