What happened
Shares of AT&T (T -0.15%) rose 12.9% in May, according to data from S&P Global Market Intelligence, after the telecom giant announced it was raising prices on its older wireless plans for the first time in years.
The increase would see the monthly cost of individual plans rise by $6 per month while family plans would rise by $12 monthly. The price hikes do not affect AT&T's newest Unlimited plans.
Image source: Getty Images.
So what
Although analysts worry that AT&T's increases could cost it customers who might switch to T-Mobile or Verizon as the industry has long competed by offering customers discounts, the carriers are not immune from rising costs in this inflationary period.
CEO John Stankey, for example, told analysts that labor costs "added something with a B into overall cost structure," meaning a billion dollars, so the price increases are essential and may give permission for its rivals to raise rates as well. That would offset any competitive advantage they might otherwise possess.
AT&T, though, has been recently released from the shackles its Warner Bros. entertainment division saddled it with. It merged the business with Discovery to form Warner Bros. Discovery, which began trading independently in April. In return, AT&T received some $43 billion to pay down debt and invest in its 5G telecom business.
Now what
Verizon's own quarterly report showed it was losing market share at a time the 5G network market is becoming more intensely competitive and could be worth as much as $31 trillion by 2030. Carriers are forecast to receive some $3.7 trillion of that value as consumers spend more on enhanced video, augmented and virtual reality, and digital gaming over 5G networks.
AT&T expects revenue to rise by the low single digits this year and next and for adjusted earnings per share to rise by 2% in 2022 and as much as 7% in 2023. It also believes it can generate $20 billion in free cash flow next year, about 40% of which will be available to spend on dividends.
The dividend cut it took when it calved off Warner Media turned off a lot of investors who invested in the telecom solely for the payout and the high yield it offered. Yet with even the reduced dividend still yielding 5.2% annually, it remains a top pick for income investors still.
