AT&T reported first quarter (Q1) results that were in line with Wall Street expectations, with its top and bottom lines boosted by healthy additions to its fiber Internet business and wireless phone service.
But the good times may be over for a while, as tariffs threaten to cut into AT&T’s lucrative smartphone and tablet sales that are often bundled with its wireless products.
The company benefitted from announcements by President Donald Trump earlier this year that warned of tariffs on imported goods from China and other countries, where smartphones, tablets and other wireless consumer electronics are manufactured.
That convinced customers that now was the time to upgrade their older devices, AT&T Chief Financial Officer Pascal Desroches told investors on a conference call Wednesday.
“Upgrades have trended higher than expected since the announcement of the reciprocal tariffs in early April, which we believe triggered an acceleration in consumer upgrade behavior,” Desroches said.
The end result is that AT&T closed Q1 with an additional 324,000 postpaid phone lines — the part of the wireless business that drives the most revenue. The number does not directly translate to customer additions, because accounts can have multiple lines of service, and AT&T — like its peers — is aggressive in promoting free or heavily discounted phones to new and existing subscribers who add lines and agree to stick with their service for a certain amount of time.
Some of those promotions could be curbed over time, with AT&T executives warning that a tariff and trade war involving the U.S. will likely lead to higher wholesale prices for smartphones and other devices, which would be passed on to consumers.
AT&T CEO John Stankey said the company has gotten creative in the past with its promotions and sales when addressing inflation that caused device prices to go up. Customers have also adjusted on their own by hanging onto devices longer than the typical upgrade cycle, which is around two years.
“Even though we’ve been seeing average cost of handsets increasing over time, as you know, we’ve done a nice job of improving the profitability and performance of this business,” Stankey said. “So if tariffs are the next driver of an increase in the unit cost of handsets, I imagine we’re going to have to go through the exact same play, which is, first of all, understand what the customer needs and then make some adjustments to how we support them in that process.”
Still, Stankey warned that tariffs will almost certainly result in customers paying more for smartphones and similar gadgets.
“Unfortunately, for the customer, we’re going to have to come up with some new ways for them to figure out how to digest that increase in pricing,” Stankey noted. “I don’t see the business model dramatically changing to accommodate subsidy levels that are much different from what’s out there today, and the modest adjustments we make to those, day in and day out, but we’ll find different creative ways to build plans and approaches and supports that allow them to continue to use the network effectively and do what they need to do and feel good about it..”
Overall, AT&T earned $30.63 billion in revenue during Q1, about in line with the $30.36 billion predicted by Wall Street heading into the earnings period. AT&T intends to repurchase around $3 billion in stock, an indicator that AT&T is operating within its means.
On the broadband side, AT&T said it added 261,000 AT&T Fiber customers during Q1, reflective of the company’s continued commitment to building out its pure fiber network across the U.S. AT&T says its fiber network now reaches more than 29.5 million locations — a data point that includes single-family residences, apartments, businesses, factories and government offices.
In markets where AT&T Fiber is not immediately available, the company continues to promote a hybrid approach called AT&T Internet, which still utilizes copper lines for some of its delivery. It also sells AT&T Internet Air, which delivers broadband to homes using the company’s 4G LTE and 5G wireless networks, though connections are deprioritized over smartphone users and government subscribers on FirstNet. AT&T Internet Air additions was 181,000 during the period, AT&T said.
