Q3'26 Earnings: AT&T & Comcast; Starlink Wireless Ambitions & Impact on Spectrum Policy

Full Transcript

Don Kellogg

Hello and welcome to the 319th episode of The Week with Roger, a conversation between analysts about all things telecom, media and technology by Recon Analytics. I'm Don Kellogg and with me as always is Roger Entner. Roger, how are you doing?

Roger Entner

I'm great. How are you?

Don Kellogg

I'm good. It's earning season.

Roger Entner

Our favorite. Not only that, yeah, exactly, with fireworks.

Don Kellogg

Right, with fireworks. We're not quite through all the earnings, but we've got a couple of kind of early finishers this week. So AT&T and Comcast both reported. I think there's some interesting storylines on both of those calls.

Roger Entner

And Starlink.

Don Kellogg

And Starlink, and Starlink, that's right, which happens to be intertwined with the other two, right?

Roger Entner

Exactly.

Don Kellogg

Who do you want to start with?

Roger Entner

Let's start with Starlink because that's what it started. They added like what, 1.6 million customers globally with Starlink, so that's probably like another 300, 400,000 in the US. But the real news here that's overshadowing everything is their ambitions for mobile. There was a story in Bloomberg about 80,000 sites that they're looking at. Listeners to the show know that we talked about this for a year now and it's kind of coming through. 80,000 is a little bit on the high end that we expected.

Don Kellogg

I mean, that's a full terrestrial macro network, right?

Roger Entner

That is a more than full terrestrial network because like AT&T, Verizon, T-Mobile are somewhere between 50 and 70,000. And so 80 indicates high frequency urban build. You don't need this many sites unless you go up in the frequency bands where the cell site radius is small and you build it in urban. You don't want to build a cell tower in the fields of North Dakota every 100 yards, right? You do this in Manhattan. So it means he's coming, right? We talked about this for the entire time. Now, I don't think that all the soothsaying and the sky is falling type reaction from investors is justified at all. When you look at it, we expect, or I expect, about 9 to 11 million households to have Starlink. Also, when you look at the timeline, right, he needs 5G NTN, which is in 2027. He needs to get into phones and onto satellites. He needs to have sufficient quantities of satellites and phones, which indicates like, is he going to launch maybe '28, but not enough satellites, not enough phones, right? So this becomes rolling in the upper C-band auction that's happening next summer and can be built out in the 30 to 32 timeframe. So all of this comes together 30, 32. But what we're also seeing, and why do we come up with like 9 to 11, is like, we look at the convergence of all the other providers and we're playing this out. And we're looking at all the unhappy people, the detractors, and they're getting a lot less over time, right?

Don Kellogg

Mhm.

Roger Entner

This is coming together in the 30 to 32 timeframe. But when we look at it, why do we say 9 to 11 million households? This is about non-converged households that are unhappy with their current providers. When we ask everybody on our survey, who's your preferred next provider, Starlink is rivaling DSL as the preferred next provider. So people, there's certainly a group of people who are very enthusiastic about Elon Musk. You know, the number one target group is white males driving Teslas. Clearly the highest thing. But about 20 to 25% in this country are never for any given carrier. Like, I will never sign up with, you name the ISP. For Starlink, that's 40% because of Elon Musk, right? And so there are limits of where he can go. At the same time, when we ran a survey, 25% would sign up tomorrow for a converged offer. So I don't think the sky is falling. Is it going to limit the number of sunny days? Yeah, but I think the market is terribly overreacting on that. And even though AT&T had a good earnings report, Comcast a little bit less, you know, both of them were being hammered the day after when that news came out, right? When you look at it, AT&T 379,000 postpaid phone net adds, pretty respectable. Broadband adds 442 fiber, 327 internet air, really, really strong.

Don Kellogg

Well, we're starting to see within the AT&T base where folks might be migrating off of AT&T internet or their legacy VDSL. We're starting to see AT&T internet air really start to pull its own weight. Similarly to kind of what we saw in the Verizon base and the T-Mobile base, mobile bases, when their FWA was kind of ramping up.

Roger Entner

Yeah. Well, and that's where also Starlink is ramping up, right?

Don Kellogg

Mhm.

Roger Entner

Because it becomes a very viable base. It's a really good product, right? I'm probably repeating myself that Starlink has now, the reliability figures that we see, as reliable as from fiber. And we're running in multiple locations now network tests on Starlink, and I was testing this through a Nor'easter and it was fine, right? So it's like right now FWA speeds with fiber-like reliability. When we look at AT&T, to a certain extent, a little bit, the problem is still outside the footprint, is a little bit challenging. But the internet air numbers that are coming up are, you know, for AT&T, very encouraging because bundling should be independent of that.

Don Kellogg

Well, and to be clear, they're still a fiber-first company, right?

Roger Entner

They're a fiber-first company, but what's really, really interesting is some of the testing that we're doing makes FWA look really, really good when you look at it from an in-home perspective. So it is more than good enough for a lot of people. But yeah, no, they had a good quarter. And then Elon came and

Don Kellogg

Crashed the party.

Roger Entner

Crashed the party and threw a couple of stink bombs around.

Don Kellogg

Yeah. Oh well. So let's talk about Comcast. How'd they do?

Roger Entner

So Comcast again did really well on mobile and less well on home internet and equally badly on video. The broadband net adds were like minus 144 and the market was expecting like 100. The company, Comcast, is putting a lot of effort around improving performance. Put it this way, objective improvements are a lagging indicator to net adds. How about that? And so we're seeing a genuine desire to do better and break with the past. It's just like they're living with the sins of the past that are coming through for probably a while longer.

Don Kellogg

Yeah, I mean, I think the other issue with cable just in general is that you've got fiber coming in at the top, FWA coming in at the bottom, and potentially satellite coming in on top of all that as well, right? There's just a lot of price pressure.

Roger Entner

There's a lot of price pressure. Also, the cable guys still have their loyalty penalty where their most loyal customers pay the most and get the worst experience. That sucks. And it's extremely hard to re-rate the base.

Don Kellogg

Well, but if you don't, sometimes the base re-rates itself, right? That's also a problem.

Roger Entner

Exactly. That's what you see with the 144,000 people leaving, right? The base re-rates itself. Now, damned if you do, damned if you don't. And so from that perspective, it is what it is. Talking about damned if you do, damned if you don't, last week we talked with Ray Dolan from Cohere. So we didn't cover that AT&T was exiting Mexico. This was like a long overdue change, and it's probably one of the last things that John Stankey cleaned up, a mess that Randall Stephenson created. If we go down memory lane, AT&T owned 24% of America Movil. America Movil is the company owned by Carlos Slim, who is now chairman emeritus, whatever. He owns Telcel and Telmex with like 80% plus market share. And they thought, yeah, we're going to take you on, buddy. And TracFone was mostly on AT&T before that happened, and now it's no longer. Right now TracFone and that whole empire is owned by Verizon, and because of that mishap, Verizon has now a value story, which they didn't have beforehand. If you add it all up, they paid $4.8 billion to buy it altogether. CapEx and accumulated losses over the last 10 years is another $12 billion. And they got out for two. So that was a very painful lesson of what not to do. But it was the right thing to get out. They were getting nowhere near ever to get to this. Some people were like, "Oh, they should have gotten $4 billion." At one point in time, you need to get out, right? And they got out. And so it's like a fitting bookend. Thaddeus Arroyo, who left at the end of last year, was doing a lot of the negotiations, and now Pascal leaving at the end of this year. This is a befitting cleanup of the AT&T balance sheet and operations of getting out of Mexico that didn't make sense. It didn't make sense in the beginning, it didn't make sense during, it didn't make sense in the end. So it's like they got $10 billion. Take it and run.

Don Kellogg

Well, and sometimes you have to cut your losses, right?

Roger Entner

You got to cut your losses and they did this. They realized it was a mistake and so you got to undo the mistake. You can't undamage the situation that got damaged. It is what it is.

Don Kellogg

Speaking of damage, there's I think one more thing we wanted to talk about, and that's maybe the relationship between T-Mobile and Starlink. There's a petition, right? Tell us about it.

Roger Entner

Oh, yeah. Well, we talked about it, T-Mobile on T-Satellite is no longer quoting Starlink. But also they did a petition at the FCC that if Starlink gets its way of using the 2.5 gigahertz spectrum, which is the capacity layer for the T-Mobile network, if Starlink would get its wish, it would wipe out like 90% of the uplink. And it had been previously repeatedly decided that satellite should not play into this. But the satellite guys are basically playing Starlink doctrines, you know.

Don Kellogg

At the gates, yeah, yeah.

Roger Entner

Well, it's like, you know, the Brezhnev doctrine was like, what's mine is mine and what's yours, we'll talk about it. And the Starlink doctrine is like, what's mine is mine and what's yours, mine too. And so the satellite guys are approaching this like, licensed spectrum, what is this? We have a natural right to use all spectrum. And no, you don't have this God-given right. There's a reason why we have licensed spectrum and there's a reason why we have unlicensed spectrum, and the people who pay for their license should have the exclusive benefits for that.

Don Kellogg

I mean, there's also been a pretty well-documented history of arbitrage around what spectrum should and shouldn't be used for, like repurposing terrestrial spectrum for satellite and things of that nature.

Roger Entner

Exactly.

Don Kellogg

Obviously, if you pay for it, you should be able to use it exclusively.

Roger Entner

Yeah, you paid for it. Yeah. You know, I paid for my lunch, I want to eat it. I don't want to share it with you. Just because you think you're pretty, doesn't work like that.

Don Kellogg

Right. Anyway.

Roger Entner

All right.

Don Kellogg

Well, we'll be back next week with more earnings.

Roger Entner

Yes.

Don Kellogg

So there's a couple more carriers left to go and we'll definitely talk through that next week.

Roger Entner

Okay. Talk to you next week.

Don Kellogg

All right.

Roger Entner

Thank you. Bye-bye.