AT&T (NYSE:T) is hoping 5G will lead both the company and its stock to glory in 2019. So far, investors are not buying it. AT&T stock trades below $30 per share, down about 13% from where it was in October and off 20% from its January high of over $36.
In nominal terms it’s an incredible bargain. Today’s buyers get a yield of 6.86%, supported by earnings and pay a price to earnings multiple of just 5.6.
That’s because AT&T’s balance sheet as of September included $185 billion of debt. The cost of that debt will go up as it’s refinanced, because the U.S. government is adding $1 trillion to its own debt each year thanks to the 2017 tax cut.
The party must be paid for. AT&T’s purchase of Time Warner must also be paid for.
Content Transport and AT&T Stock
The end of net neutrality means AT&T will be forcing Internet users to buy content they don’t watch as it once forced cable users to.
AT&T will pull content libraries away from other services but could offer them “free” to its own customers, while charging for the bits other services consume. It will then raise internet prices for the content, even if people don’t consume the content.
This is already starting to happen with DirecTV Now. AT&T will raise prices for the “skinny bundle” in January but plans more hikes in the future.
While this should mean fewer subscribers AT&T can keep the numbers high by offering to not charge for the bits used to get the service. When customers take its Streaming Box that box will also change the Android user interface to favor AT&T services.
The 5G Hype Train
Why consumers will buy this is because of the 5G hype train AT&T is jumping on.
Consumers are being told 5G will increase their Internet speeds by a factor of 200. It will be advertising 1 GBPS speeds, but these will only be available next year in some urban WiFi hotspots, and then only to consumers whose devices support new 5G hardware.
AT&T hopes to get a premium price for 5G packages, charging $70 per month for 15 GBytes of data that, at 5G speeds, could be gone in a flash.
Carriers, chipmakers, device makers and software developers will be spending $200 billion per year to support 5G as it’s rolled out.
The 5G Reality
For most people 5G will be much ado about nothing.
The frequencies being used for 5G go as high as 28 GHz, compared with 2 GHz for current mobile services. That means the waves attenuate more than 10 times faster and are more than 10 times less resistant to interference like trees, walls, or even your hand.
The 5G technology is designed for spreading the benefits of fiber cable within homes and businesses through faster routers and carefully-engineered internal networks. It fully supports Wi-Fi 6, which offers speeds to 10 GBPS. But all that depends on the speed of backhaul, and fiber backhaul is only available where fiber networks deliver the bits.
The Bottom Line on AT&T Stock
AT&T is hyping something it does not yet have, hoping to use that hype to tie businesses and consumers to a network where it will be charging them for content, not just bits.
To afford its new debt, and its new investments in technology, AT&T will have to make this work, but right now investors are skeptical. That is why I recently sold my own AT&T stock.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.