AT&T Bets $5.75 Billion on Fiber Expansion

Core Viewpoint - AT&T is significantly enhancing its fiber internet strategy through a 5.75 billion acquisition of Lumen's Mass Markets fiber business, which will add approximately 1 million fiber subscribers and 4 million passed locations, expanding its presence in major metro areas [1][2]. Expansion Plans - Prior to the acquisition, AT&T aimed to pass 50 million fiber locations by the end of 2029; with the Lumen deal, this target has been raised to 60 million by the end of 2030, effectively doubling the current scale of its fiber network [2]. - The acquisition will allow AT&T to expand its fiber reach without incurring all the capital expenditures typically associated with such growth, as it plans to partner with an equity investor post-transaction [4][5]. Financial Strategy - AT&T intends to maintain a net debt to adjusted EBITDA ratio of around 2.5 after the Lumen deal closes and the equity partner is found, while also planning to repurchase 10 billion of its own shares through the end of 2026 [6]. - The company expects to generate free cash flow of at least $16 billion this year, with its stock trading at over 12 times free cash flow, indicating a solid value proposition despite not being as cheap as in previous years [11]. Growth Opportunities - Lumen's fiber business has a penetration rate of approximately 25%, significantly lower than AT&T's 40% and half of its long-term target of 50%. Improving this penetration rate presents a low-cost growth opportunity for AT&T [8]. - There is potential for AT&T to sell its wireless services to the 1 million acquired fiber customers, as about 40% of AT&T's fiber customers are also wireless customers, which could lead to lower churn and higher lifetime value [9]. Strategic Acquisition - The acquisition of Lumen's fiber assets provides AT&T with an immediate increase in fiber subscribers and a pathway to expand its fiber network beyond previous plans, while also ensuring financial prudence through equity partnerships [10].