AT&T And BlackRock JV Likely To Contribute To Existing Fiber Assets, Analyst Says

Last week, AT&T Inc T forged a joint venture with BlackRock, Inc BLK to form Gigapower, a wholesale fiber joint venture. 

AT&T did not disclose any terms of the contract, but from what KeyBanc analyst Brandon Nispel can tell, the control of Gigapower is 50/50 and likely close to 50/50 financial partners. 

Nispel was confused about why AT&T would choose to build fiber outside its incumbent footprint before even halfway through upgrading to its current footprint. 

Further, the analyst did not understand why AT&T needs a joint venture partner to pursue out-of-footprint expansion.

To Nispel, it suggests AT&T would like to do part of its fiber expansion off-balance sheet, which the analyst suspect investors will likely not ascribe any value to. 

Nispel suspects AT&T's goal is to increase its addressable opportunity for federal subsidies from BEAD funding. 

Positively for AT&T, the Company plans to count its Gigapower customers in its Consumer Wireline segment, which might help AT&T show a modest improvement in total broadband customer losses.

Nispel saw this announcement as neutral for AT&T, neutral for AT&T's fiber competitors, mainly cable companies, and negative for AT&T's telecom wireline competitors, mainly Lumen Technologies, Inc LUMN and Frontier Communications Parent, Inc FYBR. 

Raymond James analyst Frank G. Louthan, IV had a Strong Buy on AT&T.

Louthan expects AT&T to contribute its existing fiber assets in these markets as a base case to build on, with the Gigapower team and BlackRock funds handling the rest of the way to the customer. It is a much smaller initial step than the analyst anticipated.

The analyst believes the sell-through from wireless and churn reduction from bundling fiber-based broadband has tangible benefits to AT&T beyond the actual subs and JV returns. 

AT&T can lower some backhaul and small cell costs and has a sizable network of retail stores to push Gigapower with, giving more reason that they make a logical partner for BlackRock.

Over time, Louthan expects some LECs to upgrade the plant Gigapower overbuilds with their fiber eventually, as the owners' economics to them are significantly more favorable as an incumbent, and they will get a decent market share even as the third wire. 

The most significant debate on AT&T now is whether they will hit the Street's FCF estimates when they issue 2023 guidance, and Louthan believes this may give them some wiggle room to come in below the sell side. 

Price Action: T shares are trading lower by 0.01% at $18.31 on the last check Tuesday.