AT&T Inc.

We view the acquisition of 80 megahertz (MHz) of spectrum in the C-band auction (40 MHz in the A block and 40 MHz in the BC/ABC blocks) favorably because we believe mid-band spectrum will be critical for 5G wireless network deployments. Mid-band spectrum has very good throughput characteristics, which is critical for delivering fast data speeds. Furthermore, these licenses will provide capacity to offer AT&T's customer base a robust experience of its streaming service, HBO Max, which it is using to differentiate its mobile product in the marketplace. But AT&T's mid-band spectrum position will still lag that of T-Mobile, which owns about 150 MHz of spectrum in the 2.5 GHz band, and that of Verizon following its purchase of 161

...We expect leverage to increase in 2021 from the purchase of spectrum licenses in the C-band auction. AT&T Inc.'s acquisition of spectrum in the C-band auction for $27 billion, including an estimated $4 billion of incentive payments and relocation costs, will push leverage above 4x in 2021, exceeding our downgrade threshold of 3.75x. While the company has reasonable prospects to reduce leverage over the next couple of years from discretionary cash flow (DCF) and improving earnings starting in 2022, we believe there is heighted risk that operating and financial results underperform our base-case forecast, keeping leverage above 3.75x for an extended period. That said, the effect of the auction on AT&T's credit metrics will partly depend on its financing plans, which may include the issuance of preferred stock and asset sales. AT&T previously suggested maintaining a hybrid capital layer of $20 billion-$30 billion, which could improve credit metrics at a faster pace than if the cash outlays...

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