AT&T’s fiber price hike will boost revenue in 2025

While most telecom giant AT&This (T 0.37%) revenue comes from its wireless service, the company is growing its Internet business over fiber. It has the advantage of already having some infrastructure in the markets it targets for fiber services, making network expansion less capital intensive.

However, building a fiber network is an expensive endeavor that only pays off once households and businesses sign up and stick with the service. AT&T plans to reach at least 30 million potential customer locations by the end of 2025 with its fiber network, but only a fraction of those locations will pay for the service.

At the end of the second quarter of 2025, AT&T had approximately 8.8 million fiber connections with 27.8 million locations passed. Excluding the companies, the fiber penetration rate for AT&T was about 40%.

Growth of fiber business

There are three ways AT&T can drive growth in its fiber business. First, it can cross more locations with its network to create more leads. The company should add several million more locations over the next year and sees a path to as many as 45 million locations down the road.

Second, the company can increase its penetration rate by getting more eligible households and businesses to sign up for the service. The consumer fiber penetration rate has increased by about 3 percentage points in the last two years, so the company is making some progress in that regard.

Third, AT&T can raise prices. Average monthly revenue per fiber customer was $69 in the second quarter of 2024, up from $61.65 two years earlier, and that number will rise further in 2025 as the company adopts a large price increase.

Starting November 10, AT&T will raise the monthly price of all its internet plans, both fiber and non-fiber, by $5 per month. AT&T offers discounts for customers who use autopay and pay with a bank account, so average revenue per subscriber may increase by less than that amount as subscribers look to lower their bills. However, this price increase represents a 7.2% increase based on average revenue per subscriber in the second quarter.

Combined with winning more customers by building out its network and increasing penetration rates, AT&T should have trouble growing fiber revenue at a double-digit pace in 2025. Fiber revenue grew about 18% year-over-year year in the second quarter.

Free cash flow growth

AT&T will spend between $21 billion and $22 billion in capital expenditures this year, much of which will go toward supporting its wireless and fiber networks. Despite these expenses, free cash flow is expected to be between $17 billion and $18 billion, up from $16.8 billion in 2023.

The fiber business is now at an annual revenue rate of $7.2 billion, and that number should continue to grow at a double-digit rate. Developing fiber capacity is capital intensive, but fiber lines require little maintenance and can last for decades. As AT&T reaches the mature stages of its fiber development, the business will start throwing away a lot of cash.

Shares of AT&T have risen more than 50% over the past year as investors have warmed to the telecom giant. Despite this increase, the stock still trades for less than 9 times the midpoint of the company’s free cash flow guidance. AT&T stock isn’t as cheap as it was a year ago, but it’s not too late to buy this cash machine.