AT&T outlook revised to stable at S&P on $23 billion Echostar spectrum deal

Investing.com -- S&P Global Ratings has revised AT&T Inc.’s outlook to stable from positive following the company’s proposed $23 billion spectrum purchase from Echostar.

The rating agency cited an expected increase in leverage as the primary reason for the outlook change. The spectrum acquisition is projected to push AT&T’s adjusted leverage to 3.6x-3.7x in 2026, approximately 0.5x higher than previously expected.

On a reported basis, AT&T expects its debt to EBITDA ratio to increase to around 3.0x when the transaction closes, up from the current 2.5x range. The company plans to return to its target leverage within three years after closing.

S&P’s base-case forecast assumes AT&T will fund the acquisition with cash on hand and debt issuance while maintaining its capital return plans, including the current pace of share repurchases through 2027.

The acquisition includes 30 MHz of nationwide spectrum in the 3.45GHz-3.55 GHz mid-band, which S&P views favorably as AT&T already owns about 40 MHz in this band. This will give AT&T comparable mid-band spectrum to Verizon, though still less than T-Mobile.

The deal also includes 20 MHz in the 600 MHz low-band spectrum. Given AT&T’s existing abundance of low-band spectrum in the 700 MHz range, S&P believes the company might look to monetize this portion through a sale to another carrier.

S&P expects AT&T’s wireless business to remain healthy with service revenue growth around 3% in 2025 and 2026. This growth is driven by industry-leading postpaid phone churn, higher lines per account, and steady average revenue per user.

The rating agency forecasts Mobility EBITDA to increase about 3%-4% in 2025 and 2026 due to cost reductions, greater operating leverage, postpaid subscriber growth, and low upgrade rates. However, S&P notes that Apple’s iPhone 17 with enhanced AI capabilities could potentially increase handset upgrades and pressure margins.

The additional spectrum provides AT&T with opportunities to accelerate its fixed wireless access home internet business and expand its wholesale agreement with Echostar, which will allow Echostar to operate under its Boost Mobile brand while enabling AT&T to grow wholesale revenue.

S&P could lower AT&T’s rating if wireless market conditions deteriorate, business wireline declines exceed expectations, or if the company pursues aggressive debt-financed stock buybacks or additional acquisitions that push leverage above 4x on a sustained basis.

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