Telecom giant AT&T (T 0.27%) beat expectations on all fronts when it reported its fourth-quarter results on Monday. There was a lot for investors to like. The company hit or exceeded all its full-year targets, with mobility service revenue up 3.5%, broadband revenue up 7.2%, and free cash flow of $17.6 billion. AT&T also reiterated its 2025 guidance, which it first issued during its analyst day event last year.

AT&T added 482,000 net postpaid phone subscribers during Q4, its best result since last year's Q4. Postpaid churn remained low at 0.85%, and average revenue per user for postpaid phones grew slightly year over year. In the fiber business, AT&T added 307,000 new subscribers, its best quarter in at least two years. Internet Air, the company's 5G-powered home internet product, had its best quarter ever with 158,000 net new subscribers.

The power of the bundle

One thing that drove subscriber growth in both the fiber and wireless businesses during Q4 was AT&T's push to bundle the two services. The company currently offers a 20% discount for new customers on eligible wireless plans when they also sign up for fiber services. The idea is that this discount can lead to stickier customers who are less likely to switch providers. AT&T noted in its earnings presentation that customers who subscribe to both services tend to stick with the company for longer than other types of customers.

AT&T ended 2024 with 9.3 million fiber customers, up from 6 million at the end of 2021. Within that customer base, 3.7 million fiber customers were also wireless customers. The percentage of fiber customers who are also wireless customers is now 40%, up from 35.4% three years ago.

Over the next five years, AT&T plans to greatly expand its fiber network to pass more than 50 million homes and businesses, up from 28.9 million at the end of 2024. Nearly doubling the reach of the fiber network creates additional opportunities to sell fiber subscribers on wireless plans, and bundle discounts can help boost the fiber penetration rate. Only 40% of currently passed homes subscribe to AT&T's fiber service, a number that could be driven higher by making the fiber-wireless bundle a no-brainer for consumers.

AT&T's recent move to offer bill credits for wireless and fiber outages should also make the fiber-wireless bundle more attractive, particularly for those with lackluster home internet service. Discounts combined with customer friendliness could be enough to compel more potential customers to make the switch to AT&T fiber.

Set up for a solid 2025

AT&T is on track for another solid year. The company expects wireless-service revenue growth of around 3% and mid-teens consumer fiber-revenue growth. Free cash flow should be at least $16 billion, but it's important to note that this number excludes contributions from DIRECTV. Using the same basis, free cash flow in 2024 would have been $15.3 billion, so this outlook represents meaningful free-cash-flow growth.

By getting as many customers as possible on both fiber and wireless plans, AT&T is making its revenue more predictable and likely insulating itself to a degree from economic uncertainty. For fiber-wireless bundle customers, switching providers for either involves losing any discounts, so revenue from this portion of the customer base should hold up well during an economic downturn.

AT&T stock had jumped about 6% by midday Monday as investors bought into the company's growth story. While AT&T's overall revenue growth will remain slow and steady, the company is improving the quality and durability of that revenue with its fiber-wireless bundle strategy.