The 2024 earnings call for AT&T has started and all participants are in listen-only mode. The call will be opened for questions after the presentation and is being recorded. Brett Feldman, Senior Vice President of Finance and Investor Relations, is hosting the call with CEO John Stankey and CFO Pascal Desroches. Stankey highlights the company's progress on their investment-led strategy and focus on 5G and fiber connectivity. First quarter results show steady growth in wireless and broadband subscribers. Mobility is the company's largest and most powerful EBITDA growth engine, with 349,000 postpaid phone net adds in the first quarter.

AT&T has seen significant growth in their high value postpaid phone subscribers, with 71.6 million currently subscribed. This growth is attributed to the quality of their customer base, higher ARPU, and improved margins. They also have the lowest postpaid phone churn rate among major service providers. In addition, their fiber business is their fastest growing engine, with 2.4 million locations passed and 27 million consumer and business locations passed. They have added 1.1 million AT&T fiber subscribers in the past year and expect this trend to continue. The convergence of 5G and fiber allows AT&T to provide seamless service to customers both at home and on the go, giving them a unique advantage over their competitors.

Convergence offers benefits such as improved customer retention and higher lifetime values. The company is committed to expanding access to high-speed internet and is investing heavily in 5G and fiber networks. Mobility and consumer wireline are driving the majority of revenue and EBITDA in the communications segment. However, there is still a decline in legacy voice services in the business wireline sector due to the increasing adoption of mobile and cloud-based services.

AT&T has seen significant growth in wireless service revenues and is actively working on transitioning legacy products to align with the changing connectivity landscape. They are implementing cost-saving measures and focusing on business solutions, such as FirstNet, to drive long-term growth. The company plans to leverage its 5G and fiber expansion to reach more small and medium-sized businesses, including through their new fixed wireless service. Security is a top priority for their business customers and AT&T is committed to providing a strong value proposition in this area.

AT&T has introduced AT&T Dynamic Defense to provide built-in security controls on top of world-class access. They are well positioned to take advantage of emerging connectivity opportunities with businesses due to their strong relationships with almost all Fortune 1000 companies and their leading position in fiber and the largest wireless network in the US. Despite facing challenges in their business wireline operations transformation, their strong momentum in mobility and broadband is allowing them to outpace legacy declines and drive positive consolidated results. They have set a new target for $2 billion in cost savings by mid-2026 and are using AI to achieve this goal. This focus on efficiency has led to improved operating leverage and despite continued elevated inflation, their cash operating expenses were down year-over-year in the first quarter. Their deliberate and balanced approach to capital allocation has resulted in first quarter free cash flow of $3.1 billion, even with continued investment in America's connectivity.

In the first quarter, AT&T saw a slight decrease in revenues due to a decline in low margin mobility equipment and business wireline revenues. However, adjusted EBITDA increased by 4.3% thanks to growth in high margin wireless services and fiber revenues. This growth was partially offset by a decline in business wireline. Overall, AT&T's performance in 5G and fiber has helped them gain market share and their team is making solid progress on their priorities.

In summary, for the full year, the company expects adjusted EBITDA growth of 3% and adjusted EPS of $2.15 to $2.25. Free cash flow in the first quarter was $3.1 billion, allowing for the payment of short-term supplier obligations and potential for increased quarterly free cash flow. Cash from operating activities was $7.5 billion, with capital investment and expenditures down compared to the previous year. In the mobility sector, the company reported 349,000 postpaid phone net adds and 3.3% service revenue growth, offset by lower equipment revenues. Mobility EBITDA grew by 7% year-over-year, exceeding service revenue growth.

In this paragraph, the company discusses its improved operating leverage and efficient go-to-market strategy, which has resulted in better-than-expected performance and cost management. They also highlight their growth in consumer wireline, specifically in fiber subscribers and revenues. They expect continued growth in broadband revenues and EBITDA, driven by strong fiber revenue growth and cost management, despite declines in legacy copper services. The company also notes the benefits of migrating customers to fiber, including decreased support costs and improved service quality.

AT&T's focus remains on expanding its fiber services, but the company is also seeing success with its fixed wireless service, AT&T Internet Air. However, the decline in legacy voice services has affected the company's business wireline EBITDA, leading to a faster than expected decline. To combat this, AT&T is implementing cost-saving measures and sees potential for growth through 5G and fiber expansion. The company's capital allocation strategy aims to balance network investment, debt reduction, and shareholder value.

Verizon is on track to invest $21 to $22 billion in capital for the full year, with a focus on modernizing their network through Open RAN and fiber expansion. The company expects to pass 30 million consumer and business locations by 2025, with potential for an additional 10 to 15 million locations. They also plan to decrease their debt and have already reduced net debt by $6 billion in the last four quarters. Verizon expects to address near-term maturities with cash on hand and has a manageable amount of debt with a fixed rate of 4.2%.

The speaker reiterates the company's target of achieving a 2.5 leverage ratio early next year. They discuss their plans for capital allocation, including options such as buybacks, dividend growth, deleveraging, and investments in fiber adds. They mention that a more detailed discussion on these plans will take place around this time next year.

The speaker, John Stankey, is responding to a question about the company's upcoming choices and plans for returning capital. He reiterates that the board is currently going through a deliberate process to make decisions and that they will consider factors such as interest rates, dividend yield, and reinvestment opportunities. He also mentions the company's strong financial position and their commitment to protecting the dividend. Overall, he does not see a need to deviate from their current trajectory.

The speaker discusses the company's future plans and acknowledges the recent outage. They express confidence in the team's ability to improve and operate better in the future. They are proud of the team's response during the outage and note positive metrics in customer growth and churn. The speaker also mentions that surveys and research with customers do not show any major concerns. Recovery methods used with customers were effective and reflected in first quarter financials.

John Hodulik of UBS asked about the impact of the recent data breach on the second quarter and if there was any impact seen in the first quarter. He also mentioned the low upgrades and churn rates seen in the current environment.

The speaker acknowledges that there is increased activity from hackers and bad actors in the cyber environment, which may lead to more problems and reporting requirements. However, there is no evidence that this will have a long-term impact on sentiment or business. The company is taking the issue seriously and evaluating root causes, but it is not expected to affect upgrade rates and churn in the industry.

The speaker believes that there will be some fluctuations in the device portfolio in the upcoming quarters, but nothing that will significantly impact the industry. They anticipate the usual holiday promotions and seasonal patterns, but do not expect any major changes. The industry is currently healthy and players are focused on getting reasonable returns after record levels of investment. The speaker also notes that customers are using more of their product and the performance of networks is improving. They believe there may be opportunities to increase prices in certain areas and have been consistent in doing so in the past few years.

The speaker discusses the company's strategy of driving up ARPUs and keeping margins in check while also taking some price increases in certain areas. They expect to continue this strategy throughout the year. In regards to the mobility side, the speaker explains that the EBIT growth is similar to the service revenue growth due to lower costs, but there is accelerated depreciation from the Ericsson Open RAN deal. They feel good about their expense management and overall cost profile. When asked about Internet Air for business, the speaker confirms that their intent is to distribute it nationally.

John Stankey discusses the strategy for Internet Air for business, stating that it is a national product geared towards the business market segment. He mentions that they have previewed advertising during the Masters and are focusing on matching the product to businesses with the right usage characteristics. This is consistent with their expectations from the founding of the product. When asked about the balance between customer acquisition and retention, Stankey says it is intentional and they are focusing on driving gross profitably.

The speaker discusses the importance of balancing growth and revenue in the company, and emphasizes the need to focus on high-calorie subscribers rather than low-calorie ones. They also mention the importance of managing churn and diversifying distribution for sustained growth.

During a conference call, Bank of America analyst David Barden asks AT&T executives about the impact of the recent outage on their postpaid phone ARPU (average revenue per user). AT&T CFO Pascal Desroches explains that the credit for the outage was a factor in the slight decrease in ARPU, but there are other seasonal factors at play. Barden also asks about the sale of Sky Mexico and Desroches clarifies that it was a non-event and not significant for AT&T.

An analyst asks about the expected decline in DTV cash contributions on an annual basis, and the CFO confirms that the company's previous guidance of a 20% decline remains unchanged. The analyst also asks about the difference between the first quarter's EBITDA growth of 4.3% and the full year guidance of 3%, and the CFO explains that business wireline will be worse than expected due to an acceleration of legacy voice decline. The analyst also asks about the company's exposure to the ACP program and the potential impact on AT&T's financial results, but the CFO does not address this question in the paragraph.

In the mid-teens, AT&T's mobility and consumer wireline businesses saw strong growth in the first quarter, with record low churn. The company expects this positive trend to continue for the rest of the year due to successful transformation efforts. However, the business wireline segment is still in the process of transitioning products, which will result in offsetting declines from legacy services. Despite this, AT&T remains confident in their ability to manage through these changes and still deliver on their 3% growth target. The company is also prepared to work through the potential sunset of the ACP program without making any changes to their guidance, as they have already started notifying customers and finding alternative solutions for them. Overall, AT&T believes they have used the ACP program in a responsible manner and have focused on improving fixed broadband capabilities.

The speaker discusses the company's customer base and their ability to transition them into other approaches as the subsidy sunsets. They do not expect this to impact their ability to operate the business and hit their financials. The speaker also talks about the opportunity for growth in underpenetrated segments in the mobility and business wireline sides, and mentions that they have accelerated some cost cutting initiatives which may provide incremental benefits.

The company has made progress in improving their channel distribution and penetrating the fiber market. They expect to see further progress in this area in the coming year. They are also working on targeting the value segment and certain ethnic segments to improve performance. The company sees the Access from AT&T program as an opportunity to gain share from competitors and drive greater adoption of broadband, particularly in low-income segments.

John Stankey, CEO of AT&T, states that they will continue to keep their access in the market and actively promote it. They will target the same segments as when ACP was live and hope to see an increase in customers. However, he does not expect a significant shift towards AT&T and believes their competitors will also continue to offer discounts. Stankey is proud of their performance in the fixed broadband market, with 40% penetration of their fiber base. Their goal is to continue operating effectively and capitalize on the growth. This is reflected in their overall performance numbers.

During a conference call, Frank Louthan of Raymond James asked Brett Feldman about the economy and the decline in business wireline revenue. John Stankey, the speaker, responded by saying that the shifts in the business segment are not solely driven by the economy, but rather by technology. He believes that traditional voice services are being replaced by integrated communication services and as-a-service capabilities. The pandemic may have temporarily suppressed this change, but now it is picking up momentum as businesses rationalize office space and adapt to a hybrid work environment.

AT&T is undergoing a transition in their business model, with a focus on 5G and fiber technology. They are working to rebuild their distribution and product mix in order to capture more revenue from the mid-market, as their previous focus was on the top end of the market. This transition is causing a decline in high-margin voice services, but they are confident that their new services will ultimately make up for this decline. They plan to provide more transparency and visibility on the remaining legacy businesses in the future.

The speaker, John, discusses the potential for growth in the fixed wireless market, citing Verizon and T-Mobile's success in adding a percentage point and 160 basis points respectively to their overall wireless growth. He also mentions an advertisement for "free air" and expresses confidence in AT&T's brand, distribution channel capabilities, and ability to extend their services into this space.

John Stankey, CEO of AT&T, was asked about the potential for fixed wireless to be as successful for AT&T as it has been for Verizon and T-Mobile. He responded by stating that he does not intend to promote fixed wireless in the same way as his competitors, as he believes it is not a sustainable or profitable business model. Instead, AT&T is focusing on investing in fiber technology, which they see as a more reliable and profitable option for the long term. However, Stankey also acknowledges that there is a place for fixed wireless in their portfolio, particularly for businesses that have different needs than single-family homes.

The speaker discusses the effectiveness of fixed wireless technology in meeting the needs of businesses and consumers. They plan to aggressively pursue the business market and use fixed wireless as a bridging or hold strategy for customers while deploying fiber. They also see it as an opportunity to turn down low-profit areas and reduce costs.

The speaker discusses their company's strategy for investing in the mobility market, focusing on select markets with low penetration levels and high spectrum positions. They also mention investing in fiber and state that they will not change their operating posture to simply buy spectrum. The call concludes with a thank you to participants.

This summary was generated with AI and may contain some inaccuracies.