AT&T Inc. Q3 FY2024 earnings call

Strategy and Growth

• Strategy is to lead the industry in converged connectivity through 5G and fiber. In Mobility, the coverage, reliability of service, and best - deals - for - everyone approach are driving solid results, with 5G subscribers growing durably. In Consumer Wireline, fiber investment is generating attractive returns with improved operating leverage.

Employee and Public Safety

• Newly ratified agreements in the Southeast and West with annual wage increases averaging 3.6%. FirstNet organization responded to more than 200 requests during Hurricane Helene recovery, and the FCC's decision to make 50 megahertz of spectrum available to FirstNet authority is welcomed.

Mergers and Acquisitions

• Announced an agreement to sell the remaining 70% stake in DIRECTV to TPG, which helps strengthen the balance sheet and provides optionality for future growth.

Mobility

• In the third quarter, AT&T delivered 403,000 postpaid phone net adds. The Mobility business has grown EBITDA by more than 6% in three quarters, which is in the high end of the full - year guidance. Postpaid phone churn is lower year - over - year, and upgrade rates are also down.

Consumer Wireline

• Delivered positive total broadband subscriber net adds for the fifth consecutive quarter. Had more than 200,000 AT&T Fiber net adds for 19 consecutive quarters. In the quarter, Consumer Wireline EBITDA grew more than 8%, driven by nearly 17% growth in fiber revenues.

Business Wireline

• EBITDA was down 20% due to continued industry - wide secular declines in legacy voice services. The reported decline also reflects a tough comparison with the third quarter of last year, and it is now expected to have a high - teens decline in EBITDA for the full year, worse than the prior mid - teen decline outlook.

Financial Guidance

• Adjusted EBITDA is expected to grow by about 3% for the full year. Adjusted EPS is expected in the range of $2.15 to $2.25. Year - to - date free cash flow is $12.8 billion, and it is on track to be in the midpoint of the $17 billion to $18 billion full - year guidance range. Capital investment is expected to be at the high end of the $21 billion to $22 billion range for the full year. Mobility EBITDA is expected to be in the high end of the mid - single digit growth range. Broadband revenue is expected to grow by more than 7% for the full year, and Consumer Wireline EBITDA is expected to have mid - to high - single digit growth.

Q: John, you mentioned in the fourth quarter, we expect seasonally higher phone purchasing activity upgrades and promo cycles. Can you just put some context around that you've continued to see low upgrade activity. There's concerns about a bigger iPhone cycle. What are you expecting in the fourth quarter and longer term as Apple introduces AI, etc. And then just one on the Business Wireline. Any kind of light at the end of the tunnel there? How much more of the sort of pressures do you think we get before the rate of change starts to stabilize and improve?

A: John Stankey responded that he couldn't give a more satisfying answer on projecting Apple phone sales, but expected a graceful ramp - up in consumer interest over time. On Business Wireline, there are green shoots with repositioning to a connectivity - based business, distribution ramping, but facing decline in legacy revenue base.

Q: Can we talk a little bit about the out - of - region opportunity with fiber. I guess, first, how did you guys or what was the criteria for selecting the partners that you have? And are there more partners likely to be added? Second, how big could that opportunity be? I guess, including Gigapower. And third, are you guys seeing the churn benefits, I guess, you sort of laid out the customers that have bundled service, but are you guys seeing churn benefits in the wireless business for customers that -- have that take both services?

A: John Stankey said the partner dynamic is about having a portfolio of capabilities to be an attractive partner, and more partners could be added. The opportunity could get bigger, and early stuff on partnership sales looks similar to in - region business case, but it's too early to conclusively say on churn benefits for wireless.

Q: In Consumer broadband and one on capital allocation. In Consumer broadband, your Internet Air net add growth stabilized despite your announcement that you've launched about 204 partial regions last quarter. And so, I wonder if you could comment on the relationship between that open for sale change and the growth path of Internet Air, just bigger picture? And then on capital allocation, on the M&A front, I wonder if you have a point of view on HFC assets on cable assets, where they could possibly be complementary to your fiber strategy depending on the region and the assets you have in place?

A: John Stankey said AT&T is using Internet Air strategically, and it's not going to rival others in volume. On HFC assets, fiber is the eventual goal, and cable has been resilient but fiber is moving closer to customers.

Q: If we consider the pace of your fiber net additions and broadband heading into next year, if you're passing the same or more locations with better penetration, is there any reason to believe why those fiber net additions shouldn't accelerate next year? And then relative to CapEx, I believe we heard from one of your competitors yesterday that CapEx is moving higher in 2025, mainly due to accelerated fiber investment. And then, obviously, this is an area where you've been the most vocal in your industry in terms of fiber expansion, is expect you would see the same trend in your CapEx next year?

A: John Stankey said the rate and pace of fiber build has been level - loaded, and no dramatic change is expected next year. He can't speak to competitors' CapEx, but AT&T has been investing for years and will continue with a steady pace.

Q: Curious, if you could provide an update on the wireless competitive landscape broadly across the consumer and business verticals. And if you can unpack in a little bit more detail what's driving the growth in postpaid phone ARPU on a year - over - year basis, and how you view the sustainability of postpaid phone ARPU growth over the next couple of years?

A: John Stankey said the industry is competitive, and ARPU growth is due to customers buying more from AT&T, value mismatches being realigned, and there's room to grow further, though maybe better performance at the low end of the market is desired.

Q: If we consider the pace of your fiber net additions and broadband heading into next year, if you're passing the same or more locations with better penetration, is there any reason to believe why those fiber net additions shouldn't accelerate next year? And then relative to CapEx, I believe we heard from one of your competitors yesterday that CapEx is moving higher in 2025, mainly due to accelerated fiber investment. And then, obviously, this is an area where you've been the most vocal in your industry in terms of fiber expansion, is expect you would see the same trend in your CapEx next year?

A: John Stankey said the rate and pace of fiber build has been level - loaded, and no dramatic change is expected next year. He can't speak to competitors' CapEx, but AT&T has been investing for years and will continue with a steady pace.

Q: Housekeeping question. I think last quarter, you pointed out that the postpaid phone ARPU should probably, you see more of an impact or more of a benefit in the fourth quarter than third quarter related to the price increase that kind of went into effect mid - 3Q. Is that still the right way to kind of think about it? And relatedly, of the $90 million one - time benefit, is that within postpaid phone ARPU or is that perhaps captured somewhere else within service revenue? And then maybe, I guess, broader kind of question. I mean, John, you did talk about the 4.9 gigahertz award to FirstNet for AT&T. Obviously, I think in -- at Communacopia, did kind of talk about the supply of spectrum likely influencing pricing across the industry over the next several years, an election upcoming in a few weeks here, probably not going to materially change the availability of spectrum for a few years. So just thinking about AT&T's appetite, given your peer kind of did some transaction in the secondary market just last week?

A: Pascal Desroches said the pricing actions will impact the fourth quarter and are baked into guidance, and the $90 million adjustment impacts postpaid ARPU. John Stankey said spectrum development takes time, and it's not like secondary spectrum market transactions where capacity can be quickly added.

Q: Maybe a couple on '25. I know it's a little early for you guys to start talking about it. But maybe if we could just understand the levers, I mean, operating leverage this year has been very high, especially on the mobility side because of upgrade rate and also churn being low, of course. So if you could just talk through maybe some of the levers next year, maybe on the cost front or maybe the price versus value dynamic? That would be helpful. And the same question on cash flow, just in terms of leverage, you -- obviously, taxes will be a headwind. But when the financing in theory should be an easier comp and directly we, of course, would be depending on when the deal closes, that would be another variable. So if you could just help us think through the operating leverage side and the cash flow that would be helpful.

A: Pascal Desroches said AT&T will continue to grow EBITDA, with opportunities to drive operating levers in Mobility and Consumer broadband through scaling fiber and cost management. Cash flow will be affected by cash taxes and the DIRECTV deal closing, but AT&T is investing for long - term growth.