AT&T Inc. 5.35% GLB NTS 66 Q2 FY2025 earnings call

• Five years ago, AT&T laid out a goal of becoming the best connectivity provider in America and has made steady progress.
• In the second quarter, Mobility added over 400,000 postpaid phone customers and Consumer Wireline added 243,000 fiber subscribers and over 200,000 Internet Air net additions.
• Launched the AT&T Guarantee earlier this year, with early data showing it's resonating with customers.
• Benefiting from the One Big Beautiful Bill Act, intends to invest more rapidly in next-generation networks, including accelerating fiber deployment to 4 million new locations per year by end of 2026 and reaching approximately 60 million fiber locations by 2030.
• Filed with the FCC to discontinue service across approximately 10% of our wire centers in 17 states as part of retiring inefficient legacy copper infrastructure.

Mobility

• Added over 400,000 postpaid phone customers in the second quarter, driving service revenue growth of 3.5%. EBITDA grew 3.2% year-over-year. Delivered 401,000 postpaid phone net adds.

Consumer Wireline

• Total revenue grew 5.8% year-over-year, driven by approximately 19% growth in fiber revenue. Added 243,000 fiber customers in the second quarter. Ended 2Q with a fiber and 5G convergence rate of 40.9%. Exited the second quarter with over 1 million consumer Internet Air subscribers. Consumer Wireline EBITDA grew 17.8% for the quarter and is up more than 18% through the first half of the year.

Business Wireline

• Revenues declined 9.3% year-over-year with Business Wireline EBITDA declining 11.3%. Business Wireline operating and support costs were down nearly $275 million year-over-year. Now expects full year Business Wireline EBITDA to decline in the low double-digit range versus initial outlook for a mid-teens decline

• Increased full year guidance for Mobility service revenue growth to 3% or better from previous 2%-3% high end. Adjusted Mobility EBITDA growth to approximately 3% versus initial 3%-4% high end.
• Increased full year guidance for consumer fiber broadband revenues to growth in the mid- to high-teens from previous mid-teens. Raised outlook for Consumer Wireline EBITDA growth to the low- to mid-teens from initial high-single to low-double-digit range.
• Now expects full year Business Wireline EBITDA to decline in the low double-digit range versus initial mid-teens decline.
• Expect to realize $6.5 billion to $8 billion in cash tax savings from 2025 through 2027. Intends to accelerate share repurchases under $10 billion authorization to buy back $4 billion of stock by year-end and sees free cash flow trending slightly ahead of initial outlook.

• Wireless churn affected by portion of customer base reaching end of device financing periods and increased market activity.
• Macro economic uncertainties such as tariff uncertainty which could impact the business.

Q: If we could start with the wireless churn. You guys called out the 17 basis point increase in phone churn in the quarter. And Pascal, thanks for the comments about the seasonal patterns. But can you talk about whether you expect to see a similar increase in the second half of the year based on what you're seeing from a competitive standpoint and from a cohort expiration standpoint? And then secondly, thanks for the info on the decommissioning and the 10% of wire centers. Is there any way to quantify the savings from this initial filing or talk about the opportunity for savings as far as that initiative is concerned?

A: John, I appreciate the question. As we think about churn, let's go back to what we said at the beginning of the year. We said that this year, we had a higher percentage of our customers coming off of financing contracts. And we, all things being equal, expected a higher level of churn, plus a continued normalization of the number of net adds. On top of that, in the first half of the year, I think it's fair to say, we probably saw a little bit more impact from those than anticipated at the beginning of the year as well as probably a little bit of pull forward of demand on the consumer side because of tariffs. All those things together resulted in the first half that had higher activity. As you look to the second half, I do believe there was some pull forward of demand. We haven't seen what the new device offer will bring. But for planning purposes, we are assuming that we're going to continue to have a competitive environment. And our outlook is underwritten in that regard. We're hopeful some of the activity does dissipate, but we're planning for a more active environment. In terms of cost savings, look, here's what I would tell you. We're already seeing the benefits of cost savings associated with our legacy transformation happening. I'm really proud of the team and what you're seeing in our performance. When you take out growth-related expenses, promotions and our guaranteed advertising campaign, our expenses are down. And they're down because of all the great work that's happening across the board in care, in field tech and importantly, in overall legacy transformation. And look, as you heard in my commentary, we expect that to continue in the back part of the year. And as more and more wirelines come offline, we're going to have the ability to continue to drive cost out. So we feel really good about our performance.

Q: A question going back to the subject of churn and then one on spectrum. On churn, I wondered if your outlook for the year should cause AT&T to rethink the velocity of price increases. I heard you loud and clear that the expiration of installment periods is playing a big role in this year's higher activity and wondering how you think about the other drivers. And then on spectrum, I wondered about the budget in your long-term guidance for acquisitions. It's possible that spectrum worth much more than you've allocated for acquisitions will come to market in general. And I wondered if you would -- in that instance, would you regard the budget for acquisitions in your long-term guidance as subject to review or as limiting?

A: Good morning, Peter. What I would tell you on churn as we kind of think about what's been going on, I don't view pricing as being our issue in terms of managing churn. Obviously, every time we take a pricing action, we're cognizant that there's going to be some dislocation that we have been historically pretty good at assessing, modeling and managing. We try to do our pricing in a way where we tie prices to value. So we find places where there's maybe recaptured value that we can price out differently, so that the customer feels like it's not just a price increase, but they understand they've gotten something over time or in return for it where they're less likely to go. And it's not to say that we don't get some churn when we price, but we get churn that's been in line with our expectations. I'm not going to sit here and tell you right now that what we're seeing in our churn performance is the result of miscalculations in our pricing decisions. That having been said, we're always mindful, when we make a pricing decision, of the environment that we're in. And I'm very mindful right now of the environment we're in, that we've got segments of the consumer base that are not in the same position as other segments of the consumer base. And as a result of that, as we think about our strategies and how we manage things, we try to be deliberate. And does that mean that on the margin, we may make a decision here or there that's different at this moment in time given where the economy is and what's going on? Of course. I'm not going to tell you what those are because we never prediscuss or give that kind of information out in a public forum like this. But I don't view pricing as kind of being our answer to churn issue one way or the other. And I think we've managed it pretty effectively over the last couple of years, and we'll continue to do that. On the spectrum side, I think I'd go back to comments I've made multiple times that I've shared with you, and they usually come up in the context of why is 2.5x adjusted net debt-to-EBITDA the right level for our business. And I think I've tried to articulate that there's a lot of reasons why we arrived at that number as being the right place for us to be, including our bias for organic investment in the business versus strategic M&A that we feel pretty comfortable that we've got great opportunities to reinvest in the business as evidenced by the fact that we accelerated some of our capital investment in a key area where we're generating, I think, great long-term value in the fiber space. 2.5x gives us an opportunity to go to market and pick up the kind of cash we need to pick up if, in fact, something that is nonstrategic M&A, but is what I would call asset acquisition presents itself to us. Lumen would be a great example of I thought what was an excellent asset acquisition opportunity that was in front of us, and we chose to do that. I would put spectrum in that category. As I've said multiple times, we're constantly evaluating spectrum options in the market. I think the spectrum market just became really interesting. The fact that there's now an FCC that's back in business that can auction and there's a stated pipeline means that we have a more secure supply of spectrum coming forward in the market and a more secure supply of spectrum coming forward is a disciplining issue on valuations of spectrum, and it gives a lot of choices of what we can do and how we think about this and how we time it out when there is a pipeline that's declared and it will happen over a number of years to be very deliberate in how we do our network planning and where we carry forward. To be sure, spectrum is a lifeblood of our wireless business. We've always invested in it strategically. We always have been very satisfied with the decisions we've made on investment there, and I don't expect that to change. But what I would tell you is, if something pops up, we have the opportunity within our capital structure today to go and take advantage of that, while at the same time, honoring the commitments we've made back out to our shareholders and ensuring that we stay on the plans that we're in place on and not moving off of those or changing it. And that's why we engineered at the level we engineered at. And I think that's what you should take forward from that.