AT&T Inc. 5.35% GLB NTS 66 Q3 FY2025 earnings call

• Had a solid quarter and remain on track to achieve 2025 consolidated financial guidance. - Continues to attract and retain high-value customers, with mobility delivering over 400,000 postpaid phone net adds and Consumer Wireline seeing strong broadband net adds, including over 550,000 new subscribers to advanced broadband services. - Passed over 31 million total locations with fiber and expects to reach over 60 million customer locations by 2030. - Planned acquisitions of spectrum licenses from EchoStar and fiber assets from Lumen enhance advanced connectivity portfolio. - Progressed in deploying EchoStar spectrum and preparing to close the transaction with Lumen.

Mobility: Mobility service revenue grew 2.3% year over year, contributing to EBITDA growth of 2.2%. Reported 405,000 postpaid phone net adds, postpaid phone churn was 0.92%, and postpaid phone ARPU was $56.64. Consumer Wireline: Total revenues grew 4.1% year over year, driven by 16.8% growth in fiber revenue. Added 288,000 AT&T Fiber customers and 270,000 AT&T Internet Air net adds. Convergence rate reached 41.5% at the end of the third quarter. Business Wireline: Revenues declined 7.8% year over year, while EBITDA declined about 13%. Fiber and advanced connectivity service revenues grew 6% year over year.

• Consolidated service revenue growth in the low single-digit range and adjusted EBITDA growth of 3% or better. - Full-year free cash flow expected in the low to mid $16 billion range, including about $4 billion in the fourth quarter. - Full-year capital investment in the $22 billion to $22.5 billion range, implying fourth-quarter capital investments of roughly $7 billion to $7.5 billion. - Full-year adjusted EPS outlook of $1.97 to $2.07, expecting to come in closer to the high end. - Expect to provide an update to long-term financial outlook early next year regarding acquisitions of fiber assets from Lumen and spectrum licenses from EchoStar.

• Competitive marketplace with increased cost of acquiring and retaining subscribers. - Potential impact of insurgents in fiber expansion on AT&T's plans. - Challenges related to legacy infrastructure, such as managing the DSL base. - Regulatory and execution risks associated with pending acquisitions, including uncertainties around approvals and integration.

Q: Hi, good morning. The broadband results were really striking, and I have two questions on broadband. Take them in whichever order you like. First, your 60 million fiber home target is the most important among numerous industry-wide fiber expansion plans. Our best attempt to estimate the intentions of all the fiber expanders, builders, developers rolled up is about 110 million in a country with 135 million homes. And so a question we hear frequently and I think is important is, at what point do AT&T Inc. investors have to worry about insurgents getting to some of the homes that AT&T Inc. plans to pass before you do? And if they do, could that alter your plans at all? Would you be responsive to that? And then a related question is within two years, your DSL base will be gone or declining much more slowly? I mean, your VDSL base. And what should that mean for your broadband strategy and for your competitive outlook?

A: I'll tell you we pride ourselves on being smart about how we build. We think we have the most scaled build engine in the industry. With that scalability comes a degree of agility. It means we have the flexibility to work with our base and move supply around. We try to be very deliberate about ensuring that everybody knows when the train rolls into town that the train's in town and it's probably not a good place for anybody else to come and deploy their capital because this is a company that has a track record of going in and penetrating aggressively and being successful in markets, and there's probably easier places for people to go than come up against us. And so we try to be very, very deliberate in how we allocate our capital in the markets that we're building in to make sure everybody knows where we're going and how aggressively we're going because we believe the right thing to do is to ensure that there's a good solid market structure for ourselves moving forward. And occasionally there are times where while we lay our plans out three years in advance and we believe we have some insight and fidelity of what's going on in the market, something changes in that period, and we have to recalibrate and think differently about how we're going to draw the boundaries about where we're going to build and how we're going to build. But while I know there's a lot of announcements out there that may add to 110 million homes being built, it doesn't mean they're getting built. It doesn't mean the people are effectively getting permits. So they have their supply chain issues worked out. And our job is to remove that friction and be better than everybody else and ensure the 60 million that we're building are in fact the first and that we're doing it more than anybody else. And when we run into those occasional circumstances where they're not, we rethink about where we deploy our capital and what we do. So I feel pretty comfortable that the team understands that and has been doing that by and large. And we also know that when somebody overbuilds a small portion of a metropolitan area, this is a scale business. Having 230,000 homes passed isn't going to cut it. And so when we come in and we're able to use our brand and use our marketing position, we can do very, very well when there's this small amount of overlap and still get the share we need to drive the returns into our business. Your observation on the DSL base is accurate. As you know, we're trying to turn down our legacy infrastructure. The DSL base is part of that. We don't want that equipment on our network anymore. We don't want it sucking down power. We don't want to be maintaining copper. And so, part of what you're seeing is a very deliberate approach. In almost all instances, we can replace DSL with fixed wireless. In places where we're not building fiber or we can actively replace it with fixed wireless if we're in a holding pattern where we know we're not going to be getting our overbuild in place of fiber for another two years or so. And we're actively trying to hold those customers with more attractive conversion offers. And that's part of the motion and the momentum that you're seeing in our converged basis and how we're using these products, and we're really excited about the advanced spectrum that we picked up because we think it's going to give us even more tools to make that happen both within our base where we're going to overbuild in those places where we will be wireless first. And we don't intend to build fiber as part of that deployment of capital that gets us just above 60 million. So we'll actively manage it. As you can see, we're getting better at managing it. That's why our nets are the best they've been in eight years. And I'm really confident that we haven't quite hit our full stride on that yet. But we can do even better on that front as we move forward in the coming quarters. And to my point in my comments, I would not change position with any company in this industry right now given the asset base we have and the place it affords us to run.

Q: Thank you. Two questions. John, the AT&T Internet Air momentum is pretty clear in your results. I'm wondering if you could talk a little bit as the company expands your footprint, you mentioned parts of 47 states, how are you making sure you're sort of segmenting the market the right way between fiber and fixed wireless and being efficient with your marketing, etcetera? And maybe you could comment on how you're approaching SMB as well. And then for Pascal, Pascal, you've mentioned the competitive environment in wireless this year. Has led to some higher equipment costs and subscriber acquisition costs, which we can see in mobility EBITDA margins being a little pressured this year. Your three-year guidance assumes that gets better, that margins expand next couple of years. Wondering if you could talk a little bit about how you deliver that if we think that the competitive environment maybe stays this elevated over the period?

A: Good morning, Ben. So first of all, one of the big changes you've seen us make in our messaging is we're no longer leading kind of top-of-funnel awareness and advertising with a specific technology bent. We talk about getting Internet from AT&T Inc. and we're doing that in the business market and the consumer market because we're now approaching this point that we can offer Internet nationwide. So the first thing is to make awareness that people just think about going to AT&T Inc. for Internet and that our messaging supports that, and you probably picked up on that if you watch any football or anything else in mass media. And then to your point, underneath that top-of-funnel messaging is to make sure that we're tuning the messaging for what we offer in a particular geography. And digitally that's really straightforward because we can ring-fence literally what we want to do with a lead offer, and that's one reason why we're spending a little bit less in mass media is because given our targeted approach to how we want to converge customers, we can get a lot more out of digital marketing based on knowing where the customer is and what the right best offer is to put in front of them. We've had pretty good success doing that. I think we even shared with you in December during the Analyst Day, if I recall correctly, an example of the map of the metropolitan area where we sell both products, and you will see that there isn't Internet Air subscribers sitting in the fiber footprint. And there really shouldn't be. There not only shouldn't be any of our Internet Air subscribers in the fiber footprint, but there shouldn't be anybody else's Internet Air subscribers in a fiber footprint. And my intent is to ultimately market and sell and structure the product in a way that we make sure that that is in fact the case. Because there is no lower marginal cost way to deliver broadband than fiber. And once it's in, it's in, and it should basically have a preferred run at the market. And I think we can still even get better than that. And that's one reason why I'm not as attached to ARPUs right now and worried about that. I'm worried about our growth in service revenues and managing our profitability because I think there's segments in the market that we can even do better at given the technology and what we've deployed. So you'll see us be very targeted in that, and it's very specific in our support systems when people come into the stores, etcetera. A lot of this is not left at the discretion of the individual. It's supported to them as to what they should be selling and can sell. And our effectiveness, as I mentioned when I answered Peter's question, and doing that over the coming years is a really important part of the success of this management team and managing the sustainability and durability of our profitability in the company. And we're very focused on making that happen operationally both with our messaging as we work our way through the funnel and operationally how people move forward on it. We're getting our momentum in business around Internet Air. We're still not as good as we can be. But as I've told you many times before, we've always viewed fixed wireless as a good solution in the business market given the usage characteristics of a small business or a medium-sized business and the nature of how those companies operate. And it's getting your distribution lined up. I think we're doing pretty well on our owned and operated distribution channels. But as you know, in the mid and low portion of the market, a large part of your distribution comes through third party, and we're not fully ramped in the third-party distribution yet. And we're scaling it and ramping into it, and that's why you're seeing results improve. But I think our mix of business can be a little bit stronger moving forward. And I think it will hinge on how effectively we ramp in third-party channels to make that happen. So that's part of the when I say I think we can even get better than where we are, which I'm really pleased with the strong results, but I think we can get better. This would be an area, for example, where I think we can get better. Pascal? Hey, Ben. Good morning. With regards to margins, we continue to expect overall company margin expansion consistent with what you saw this quarter. Keep in mind when you look out the next several years, we are working through several transformations, all of which will continue to drive overall efficiency. With each passing day, we have less and less copper in the network and less underlying infrastructure to support it. Similarly, we're in mid-flight in modernizing our wireless network. We expect that to be substantially complete by 2027. As more and more towers get modernized, it's going to drive efficiency in maintenance and power, and it's going to deliver superior service. Also embedded in our strategy is a goal to continue to drive convergence. And over time, the more convergence we drive, the overall churn should come down. And as a result, the efficiency of our acquisition spend should also improve. So all those things together make me feel really good about how we're positioned for the future to continue to drive profitable growth.