Q2 2021 AT&T Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to At&t's second quarter 2021 earnings call.
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As a reminder, this conference is being recorded I would like to turn the conference call over to your host Amir Raws without ski senior Vice President Finance and Investor Relations. Please go ahead.
Thank you and good morning, everyone welcome to our second quarter call I'm of mirrors, what else he head of Investor relations for AT&T and joining.
Joining me on the call today are John Stankey, our CEO and Pascal of the Roche our CFO also joining us for the Q&A portion of our call are Jeff Macau for the CEO of our communications group and Jason collar CEO for Warner Media before we begin I need to call your attention to our safe Harbor statement.
It says that some of our comments today may be forward looking as such they're subject to risks and uncertainties described and AT&T and SEC filing results may differ materially additional information is available on the Investor Relations website.
And as always our earnings materials are on our website I also want to remind you that we are and the quiet period for the FCC spectrum auction 110, and so unfortunately, we can't answer your questions about that today with that I'll turn the call over to John Stankey John.
Good morning, everyone and thanks for being with us at the risk of being repetitive or I guess consistent depending on your take on.
The framework for what I want to cover today should be familiar to you.
And it's been 4 quarters since we articulated a simplified strategy and how we plan on evaluating our success going forward based on 3 priorities.
First we wanted to grow subscriber relationships through our 3 market focus areas of 5 G fiber and HBO Max.
Second we initiated an effort to transform our business to be effective and efficient and everything we do so that we could allocate increased resources to support these focus areas and.
And third we committed to deliberate capital allocation to support increased investment and growth improved returns and narrow our operating focus and restore flexibility to our balance sheet.
To achieve these priorities, we made some difficult near term decisions.
And that our businesses up for success in the coming years.
And that success is defined by improving our competitive position through the investment and best in class products and experiences for our customers.
By doing so we believe the execution of this strategy will drive better returns and profitable long term growth.
Let's look at what we've achieved in the past year on slide 4.
We made notable progress on each of our priorities and wireless we're gaining share lowering churn and <unk>.
Had our best 12 months of postpaid phone net adds and more than a decade.
And we just posted record quarterly wireless EBITDA and.
And fiber customers.
Customers is similarly responded to the combination of of premium service at attractive prices.
And we've grown our base by more than 1 million subscribers.
By year and will have expanded our fiber footprint by 3 million consumer and business customer locations.
And just over a year after launch.
We've grown our domestic HBO, Max and HBO subscribers by $10.7 million.
We've transformed H B O from of $6 billion business was not growing too.
2 and $8 billion run rate business that grew at nearly 40% this quarter.
We've also made solid initial progress and our cost transformation efforts, which have produced $2 billion and savings that we've reinvested into our core growth areas, we're streamlining our operations and effectively growing digital fulfillment channels.
Our NPS scores have improved significantly and our fiber customers continue to rate us number 1 and customer satisfaction.
<unk> levels have dropped substantially to.
Our second quarter postpaid phone churn matched our record low and.
And and broadband we had our lowest churn on record and the highest second quarter fiber gross adds ever.
Warner Media.
We continued to deliver great content and the first half of the year, we introduced hit series, such as mayor of East town and hacks and on.
Our lineup and the back half of the year is even stronger with new seasons of popular series such as succession raised by Wolves curb your enthusiasm and love life.
That's on top of the day and day movies will have on the platform such as space Jam and new legacy the suicide squad dune and matrix for.
When the Emmy's, where now it's last week HBO, Max and H B O led the field with 130 nominations the most of any network of platform.
And total Warner media received more than 180 nominations.
I'm really proud of the way the team is executing.
And speaking of good execution.
We're seeing indications that our Directv deal with TPG might close and the next few weeks ahead of what we expected.
Also we're pleased with the new management team's ability to exceed operational expectations since we announced the transaction.
Our intention with Warner Media is the same we want to hit of strong exit velocity for both of these businesses at which point the combination with the right partner only expanse of respective opportunities for success going forward.
And we continue to invest and strong levels.
More than 60 billion and the last 12 months and 5 G wireless, including spectrum fiber and premium content.
Finally, we announced or closed a number of non core asset dispositions and supporting our path to balance sheet flexibility.
The same time.
We've positioned each of our 3 major businesses, AT&T Communications, Warner media, and Directv and <unk>.
<unk> capital structure.
Right assets, the right management team and in the case of the ladder to the right partners to optimize of returns to drive material value creation going forward.
These decisions were not easy and in some cases, they compelled us to rethink how to best deliver returns to our shareholders.
And that's the balance long term value creation.
And attractive dividend.
As of second quarter results demonstrate the momentum and our strategic areas of focus is real and supporting our view that we.
Of the right business strategy and capital structure in place for longer term success.
Today, we're updating our 2021 outlook for our consolidated business.
But our works far from over we know that consistent execution is the only way to win and keep our investors' confidence and the strategy, we put forth and.
And I couldnt be more pleased with the progress we're making.
I'll turn it over to Pascal and discuss the details of the quarter basketball.
And John and good morning, everyone and the second quarter, we saw impressive growth of across mobility fiber and HBO Max we.
We added nearly 800000 postpaid phone, that's our best second quarter and more than 10 years subscriber.
Subscriber momentum continues to be strong and we continue to take share.
And adds are up churn is at record low levels and our average promotional spend per net adds is significantly lower than a year ago, thanks to the consistency and our offerings.
The story with fiber remains much the same we continue to see solid subscriber growth with most of those customers new to AT&T.
And broadband revenues grew more than 8%.
H B on Max continues to exceed our expectations, having surpassed the lower end of our global subscriber target 6 months ahead of plan. We are now raising our expectations to 70 to 73 million global subscribers by the end of the year.
We also launched our domestic AD supported version of HBO, Max as well as our international offering and 39 Latin American territories at the end of the quarter that sets us up for additional customer growth as our addressable market expand let's now turn to slide 7 for our consolidated financial results.
Last year, we saw the brunt of the pandemic impact on our Q2 results.
While the pandemic is still having some impact on all of results. We're seeing our business has emerged stronger than before with growth accelerating in our market focus areas revenues were up more than $3 billion or 7.6% from a year ago gains and Warner media mobility and consumer wireline.
More than offset declines and video and legacy business services.
Adjusted EBITDA declined mostly due to pandemic impacted timing of sports cost and last year's second quarter, we'll talk more about that and the moment, but we expect most of that to reverse itself next quarter. In fact, we expect consolidated EBITDA to be flat to up modestly next quarter and improving thereafter adjusted EPS.
For the quarter was 89 cents, that's up more than 7% year over year.
And this includes about $200 million of pre tax gains principally from mark to market gains on benefit plan investment adjustments for the quarter included a $4.6 billion pretax noncash write down of the brio assets based on our sales transaction announced yesterday cash flows.
Continue to be resilient cash from operations came in at $10.9 billion for the quarter free cash flow was $7 billion, even with a $2.4 billion increase and Warner media cash content investment our dividend payout ratio was about 55%.
Cash flows this quarter were also impacted by the capitalization of interest of about $250 million associated with our recent.
<unk> C band spectrum purchases, which are recorded as investing activities. This accounting treatment stops once the spectrum is deployed let's.
Let's now look at our segment operating results, starting with our communications business on slide 8.
Our communications segment grew revenues driven by gains and mobility and consumer wireline.
Mobility growth continues to accelerate and we delivered another terrific quarter. Our simple postpaid phone offers continued to resonate with customers.
And these were up more than 10% with service revenue growing 5%.
Postpaid phone churn Mack a record low.
And we continue to have strong customer growth, especially in our postpaid phone base.
Our postpaid phone customer net adds and improved by nearly a million year over year and EBITDA is up $200 million, our highest EBITDA quarter on record. This growth came without a material return and international roaming revenues and a difficult comparison to last year's Q2.
And that included more than a hundreds of millions of gains on tower sales.
As you think about the balance of the year keep in mind, we are expecting of normal handset introduction cycle on the third quarter versus last year's fourth quarter launch also on the timing front, we expect our recent agreement with dish.
About a boost of wireless service revenues in 2022.
Business wireline continues to deliver consistent margins and solid EBITDA, even as customers transition away from higher margin legacy services and products.
We saw sequential improvement and both EBITDA and EBITDA margins year over year comparisons were impacted by benefits related to the pandemic and the year ago quarter, we expect similar challenging comps and the third quarter.
However, with continued product rationalization and cost management were very comfortable with maintaining business wireline margin and the high 30 percents for the remainder of the year.
Our fiber growth continues to be solid we added 246000 fiber customers in the quarter.
Broadband offer grew by 6.1% year over year.
And how does it get fiber penetration rate is now more than 36% up from about 31% a year ago.
And nearly 80% of net adds or new AT&T broadband customers.
We've reached a major inflection point and our consumer wireline business broadband revenue growth now surpasses legacy declines. This helped drive consumer wireline revenues up 2.9%, we expect broadband revenues continued to outpace legacy decline.
EBITDA trends are also expect to continue improving as we make our way through the second half of the year.
Let's move to Warner Media results, which are on slide 9.
We feel really good about our execution net 1 and media coming out of the pandemic subscription and advertising and content revenues have accelerated.
Customers Love HBO, Max and subscriber growth is exceeding expectations.
And we had a successful launch of both of our AD supported and National HBO Max offerings late in the quarter.
Revenues were up more than 30%, thanks to higher subscription and advertising and content revenues.
Direct to consumer subscription revenues grew nearly 40%, reflecting the success of HBO Max advertising revenues were up nearly 50% driven by sports and upfront negotiations so far of the really strong.
Content and other revenues were up 35%, reflecting the recovery of TV production and theatrical releases. The return of sports had a big impact on advertising revenue and EBITDA and the quarter and.
In fact sports contributed more than $400 million of advertising revenues, and we incurred sports costs of $1.1 billion and the quarter. So discrete losses from sports increased more than $600 million year over year due to last year of suspension of sports and the second quarter.
We expect most of that to reverse itself and the third quarter as the prior year third quarter included the restart of the NBA season.
We now have $47 million domestic HBO, Max and HBO subscribers and more than $67 million worldwide subscribers and domestic Corfu is just a little less and $12.
Our AD supported international offerings will watch too late in the quarter to have much of an impact on the second quarter results, but we're enthusiastic about their prospects given the initial receptivity.
As mentioned earlier, we are raising our subscriber growth expectations for the year.
We're seeing good momentum, especially in all of Latin American markets.
We expect most of our subscriber growth for the remainder of the year to be from lower op of subscribers in that region.
To lean into HBO, Max fast start and Latin America, we may push back our launch and some European markets until early 2022. This shift is factored into our revised HBO Max subscriber guidance for the year now.
Now, let's shift of guidance as John mentioned, we updated our consolidated guidance for the year.
Let's discuss that on slide 10.
As a reminder, our guidance for 2020.1 is on a business as usual basis and includes a full year contribution from Directv based.
Based on the momentum we're seeing across our operations. We now expect consolidated revenue growth in the 2% to 3% range up from the initial 1% guidance.
And also expect wireless service revenue growth of 3% for the year up from about 2% adjusted.
Adjusted EPS is now expected to increase and the low to mid single digit range, that's up from our earlier guidance of stable with 2020.
Growth capital investment expectations remain in the $22 billion range and we now expect about 27 billion and free cash flows for the year.
Also we now have better clarity on the projected close of the Directv transaction.
We expect the transaction to close in early August.
He is the expected impact from excluding 5 months of Directv on the consolidated financial guidance, we just laid out.
Revenues are expected to be lower by 9 billion.
EBITDA is expected to be lower by $1 billion.
Free cash flow is also expected to be lower by about 1 billion equating to 26 billion for the full year, we expect no change to our updated adjusted EPS guidance as benefits from the accounting treatment related to the NFL Sunday ticket of largely expected to be offset by certain fixed costs that were previously al.
Catered to Directv.
Capital investment guidance is also expected to remain the same of.
Do you see the actual financial impact could vary depending upon Directv performance. The actual close date and other considerations, we recognize the financial structure of the Directv transaction is complex and that is why we included kind of incremental details on cash and dividend distribution terms and our press release.
Shortly after we closed the deal we plan on providing pro forma historical financials to help your modeling going forward.
Amir that's our presentation, we're now ready for the Q&A. Thank.
Thank you Pascal operator, we're ready to take the first question.
Of course, and our first question today comes from the line of John Hodulik with UBS. Please go ahead.
Okay, great. Thanks, good morning, guys.
Anything you can tell us about the details of the wholesale deal with dish.
Just any thoughts I know Pascal you mentioned that it would affect revenue and 22, but just on do you guys expect to take all of that traffic onto our network and maybe if you could give us a sense on when that should start to migrate over what timeframe you would see that.
And then also as part of that announcement there was there is.
Some of some details about some spectrum that you guys could utilize from some day. She is that the is that the 700 megahertz spectrum that you have access to and maybe if you could give us some details on how quickly that could be put into it could be laid up and sort of used by ATT mobility and see great. Thanks.
Sure John.
First let me just kind of start out.
And step back and say.
And we watch some of those.
Comments over the last couple of days on the mainframe.
Good day.
We have been.
Wholesale business since as long as I've been working for this company.
And the wholesale business has been very good day of our company and it's a very important element of how we manage.
And our returns.
And how we kind of think about it.
Track and delay kind of scale on our business moving forward on that.
Both true and the fixed and wireless business and we've been cognizant of.
Percentages of traffic that we have and various aspects of our business and always try to maintain a balance and I would say.
My experience with this company and looking at the relationships we've had some of wholesale perspective.
We've always managed to strike relationships, and we think or when.
And relationships for the parties involved.
Second thing I would say is I believe the dish.
And to be a company that and their business model and they choose to do moving forward is going to be successful 1 way or the other.
And my point of view and when we start thinking about of wholesale businesses. When somebody is going to be successful, it's always nice for us to be successful along with them.
We think there is a accretive way to do that and it drives a reasonable return back into the business and again managing the balance of that traffic and the aggregate of the business and I think we've achieved that and this case and frankly.
Given the nature of their business and where they are and its maturity and what.
And our interests are and ultimately and.
And regaining as much traffic on their networks as possible.
And I'm looking forward to demonstrating introduced and we can be a good partner and then.
And you can carry of the right kind of traffic and we can do things to help them now.
Other infrastructure over time on parts of our network.
They may not have ready access to infrastructure that we can ultimately support from us and.
I think thats, a good thing for Asia and to you over the long haul and given the nature of our business and what we've done and the balance of that we'd like to keep between retail and wholesale and traffic.
The construct around this particular agreement as you should think about it is.
As you know.
It was set up so that as this continues to build their own infrastructure for their own and operate they need places to put traffic and so while this is a 10 year agreement discussed I think of the disclosures.
And minimum commitment per year, 1 should think about this as probably being something that's more front end loaded back end loaded and.
In terms of how that commitment retires and I think you should also think about it.
In terms of.
Dishes and established.
With us a minimum annual commitment that's that's not the necessarily the and it won't commitment or the maximum annual commitment and a lot of this will be based on our effective performance with them and ultimately what they choose to do and the market, but frankly, we would aspire to.
And to possibly see that there'll be something greater than what those minimum levels are sort of been put in place, but this was a comfortable construct and I think both parties could agree to get started and establish all of the practices and processes that are necessary to have an effect of wholesale arrangement like this.
And I think that we we need to demonstrate that we can do well and ultimately see that growth and.
And I don't want to speak on behalf of dish or Charlie.
And I'm sure. He will when he has a chance to comment on that but I believe.
1 of the reasons they view this as being a good move for them is their assessment of where things were in the industry is.
We felt like we could be a very capable and more capable partner and their current arrangement and they have motivation for a business reason to continue to deepen that relationship with us.
I wanted to say because.
And we think about.
What we do with them on this relationship going forward.
There are a lot of options and we can explore spectrum is certainly 1 that's open.
Variety of spectrum licenses, where our existing radio infrastructure can ultimately deploy and put to use some of their spectrum.
And that's been done through the pandemic we have.
Options to do some of that as well as we move forward and look I don't think of any of us know over the course of of longer term relationship what's going to happen to other rigs and specs on on <unk>.
Spectrum and <unk>.
And part of useful keep their mind open as those evolutions occurring and look for some other options to pursue the right now we know what we need to do with of wholesale agreement and frankly, there's really no different than any other wholesale agreement.
And the market like what maybe Verizon does with cable or what we've done with other other entities that are of elected to use us on a wholesale basis, Jeff do you want to add anything to that.
The team did a great job pulling it together is there anything you would add John and I think he covered the broad strokes of and I would just say the cadence between the 2 organizations and getting ready to begin migrating this traffic towards the latter part of this year and ongoing into 2022 has been.
Very positive I think the.
Comments from the operation of Ben that the AT&T network has got the capacity and the coverage and with all of the investments that we've made over the last several years.
Can actually afford to do something like this and not worry so much about our spectrum position and.
And our technology migration that.
We've got experience in and upgrading from <unk> to 5 <unk> and making those transitions Cmos is something I think the dish organization is looking forward to working with us on.
I think anybody around here is upset about taking care of $500 million of your out of the competitors' pocket of either so.
Got you, okay, so I'm thinking of thanks.
Thanks, very much John operator can move to the next question.
And we do all of a question from the line of Sean Flannery with Morgan Stanley. Please go ahead.
Thank you very much good morning.
I Wonder if we could get a quick update on the Warner Media discovery deal any updates on timing regulatory process, our tax status of test structure et cetera, and then.
Jeff you did and interesting deal around of <unk> core with Microsoft Azure and it'd be great just to learn more about the details of that any numbers you can give us and the opportunity set that gives you. Thanks.
Is that of legal name change side of members.
Hi, Brian.
And Steve.
And we'll figure it out on the transcript.
I think the.
Net of where we are and the discovery process and has no news is good news, we're basically tracking through the process.
As we would expect to do and I think youre, probably familiar enough with these things of that right now it's a lot of work with the regulatory agencies and document production.
Riding and information that's responsive to their request of that they can begin their reviews.
And all of that is underway.
There is.
Nothing we see and that has been particularly problematic nor is it far enough along where I think you can effectively say that.
Buddy has developed and in position of point of view on something so.
We continue to move through and I will tell you internally all of the normal steps are going on and to be prepared.
Operationally for when we would expect and approval I think as I indicated when we announced the transaction Simon.
And we expected it was going to be you know next year and probably close to a full year of reviewed and get this done and.
I don't have any reason to suggest it's going to be and anything other than that at this point.
We've had some interesting and pleasant surprises and some cases I think we'd look at.
The Directv process, a little bit faster than what we had expected it's not a complicated transaction and I think that certainly supports it and if.
We wouldn't be fortunate enough to do that because of the.
Now the straightforward nature of the transaction, we will take it and we'll be prepared for that if that were to happen but.
At this point I'm expecting it's going to be a follow on of wholesome review and will run through the process as we normally do and get to the end of it and.
As we approach the latter part of it a little bit more insight for you as to what's going on it's just a little early Jeff.
Thank you Simon on the Microsoft transaction.
Appropriate to point out that AT&T and Microsoft we've got a very deep and wide ranging strategic relationship between the 2 firms in.
And this particular deal that you referenced is just another example of how we choose to partner with.
With companies like Microsoft who have expertise and doing things and they do this day in and day out for a living and that is scaled compute and as you know over the last several years, our labs organizations and our network team has been hard at work Virtualized, our core network functions.
What this deal essentially does is it brings Microsoft to the edge of our network and supporting our network workloads.
At a scaled level for efficiency and you now.
As a partner and this our engineers and their engineers are developing this solution on a broad scale across the business across the network.
We're going to enjoy some anchor tenant and benefits from that and we're not disclosing any specific financial details, but 1 thing that we are not doing and I've kind of read this and.
And the trade and the press a bit as we're not outsourcing our core network functions.
We are relying upon Microsoft to develop a scale compute and storage capabilities at the edge, while we retain control of our network stag and the kinds of services and products that we're going to offer to the market and.
As John of shared over the last 4 quarters and our focus here is to put our energy on the things that differentiate our service and by doing this it enables us to reallocate resources that were once attempting to build scale network cloud compute capabilities, we rely on Microsoft for that.
And there is your for operators capability going forward and and our product development teams and our engineers are really work on the service layer and other kinds of products and services that we intend to provide with our fiber and our fiber network to consumers and to our enterprise customers.
Any color on timing.
No we've not we've not disclosed product launches of our capabilities. This deal just just got announced and it's and the process right now of the integration of the 2 teams.
Well I'm sorry I'm on.
Thanks, a lot.
Thanks, very much operator and move to the next question.
Yeah.
And we do have a question from the line of David Barden with Bank of America. Please go ahead.
Hey, guys. Thanks, so much.
Maybe 2 if I could the first question is Pascal thanks for the information about what the perspective.
Impacts of the D. T V decision might be I guess of helpful. Mirror image of that would be what kind of EBITDA and free cash flow from D. D is baked into your current.
Outlook.
As you've laid it out here today.
And the second question is on.
Obviously, 2 new factors impacting the earnings outlook 1 is changing.
Changing REO from operational to asset held for sale and the benefit from depreciation there and then the new kind of approach towards capitalized interest and haven't taken down the interest expense could you talk about with those 2 factors.
And we're doing to inform the new earnings growth outlook.
Sure thing Gabe on TTP, we have not provided detailed guidance yet, but as we said once we once the transaction closes we will provide.
Details to help with your modeling.
In terms of Rio.
You said that you ask about the impact of stopping depreciation and amortization.
About it as 1 to 2 cents for the balance of the year.
So not significant.
And capitalized interest we just.
As you saw on my remarks, I said that it's about $250 million in Q2, so think about that as being just on you should model go forward.
So if I do that math of it kind of suggests that the and.
For the balance of the organization still kind of more stable of EPS, let you kind of drive the top line and that's fair.
I think thats fair, but remember we are stepping up our investment significantly across the board in mobility fiber and HBO Max So.
And that some of this is self imposed by the investments, we're making and you're seeing the delivery of the return to the top line and overtime.
Over time, we expect to continue transformation effort and continued revenue growth, we're going to drive operating leverage which should translate into EBITDA improvements and as I said. This in my comments, we expect next quarter.
EBITDA to be flat to up modestly.
So this is really really a good outcome, but this is a sock.
We're investing fully in our businesses and we're delivering returns as evidenced by the revenue growth and we're optimistic that all of that is kind of translate into profit growth and cash going forward.
Great. Thanks, Lee Thanks, very much day, operator, if we can move to the next question.
And we do have a question from the line of Phil Cusick Jpmorgan. Please go ahead.
Hey, guys. Thanks.
First John you know there are a lot of questions about the retention promo you launched last year and it keeps running.
But maybe talk about what else has changed and the wireless go to market strategy aside from the retention promos and the last year and then and then what do you see driving the industry strength this quarter as well and then quick follow up.
Customers will most of them need new phones to come to your network or can you just convert them.
Without a new phone thank you.
So Phil since I have Jeff right here and I'm going to go ahead, and just have your address and since he loses day and day out.
Hey, Phil and I appreciate the question on the wireless business.
We've been operating and this go to market model for the past 4 quarters.
And I've got to tell you. It just continues to prove to be sustainable and.
When I think about it and I would encourage you to think about is 3 simple elements and the first is we have simplified our offers and the market and we have remained consistent and our offer contracts over the last 4 quarters, despite really a highly.
Hi, Lee active and a competitive environment.
But the second element that I think is sometimes overlooked is our persistent focus on the customer experience.
And that is that is execution across our sales and distribution channels.
Our newly formed a year ago customer advocacy teams worked and the grind on improving the experience of our products and our services and then our network organization that just continues.
To put the capital into the ground and drive for a third year in a row of the nation's best network.
And those 2 things combined have responded and continued positive responses from from the market and and customers. Both our existing subscriber base as I think all are aware of but also those of other competitors who are choosing to join the AT&T network.
And we've been able to achieve and sustain taking share and multiple segments and it's across the board. It's not in any 1 particular segment, we're growing and consumer were growing and small business, we're growing with our first net.
Position, we're growing and enterprise and as Pascal mentioned earlier, we've set of 10 year record for net add growth here and the second quarter, but we've also said.
Record for our churn and the NPS results that customers are giving us for our wireless products and services and so in short the.
And customers themselves are telling us that we're doing something right.
When you grow the top line revenue growth through the subscriber growth and remembering that we are third place and market share have got just a little over 27, 5% of the market our growth trajectory right. Now is roughly 35, 36% share of net adds.
We're doing it also efficiently and.
And through our transformation program and our distribution optimization, we're able to mind dollars out of the operations to support this growth and drive EBITDA growth at record levels here and the second quarter year over year as well as sequentially and so this operating leverage that we've achieved gives us confidence that this model of sustainable.
But we got a lot of work to do as I mentioned, we still have a third place share position and the market. We havent made our way fully through upgrading our existing customer base on unlimited plans.
We still are early in the cycle of upgrading our base on the <unk> devices and so teams are doing a great job. We are satisfied very I feel very strong about our position and the market, but we are staying focused on what customers want and as long as we're getting the <unk>.
<unk> of response, we're going to stick with it.
And in terms of the overall strength of the market and Phil.
And I, probably I don't think Theres any 1 particular thing I would look at but there is a number of factors 1 obviously.
Many people are flushed with probably an incremental cash and what they might have otherwise of had for a variety of different reasons and they look for things to spend the money on and I would say that generally speaking.
And these are of high value high utility services of B cell and <unk>.
I can understand why on the margin people and they make a decision around that I think secondly, the postpaid strength.
Clearly theres been some suppression of the prepaid market is as I think of value and things occur and there has been some movement and that direction third.
Or do you kind of adjust some of these numbers and the industry. When you think about how many customer lines are actually you know what I would call.
And economic decision of paying for versus not paid for and.
And that probably is having a little bit of and impact on the aggregate numbers, Jeff and I don't know do you think there's anything else that you would point to.
And I think you covered it okay.
And then on the boost conversion price.
Yes, there is.
Obviously there.
<unk> boost and we've got a situation where.
Dish will work through whatever the arrangement is commercially.
T mobile on this and then I think theres been some.
We have discussion around what that and.
Sales and what's happening and we're not in the middle of that debate and what's occurring and I think it still has a little bit of a path to play but yes. There is a segment of those customers of ultimately if they were to come over to our network will require of device change out exactly what the pace of that is and when that's necessary and how it occurs and the total numbers of that.
And I think is yet to be played out Jeff is there anything you would add on that now of 100% required device conversion and risks.
Require sim swaps and third of all easier transition.
You've covered it appropriate.
Thanks, Scott Thanks, very much Phil operator, if we can move to the next question.
Yeah.
And our next question comes from the line.
Of Michael Rollins. Please go ahead.
Thanks, and good morning, 2 questions if I kind of first when you take the plan investing and 5 <unk> and fiber all together can you share the percentage of homes over the next 3 to 5 years and the U S where AT&T can deliver on.
Saturday and DSL performing in the home.
And secondly, just going back to the dish <unk>.
Transaction that you were describing earlier and I think about some of the history. John that you were sharing when AT&T entered into some of those larger wholesale deals years ago. It felt like it was more resellers and N b and those that were complementary to the AT&T focus of log of it on prepaid before AT&T was of larger.
Provider.
And the prepaid category. So when you evaluated the deal.
And this time with dish, how did you consider whether or not and dish.
Be a competitor that may be more complementary to the addressable market that you're going after relative to a competitor that may be going directly. After this team broad set of customers and revenue growth.
AT&T currently Christie.
Yeah.
Hi, Michael.
And 1 of Jeff go ahead and answer to your question on.
How are we thinking about footprint for coverage of broadband and then I'll come back and touch on your point of view on the wholesale piece.
And Mike we've disclosed we've got investment plans over the long term to reach 30 million homes passed with fiber, which is clearly in excess of speeds capable by copper cable or DSL.
I would point to today on <unk> network deliver speeds over 250 million pops covered that exceed that of DSL and we are.
Not made the choice of our decision to launch wide scale on a fixed wireless internet, but rest assured that the strength of our wireless network is providing options for us as we migrate some of our legacy wireline DSL customers off of that technology over to a better technology.
Served up with fiber and wireless and where it doesn't make sense for us to invest and fiber for the long term and certain demographic areas of our market areas.
We choose to serve that list with wireless and will will leverage <unk> existing network that we've got with our sub 6 spectrum strength now.
Inside of that we're not disclosing the number of homes covered by the wireless network, we generally measure of that in terms of Pops.
So Michael on your comment I think I'd, probably disagree with the front of of your your premise.
I think we do things that are complementary in terms of we think they're accretive on.
<unk> to bring profitable traffic on the network, but.
Our portfolio of owned and operated services frankly covers the breath of whatever our customer needs. I mean, there isn't really of your customer base that we could go out and sell and owned and operated service too and we've been in that position for some period of time, and very strong and prepaid business, which plays and the value segment, we have of.
Variety of different prepaid offers that are out there we have great postpaid offers and cover a full gamut of things so yes.
Yes, there are other operators out there that on a resale or MD and O basis go on attack other market segments.
I'd like to compete for those customers on on owned and operated basis as well and that's always been the case now I think where we're at and the U S market, maybe a little bit different than others.
There is kind of of direction toward.
More owned and operated copper.
Competition.
Our resale and <unk> operation and.
And as a result of that occurring.
Number of wholesale options I would say moving forward and the future of you're going to become a little bit more concentrated and so.
And you're probably going to see.
Where you choose to put that wholesale traffic on your network to be fewer options to go out and pursue different partners and as a result of that if you want to continue to have an element of wholesale consistency and your market and to Jeff's point. If you have on some excess capacity that you can put to use and.
And use it for either of fixed cost coverage or we're driving enough incremental traffic and a place where you have some value of capacity.
Obviously choose to do that and I think thats the case here and as I would also tell you.
When you think about this relationship.
The broader wholesale capability beyond just the wireless business is as.
As a part of this which is really attractive to us as of.
And as an infrastructure provider and it's something we do on our core and.
There are opportunities for us to think about again as we deploy as dish deployed network infrastructure and where they go.
For us to do some things that I think are complementary and helpful of those.
And businesses.
Yes, and I will.
And just only add John to your earlier comment during the call that we expect dish to be successful on the market.
And so the competitive dynamics are unchanged here and rather.
And we get to participate and their success at this point, so thats, how we analyzed and strategically.
Thanks, very much Mike operator, if we can move to the next question.
And that question comes from the line of Doug Mitchelson with Credit Suisse. Please go ahead.
Oh, thanks, so much.
1 for Jeff and 1 for Jason actually.
Jeff.
And we focus so much on promotions and subscribers and revenues and in wireless and you've mentioned on a few occasions the ability to mine for cost efficiencies to support acquisition. What specifically are you addressing and the cost structure of how much is left there would be interesting to hear Jason I know you were super excited about the Latin America launch for HBO, Max what are the learnings from the.
<unk> and Latam, so far what percentage of existing HBO subs and moved over to HBO, Max and and.
And so as we try to track the App downloads and I think it's upwards of 6 and a half million and since launch and we're just trying to figure out how much of that is new subscribers versus H b O mapped existing customers' activity and over thanks. So much.
Doug in terms of our transformation agenda, I'd say, we're roughly about a third of the way through we've got 2 thirds of the way to go.
So we're in the early innings of it key themes around our transformation and cost take out are things like optimizing our distribution element of fee at stores and retail locations and indirect agents.
And as well as our digital and our online by flows.
Area of transformation is we're now at a point and time, where we're managing a higher percentage of our volume through digital than we ever have and because we perfected some of the ailments and our product experiences of the past, we're able to enjoy a lot more self install and customer self serve capabilities.
And that's required us to work through not only the bi flow of experiences online, but also some of the platforms and the technologies that are behind the scene supporting our frontline resources.
And third our call center operations and our it organization are hard at work and you're just getting plain and simply more efficient per transaction and as I said I think we've got probably 2 thirds of the way left to go it will take time and these initiatives are funded they are inside of our outlook and inside of our guidance and now the <unk>.
And so you just hard at work.
And the grind day in and day out to drive it.
Jason.
And thanks for the question and in terms of and learnings from Latam So far.
And.
And and overall level.
Ed.
And we're feeling very good about the launch on albeit it was only <unk>.
And 2 days before the end of the quarter and so obviously, we're not sharing details for this call.
But in terms of the biggest lessons.
1 is the content and the stories that we have on the service.
Team did a remarkable job in terms of planning for this launch and making sure that we put our best foot forward in terms of not only of regional New productions, but also an incredible library and.
And then the other 3 things I'd mentioned is distribution obviously is key.
And we certainly lined up and healthy distribution partnerships of head throughout Latin America, the tech and product works and.
It's a modern experience that we're very proud of and finally, you've got all of the value of.
And now your proposition is of very strong 1 and Latin America, and so and the last question in terms of incremental <unk> and HBO migrations, we're seeing material incremental subscribers.
Additions and so again not for this call and at this moment, but certainly for the next quarter.
Thank you Bob.
Thanks, very much operator, if we can move to the next question.
Of course, and our next question is from the line of Brett Feldman with Goldman Sachs. Please go ahead.
And thanks, 2 if you don't mind first on fiber you've had pretty consistent net adds but you're still underpenetrated youre going to be meaningfully expanding the footprint and got a better service you can match anybody's bundle can you help us think through whether there's an opportunity or the timeline for an opportunity to maybe step up that cadence of fibernet.
It adds because it certainly seems like that that's an opportunity the company and then just as a follow up on the Warner media side, you're 6 months into billing day and day with the theatrical slate on HBO Max and into theaters I know that was the strategy and the unique to this year, but I was hoping you could give us some insight into what you've learned from that and how that might shape. Your view on 1 of more permanent.
Got it he should be in terms of thinking about the theatrical release release slate going forward. Thank you.
Jeff go ahead on a true.
Michael the first 1 yes, Brett so.
The first 2 quarters of this year has essentially been built selling into our aged fiber footprint from the prior bill. We are currently deploying some of the early stages of our next 3 million Bill that we've disclosed for this year as we cited earlier at analyst day, the bulk of that inventory is going to come online.
Towards the back half of the year and so my expectations are that our net add performance and it takes a step up as that inventory comes online and having said that thing Thats really strong force and exciting is 1.
<unk> product continues to be durable as you point out the best technology, It's a great price value proposition has got the highest NPS scores and the industry to 80% of our net performance here and the first half of the year is actually new relationships to AT&T, and that's given us and opportunity.
The move into those households, with the best in class fixed broadband service as well as on.
Offer up some of the other products and services like wireless and so each of these execution elements. We believe are going to continue to perform and continue to improve this is not a quarterly game. This is a long term plan and we're just building momentum quarter to quarter.
Jason do you want to touch on the day and day.
Sure thing Brett. Thanks for the question in terms of of what we've learned and there's probably 2 things I would highlight 1 is that the motion picture format absolutely matters.
Any matters and a number of ways, but I'll highlight 2 matters and theaters.
Adjusted versus comp, which we released this quarter.
And then over $463 million and revenue at the theaters and.
So so clearly motion pictures matter and we will continue to matter when it comes with theatrical exhibition. They also matter of at home and.
And absolutely in terms of the response that we've got and not just from that title, but from all of our day and day titles and we feel very good about the response that consumers have given it in the home.
In terms of.
The things in terms of where things go and the future I think it's fair to say that.
And I've said this before publicly I, certainly don't anticipate us going back to the way. The world was in 2015 or 16, or 17, where windows were quite link between theatrical and home exhibition whether it was on all of the car transaction or something else.
So we will have shorter windows for a portion of our sleep 45 day specifically.
And then Warner Brothers is also going to be producing over 10 and motion pictures that will be available on HBO Max on day, 1 and so I think what youre going to see is this industry continue to evolve and to continue to innovate and ways that not only works for consumers and fans, but also works for our business partners.
Thank you.
Thanks, very much for the questions Brett operator, if we can move to the next caller.
Yeah.
Okay.
Great.
Okay.
Great. Thank you, maybe just follow up a little bit more on the consumer wireline and.
And what point do we think that can really start to see the consistent top line growth with basically on all of the fiber and broadband you've pushed out of it and secondly on on first net where are we on penetration there and can you comment on the first net base and what percentage of that are have been net new customers AT&T. Thanks.
Hey, Frank we have achieved revenue growth and our consumer wireline business and as Pascal pointed out we expect that to continue to accelerate.
Already looks.
Looking at the 8% to 9% and only in the broadband business and so we've got confidence we've made that pivot now.
In terms of first net with over 17000 agencies. We're ahead of all of our commitments with our first net authority and all of the ISC and buildout commitments and payments.
As a result of that and of the subscriber base has peaked over $2.5 million I'm not going to comment on what percent of.
That base is incremental or new to AT&T I would just leave you with we are growing market share and a highly competitive wireless business and first net has been a critical element for us to take share and unseat, possibly other carriers, who have long held a strong position and public.
Safety and and as part of the community and so that program continues to perform very strong and we don't see any signs of that slowing down hey, Frank 1 other thing that I would add on consumer wireline and.
As I said and the first quarter, we expect profitability trends to improve we saw we saw they proved from Q1 to Q2 and we expect that to continue as we make our way through the back part of the year and we will be similar to what we've done with revenues, we will make the pivot on profits as we get through the back half of the year.
Thanks very much for the question of you very much.
Operator, if we can move to the next caller.
Okay.
And our next question comes from the line of Colby <unk> with Cowen Cowen. Please go ahead.
All right great. Thank you and I think 1 of the debates for investors.
Coming off the Warner media announcement.
And how you actually get to that $20 billion and free cash flow and 2023.
That you've guided to and.
And when you just run the EBITDA on the businesses that remain you don't quite get there.
And I think that the 2 things that you guys have outlined and number 1 day.
Cost synergies you've talked about I think $1.75 to 2 billion by that time and now you've also mentioned the $1 billion plus and distributions from Directv I guess 2 questions. There number 1 is that as it relates to Jeff.
Jeff response, and response to Doug's question being 1 third through the cost transformation is that effectively 1 third of getting that $175 billion to $2 billion and.
Any color there and then secondly.
I guess as it relates to.
The E E.
Components is there anything else worth flagging.
Besides those 2 things of cost synergies and distribution that helped to kind of bridge that gap to that plus $20 billion. Thank you.
A couple of points to keep in mind.
1.
When you look at interest.
Once the Warner media transaction closes.
Our net debt will go down significantly and interest savings for that are fairly meaningful you can do the math.
Roughly.
40, $45 billion of cash coming in and Thats.
After our Directv cash that we expect to come in beginning of August so overall.
We expect of meaningful savings and interest 1 too.
Currently.
We've said this on a number of occasions.
Currently we are the contributions from Warner media are not as meaningful as you may believe right now given the step up that we are experiencing and our content spending so.
Those 2 factors I think are things you have when you consider those factors relative to where we are today and the other factors you mentioned I think that should get you to how we get to $20 billion.
Yes, just and then.
And of course things of which.
As shared previously Covid.
We're on a $6 billion March on the cost structure.
Which as we've described to you.
Yes.
Correct, we're about a third of the way through that we've been reinvesting a lot of.
Improvements.
And we've been able to drive into the operations. So that we can accelerate our market momentum.
As we go through the back half of this March of the second and third.
Third and then the final third we do expect some of that is going to start hitting our bottom line.
Some of the targeted for how we want to continue to move into the market, but some of it is going to move through our bottom line and it's going to ultimately be accretive to what we do on cash as we move through that and.
That's part of our our calculus on this and Jeff gave you a little bit of a description of.
Some of the things that we're working on but I would also tell you that.
A major part of these efforts and some of the stuff that comes of the backend.
As restructuring parts of the fixed asset inventory of our company.
If you want to think about it in terms of the geographic footprint that we cover on the products that are associated with it and the operations that are necessary to keep those products up and running now.
These are pretty fundamental part of things to do they take a little bit of time.
<unk> is doing them.
And when they are done and we moved through them.
Have a meaningful impact on the cost structure as we move forward and that's that's an element of net book.
We have some market momentum and places as we just described you heard our comments about where we are on the consumer space.
And we've made there.
Like what we're seeing and the wireless business and think we have the sustainable equation that we can take forward and thats going to drive growth and those things and and Thats whats going to get us out to those numbers. Yes, you remember the guidance is for 2 years from now so the first full year after the Warner media transaction closes so.
We believe we will grow our remaining business between now and then.
Given the dynamics that we're seeing and the marketplace.
Great and thanks, 1 quick point of clarification, and then you were saying then that the 1 third.
John that's off of $6 billion and broader cost savings target.
Right.
Okay. Thanks, very much for the questions Colby operator, we have time for 1 last question.
Okay.
And that question comes from the line of Tim Horan with Oppenheimer. Please go ahead.
Thanks, Brian and John Congratulations on some pretty radical transformation of the company and the strategy and I just.
And the same vein.
Would it be possible of additional light up their spectrum on your passive as well of course, non passive infrastructure and wireless the brands.
Brands and on the incentives relatively quickly if they wanted to do so and if you thought that meets with them.
Yes that is technically possible as John pointed out the industry during the pandemic shared and spectrum to bring it to life to support the needs for broadband and so there are certain spectral assets that are already engineered repair our antennas and our radios that are deployed today.
And would that meet the FCC requirements on the buildup of Duchenne.
And I'm not going to comment on that.
And then lastly, just on the whole go to market strategy, that's what I'm thinking of <unk> partnered with AWS and AWS and other Hyperscale and <unk> just on a phenomenal job of digitizing the customer experience have you thought about before.
And the same type of radical Digitization for customers AWS can do same day delivery, obviously and it would really reduce the need for the number of stores that you have and a lot of other processes you have.
We have done.
Much of the very same thing and our operation over the last 18 months in fact I call 2 of higher percentage of our volumes are flowing through digital we are getting higher gross adds and than we ever have before with fewer doors as a result of our.
Of our operations and our transformation of our distribution channels and so yes, we've got teams that that execute against those opportunities day in and day out.
Tim and I would tell you there is a fundamental reengineering going on right now of our supply chain and how.
And we think about the logistics around that supply chain and.
Element of that is of course.
We've as we've learned during the pandemic.
Folks of change behavior, we've of.
Accommodated and a lot of that and frankly in terms of how effective we are in an omni channel approach, but we also realize that.
Probably elements of more at home services and day and day kind of approach to it.
We're going to be what we need to address going forward and there's a lot of work underway with that.
Thanks, very much couple of questions.
And turn it over to John for final comments.
Look I'll be real brief.
We would say this I think with yesterday's announcement on Breo and.
Those that came before it I would say we put the bulk of the framework in place to on.
Optimizing our execution and performance of the business and.
It's as simple as that and that's what we're focused on and I'm pleased with the momentum as we begin this chapter.
Now I'd like to thank you all for joining US this morning, and your interest and the business I Hope you enjoy the rest of your summer and I look forward to speaking with all of you very soon.
Yeah.
And ladies and gentlemen that does conclude our conference for today. Thank you for your participation and for using AT&T Conferencing service you may now disconnect.