Q3 2021 AT&T Inc Earnings Call

Ladies and gentlemen, thank you for standing by.

Welcome to At&t's third quarter 2021 earnings call.

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And as a reminder, this conference is being recorded.

I would now like to turn the conference over to our host.

Amir Raws with dusky senior Vice President Finance and Investor Relations. Please go ahead.

Thank you and good morning, everyone welcome to our third quarter call.

Paul Let me know raws would ask you head of Investor Relations for AT&T and joining me on the call today are John Stankey, our CEO and Pascal the Roche our CFO.

Also joining us for the Q&A portion of our call are Jeff Mccall for us the CEO of our communications group and Jason Tyler CEO of Warner Media before we begin.

We 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 in At&t's SEC filings 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 in the quiet period for the FCC spectrum auction 110. So unfortunately, we can't answer questions about that today.

With that I'll turn the call over to John Stankey John.

Thanks, Samir good morning, everyone. Thanks for joining.

Again I'll be brief because the quarter is largely more of the same this marks the fifth consecutive quarter of consistent progress since we articulated our simplified business strategy and.

And how we plan to measure our progress going forward.

The close of the Directv transaction this quarter is another important step.

<unk> completed the reposition AT&T.

I acknowledged this makes for some extra cycles on comparative analysis.

As we continue to do so there'll be fewer moving parts to SaaS and better visibility and clarity.

In the meantime, it's important not to lose sight of the success we're having.

Deploying capital into our areas of strategic focus.

Bottom line, we're accelerating our historical rates of customer growth and mobility fiber and HBO, Max and customer satisfaction is improving across the board with lower churn and higher NPS scores.

Mobility is delivering more postpaid phone customers on a rolling 12 month run rate than it has in the prior decade.

Fiber products are recognized as best in class.

As we expand our fiber footprint with delivering a superior service and we're growing our share.

We're already nearing the low end of our 2021 guidance for global HBO, Max and HBO subscribers. Despite our long planned intend to no longer cede customer control to Amazon's channels offering. Additionally, customer growth can be attributed in part to our.

Our ability to mine out significant cost savings from our operations.

And reinvest them back into the business.

The results are driving and mobility and consumer wireline EBITDA growth, we expect to be complemented by margin expansion as our transformation work matures.

We have clear line of.

We're achieving at least half of our 6 billion dollar cost savings run rate target by the end of this year driven by success with a number of initiatives that we believe also will support improving returns in the coming years.

Whether they stem from nearly a $1 billion of savings from streamlining our field operations.

Similar level of savings from changes made to our procurement processes or a $5 billion of savings from the rationalization of our retail store footprint.

Our focus on driving out inefficiencies showing tangible results.

These are just a few of the most significant programs underway.

Site for initiatives that we expect will drive incremental savings and operating leverage are in the investment in implementation phase.

Finally, as I mentioned, we closed the Directv transaction and continue to expect the Warner media deal to close by mid year 2022.

With these and other disposition.

Motions, we monetize.

<unk> or announced plans to monetize more than $55 billion of assets over the past year. The last five quarters have been a period of repositioning our business, while also delivering operational results.

With that repositioning nearing completion.

Even.

We're focused on continued execution and improved performance.

We're on track to reach our full year free cash flow guidance in the $26 billion range and.

And we expect to hit the high end of our adjusted EPS guidance.

We're in the early innings of transforming the company and believe that.

Even more significant opportunity ahead of us to expand share in our focus areas and drive better returns, including.

Sustained earnings growth.

We continue to strive to earn your confidence one quarter at a time delivering operating performance as it shows our momentum is real and sustainable.

Now I'll turn it.

We have SaaS skull to discuss the details of the quarter.

Skull.

Thank you John and good morning, everyone before we get talk consolidated results, let's look at the progress in our market focus areas on slide five.

As John mentioned, we continued our strong customer momentum in the third quarter with 900.

Over to Paypal and postpaid phone net adds that's our best net add quarter in over 10 years customers like the strength of our network and our consistent simple offers gross adds were up churn is low and we continue to take share and grow our customer base.

Our fiber base also.

So can throw a band revenues grew by more than 7% and we now have five 7 million AT&T fiber customers with $3 4 million up them on one gig connection and we saw sequential growth in our fiber net adds with most of those new to AT&T.

Let's now look at our HBO.

Max HBO global subscribers as we said last quarter most of the subscriber additions for the remainder of the year are expected to come from all lower op grew international base.

We've reached nearly 70 million global subscribers, thanks to growth in our international markets as previously announced domestic.

Message subscribers were down due to our proactive decision to shutdown the Amazon wholesale platform. This was partially offset by new wholesale relationships.

Retail subscriber growth slowed on the timing of new content, but we expect retail subscriber growth to accelerate in the fourth quarter due to strong content.

We have new seasons of success in the curb your enthusiasm debut in the return of sex and the city as well as the much anticipated premieres of June King Richard and the matrix Retroaction, given our upcoming content slate and expanding global footprint, we expect to end the year at the higher end.

Of our year end global subscriber target.

Now, let's turn to slide six for our consolidated financial results.

The third quarter results reflect the closing of the Directv transaction. After the first month of the quarter were a smaller company today than we were at the beginning of the quarter and that is reflected in our results.

Excluding Directv revenues.

These were up about $1 7 billion or 5% thanks to growth in our market focus areas gains in mobility, Warner media and consumer wireline more than offset declines in business wireline and from the disposition of other businesses.

Adjusted EPS for the quarter was 87.

That's up more than 14% year over year.

In addition to merger amortization adjustments for the quarter adjustments were made to exclude our proportionate share of Directv intangible amortization a gain on the sale of play damage.

And in actuarial gain a benefit plan when you exclude Directv from both periods adjusted EBITDA was up 3% year over year, mostly due to growth in mobility and strong growth at Warner media, reflecting partial recovery from the pandemic and the timing of sports costs.

Cash from operations came in at $9 9 billion for the quarter.

Spending was up both year over year and sequentially with Capex of $4 7 billion and gross capital investments totaling $5 7 billion free cash flow was $5 2 billion inclusive of Europe.

Year over year increases of $850 million in Capex.

One 7 billion investment and Warner Media Cached content year to date, our content investment has increased by more than $4 billion.

Definitely our leverage position also benefited from 10.

<unk> dollars and asset monetization in the quarter, including our Directv TPG transaction.

Let's now look at our segment operating results, starting with our communications business on slide seven.

Our mobility business continues to gain steam revenues were up 7% with service revenues growing four six.

10 billion was paid phone churn remained at record low levels.

And we had record postpaid phone growth.

Prepaid also continued to be a solid performer for us, especially our cricket brand. We added 249000 prepaid phones in the quarter prepaid phone churn is less than three.

3% with cricket churn, even lower mobility, EBITDA is up nearly $300 million or three 6% year over year.

And by growth in service revenues and transformation savings, we expect that growth to accelerate in the fourth quarter.

This growth came even.

With increased volumes.

<unk> shutdown costs of nearly $200 million.

Higher costs associated with the return of the iPhone launch into the third quarter and without a material return international roaming.

We expect similar quarterly <unk> shutdown costs through the first quarter of 2022.

Business wireline continues to deliver consistent margins in the high Thirty's and solid EBITDA.

The business did see some difficult year over year comparison, given pandemic related benefits experienced last year, we have been very aggressive in proactively rationalizing our portfolio of low margin.

<unk> products this creates incremental pressure on our near term revenues, but at the same time. It allows us to focus on our core network and transport services products. It will take several quarters for us to work through this initiative, but as we lap the beginning of this process that began late last year, we should see improving revenue.

Revenue trends in business wireline.

Our fiber growth was solid we had our highest fiber gross adds ever and we continue to win share wherever we have fiber, we added 289000 fiber customers in the quarter and more than 70% of fiber net adds or new AT&T brought.

Customers and this gives us great confidence as we continue to build out our fiber footprint.

Last quarter, we reached a major inflection point in our consumer wireline business, where broadband revenue growth now surpasses legacy declines.

Total consumer wireline revenues are up again this quarter growing three 4%.

This quarter also reached an inflection point on broadband profit as EBITDA grew three 8%.

We expect sequential EBITDA growth in the fourth quarter, but it would be a tougher year over year comparison due to a onetime pandemic related benefit in last year's fourth quarter.

Let's move to want immediate results, which are on slide eight Warner media revenues were up 14% led by strong DTC growth and content licensing.

Direct to consumer subscription revenues grew about 25%, reflecting the continued success of HBO Max cotton.

<unk> revenues were up 32%, reflecting higher television licensing and the recovery of television production and theatrical releases.

Advertising revenues were down nearly 12%, mostly due to the timing of sports you may recall that the prior year third quarter included the restarted the NBA season and the player.

Layoffs, which return to a more traditional schedule this year.

This lowered sports cost in the quarter, which helped one of media grow EBITDA by 13, 5%. The third quarter also included the impact of more than $200 million indirect television advertising revenue sharing costs.

With the close of the Directv transaction Warner Media continues to represent and sell direct Tvs advertising inventory and now compensates Directv through a revenue share arrangement.

This revenue share is now recorded as an expense to Warner media.

We launched HBO Max.

And America late June and have had incredible success and next week, we are launching new international markets in Spain, and the Nordic region with more new markets to come in 2022 now before we get to your questions. Just a few words about guidance.

Three quarters into the year, we feel good about.

And lateral momentum and where we stand relative to our guidance provided last quarter.

With our strong performance, we now expect full year adjusted EPS to be at the high end of our previous guidance of low to mid single digit growth range and that's with significant costs expected to be incurred in launching HBO Max.

Europe. Additionally.

Additionally, we expect more than $350 million of advertising share in costs associated with one media's new advertising sharing arrangement with Directv as well as continued cost associated with shutting down our <unk> networks.

Also.

Keep in mind last year's fourth quarter benefited from the advertising associated with the U S presidential election, and as mentioned earlier, we are on track with our free cash flow target of around $26 billion as well in.

In addition to the fourth quarter being a traditionally stronger free cash flow quarter.

We expect the first step reimbursement of approximately $1 billion lower year over year costs from the iPhone launch moving up to the third quarter this year and Directv cash distributions of approximately $800 million.

Amir that's our presentation, we're now ready for the Q&A.

Thank you Pascal operator.

We're ready to take the first question.

Yes.

Yeah.

And our first question today comes from the line of John Hodulik with UBS. Please go ahead.

Great Good morning, guys.

With the inflection in the consumer market the business segment is clear.

What's keeping the communications business from generating positive EBITDA and I know you guys had some tough comps and that's got it. Thanks for the comments on the on the revenue growth improvement, but when can we see start to see some EBITDA improvement.

Any any sort of color or granularity you can give there that would get us to the point, where the communications business is growing EBITDA.

And then maybe for Jason.

Can you give us any color on the Eva launch this summer and it looks like you guys added six to 7 million.

HBO Max subs globally, if you net out the Amazon losses is that a is that in the ballpark and B does that does the content release schedule that you guys mentioned does it allow you to sort of build on that number as we go into that.

Last quarter of the year. Thanks.

Hey, John let me start before adjacent jumps in.

Overall, here's the way to think about we haven't given specific guidance on the overall communications company, which is what I think you're asking about but I've said in my commentary that we expect.

<unk> mobility, the biggest part of our business.

To accelerate growth from here I also said that.

Well sequentially, we have some tough comps.

For the fourth quarter consumer wireline, we expect sequential growth in that business.

Wireline, we talked about some.

The issues, we're facing so when you think about all those things you should get a sense that from here the momentum of the business continues and we feel really good about it our customers who are growing our revenues are growing and we continue to take cost out of the business. So over time, it's going to translate to improvement in not only top.

Top line, but we will see profit growth.

Got it thanks Mcdonald.

John I'll jump in this is Jason on the <unk> question, which is we've been happy with the launch which was in June of this year. So this is the first full quarter and we're happy not just in terms of the absolute response in terms of subscribers.

<unk>, but also because advertising helps lower the price and increase the value for an HBO Max subscription so we see it as rather strategic.

We're very excited about where that goes one thing that is interesting to note John is that.

Until until the end of the year there is a slight difference.

And the product of AD supported HBO, Max and that the movies, specifically matrix King Richard and June are not part of the AD supported offerings. So there will be full content parity starting in late January of 2022. So so we're very happy with the results and we're quite excited about the future as well and then you also asked.

About our results if you assume.

Taking into account the Amazon Prime video channels exit we haven't commented specifically on the size of the subscribers coming from Amazon Prime video channels, but I think it's safe to say that.

We're very happy with the quarter when you think about how we've grown $1 9 million.

Worldwide.

When you think about the Amazon exit, which we think is a very strategic decision that three companies really have made so far and which includes Disney and Netflix being the other two we feel very good about the quarter.

Okay. Thanks, guys.

Thanks, very much operator.

We move to the next question.

And our next question comes from the line of Phil Cusick with J P. Morgan. Please go ahead.

Hey, guys. Thanks, I Wonder if you could talk on your your view on the wireless industry clearly your your business you've talked about it accelerating but theres a thesis out there that there are huge subsidies in frequency.

Greater things that are damaging industry health.

Do you think investors are wrong on that and that the wireless industry is healthy and with churn low does it makes sense to back off a bit on growth to push margin. Thanks.

Yeah, Hey, Phil This is Jeff good morning.

To address that question.

Consumer kind of backup for a second and look at the health of our wireless business in the context of the overall industry.

I can tell you that our strategy is working here at AT&T as we've demonstrated it is the fifth consecutive quarter, where we have driven some momentum and gaining share our net add.

Strength here in the quarter at 928000 that compares to what we had produced back in 2019 in the third quarter of 101000.

And we're driving strong service revenue growth and we just posted the largest total EBITDA that we've generated out of the wireless business segment.

Best part about it Phil.

Is that our customers are telling us that we're doing a good job. This churn levels that are low our signal to the service and the value that we're offering in our NPS feedback that we've received is the highest that we've ever received.

The sustainability of what we've done here and AT&T I think is really important to understand.

More broadly it's a question that keeps coming up about our growth relative to competition and the general market. It's important to note that we've optimized our distribution channels. We've expanded the reach of it and we are now addressing new segments that we were not addressing earlier and that is helping us drive some of our customer momentum.

In combination to that Phil we've simplified our rate plans and we remain consistent in our offers to the market.

Over the last 13 months, if you will and this really enables the AT&T frontline team members to master their craft deliver a higher level of service.

And that this can't be overlooked this is a key component to what's driving momentum for us at AT&T and our business.

I'd also point to things like our first net program, where we're starting to reach and scale here.

Third quarter, we posted the highest net add quarter since launching the program.

But we've arrived at a position of leadership and strength in the law enforcement segment under the public safety sector and so all in all it's been the operational changes that we've made at AT&T that has driven really strong momentum in our customer counts.

The promotions that you referred to.

There is there is an aspect of promotions. That's just one element of this broader strategy and it's important to note that not all of our customers that are with us.

That upgrade or that join us from competitors take advantage of the promotional offers that you see in the market.

We've been at this for a little over a year now and I can tell you that have studied the characteristics of the customers that have taken the promotion.

Versus those that have not taken the promotion in our customer base.

And.

Here's what I can tell you that those that have participated in our promotional offers have a higher LTV.

A better churn and a higher satisfaction score than those that have not.

And so we know this is driving accretive value the industry is healthy and better than that the new accounts to AT&T those that are joining us from our competitors they exit.

Television same kind of characteristics and their financials higher ltvs, better churn and higher satisfaction in our base.

So it's not just that we are adding more customers. We know based on these metrics, but we see that we're adding high value customers and don't believe that this is driven.

<unk> uniquely by any kind of subsidy or extra cash flow that happens to be in the marketplace of the general market.

It's also I think important fill to note that the cost of these promotions as one element of our strategy.

It runs through our service revenue the cost of those promotions run through that.

<unk> and so for us to be able to post this kind of growth in the quarter in this competitive market and drive this kind of solid performance and subscriber revenue accounting for any cost of the promotions gives us confidence that we are creating value.

I would take this kind of quarter all day long.

Along in a competitive market and I am certain that our shareholders are going to be happy with it.

I would just add on that we're not we're not participating or taking EBV dollars on a postpaid.

Scrubbers.

I would I would.

In terms of telecommunications in general in the health Theres clearly.

And stronger consumer out there because of some of the things that the federal government has done with the Panther.

Proper.

<unk> income and Thats not can't last forever.

However, if you kind of examine where we are on the infrastructure Bill.

And you think about what is moving from a federal policy.

Perspective on on building better infrastructure, whether or not Congress gets at three of course is a question, but you work under the assumption that.

There seems to be some bipartisan view that we need to do the right things run infrastructure than broadband and.

In connectivity to the Internet seems to come at the top of the list.

I would expect that theres going to be some more federal money that moves into the industry next year.

And some of it comes in the form of direct subsidy to what's considered to be low income households.

That definition of low income households has a fairly generous definition.

It's.

200% of the poverty line of the Bill was proposed written.

So when you start thinking about that does that mean that a household.

Making decisions on telecommunications purchases.

B.

Strong perspective next year the economy continues to be reasons.

Reasonably strong I don't worry about all of a sudden seen a reversal for turnaround in the aggregate spending power on telecommunication services.

I appreciate that definitely your answer I would only follow up and Jeff I think everybody has been pretty impressed with the results of AT&T over the last year.

I would only follow up to the market is telling you that investors don't believe it.

Not necessarily about AT&T, but look at the stock prices of AT&T, Verizon and T mobile together and investors are discounting with the terminal value of this company is pretty massively and so more detail on that over time might be really helpful.

I think our job is to do what we say, we're going to do each quarter.

We continue to meet our commitments and carried through and ultimately over time.

When the cash shows up it tends to get reflected in the stock price.

Thanks, guys. Thanks, very much bill operator, if we can move to the next question.

And our next question comes from the line of Simon Flannery with Morgan Stanley. Please go ahead.

Alright. Thank you very much good morning, thanks for the update on the Warner Media transaction I Wonder if you could give us a little bit more on when we might learn more about the final structure of the deal that the dividend policy et cetera.

Any color there would be great and then on the supply chain can you just revisit the fiber build pacing.

On the two.

$5 million and just general commentary on what Youre seeing on the supply chain and how that's impacting both fiber and <unk> rollouts.

Simon.

Nice to hear you thanks for joining us today.

Thank you.

General progress on the deal I think is consistent with what we would've expected as we walked into it.

We indicated in our <unk>.

Opening remarks, we're moving through the steps with the various regulatory agencies, both domestically in the U.

So outside the U S.

Those processes are moving along at the pace, we would have expected.

And don't see any surprises routed as you might guess regulatory agencies are doing their typical thorough review around that.

We feel really comfortable around the back and forth.

U S and what's been produced the timelines and the milestones that we've hit around those things.

I would not expect that we would be giving details around.

Our view of the construct of the deal until we're a little further along in that process and we have some degree of visibility of that.

We know that there is going to be a positive affirmation of the deal coming out and we're getting into that.

Let's call it the window, where we know we're in the final back and forth good try to get either a consent decree or approval whichever comes out of it to get the transaction moving forward.

Probably has been around these deals long enough to know that we're we're not at that point right now and we're probably not going to be at that point until we get into the early part of next year and once we have some visibility around that and we can step back at that moment and look at where the stock prices helped.

How things are standing in the market at that.

Point in time.

Starting to get down to that window, where people would need to make a decision then we'll be giving you some visibility around what we think the right path forward is around that and obviously, we want to see what also transpires here in Washington over the next couple of months, there's chances that policy.

<unk> may change around how different types of distributions or different approaches get taxed.

All of that has to be factored into our overall equation of how do we get value back into the shareholder's pocket in the right way.

The more information we have around that to better inform that'll be I think the better it will be for our shareholders as.

They move through it but.

Of course there'll be notice before we closed the transaction I just wouldn't expect that it's going to be months and months and months before we close the transaction because we obviously want some degree of regulatory certainty.

And where we are with the build.

What's the first thing I would probably share with everybody.

But he is.

We're on the path to substantially increase our fiber footprint.

And that stretches across both our consumer and our business base.

I think as you known from past history. This is not uncommon for us to go through these ramps of infrastructure builds.

We've done it many times before we've recently been through one where we went through a multiyear ramp on fiber builds it.

We kind of started executing around the 2015 timeframe they.

They always as you move through the front end of them have a few moments, where they're a little bit lumpy and a little bit rocky.

<unk> because that's the nature of it these are inherently large civil construction projects.

They are spread out across many municipalities and theres, many permitting agencies and all kinds of things that go on and getting everybody kind of joined up and ready to go at scale, sometimes take some steps.

Steps, but at the end of the day, we always get there and I think what's important for.

The investors to understand as we're on this march to get ourselves into a position, where we can deploy fiber at scale and move from where we are right now which is we want an objective of about 3 million passengers a year.

He ultimately probably ramp that into five we're looking at other options to see if there is capital efficient ways for us to even take that up a little bit further and do more but we will get there and I would ask that we probably not rotate on any given 90 day period as to whether or not it was a good 90 days or a bad in 90 days.

It's a question around whether or not we scale this up and get to the point.

We're starting to deliver new homes into the inventory in a regular fashion.

Absolutely convinced that the organization is doing that are we seeing some supply stress right now in certain places as part of the reason why we guided down.

Well $2 5 million this year the answer to that is yes, it's coming in interesting places.

But the great news is when you are a scale player in the market, we worked through those faster and with a preferred position than others.

Seeing that occur whether it's chipsets for gateways in homes that are necessary.

<unk> to put.

A Wi Fi infrastructure on a modem in place or its fiber components that are necessary or access to civil engineering I think we're working through all of those in a respectable fashion.

I can give you. An example, right now one of the reasons that we had to kind of deal with.

Our guide down.

One of our fiber providers was struggling a little bit and getting us the prefabricated portions of the infrastructure that go out into the distribution plant. The last mile. If you will the parts that go up and down alleys and streets.

Ultimately.

With <unk> homes into the network and there is.

Pre assembled components that come in that that are pretty supplies that are put out into the network as we receive them from the manufacturer.

We have worked through a lot of those issues and we in fact have.

An awful lot of that infrastructure, if not all.

<unk> come out of the $2 5 million that will be place, but there is a connector piece of that infrastructure that moves from the optical node that ultimately ties that into the distribution neighborhood, which we're running a little bit short on right now and it's it's literally a very small section of fiber that.

All eyes in the larger distribution, it's frankly, the larger distribution, it's harder to deploy theres more labor hours and it's what requires more permits and more activity out in neighborhoods, but it's that little connector piece that were a little bit short on right now we're working through with the manufacturer in a cooperative way we have a lot of plans in.

Supposed to get that done and get the work completed.

It's one of those things, where it's going to be nip and tuck right up until the end of everything we put in but if for some reason we fall a little short on that.

Not talking about missing the substantial portion of the labor, we're talking about missing.

<unk> connector that has to be.

Play that can bring up a lot of houses every time, we put one more of those and on the network. So we feel good about the ramp we're going to continue to ramp and we're going to continue to give you insights to the new homes that are coming in and we also believe we're in a very unique position given that we're the largest provider and builder of fiber out there right now that we're in strength.

Strength in the industry and what we can command and that supply chain and we've secured the right kind of relationships to get that done.

Great. Thanks for the color John.

Operator, if you can move to the next question.

And our next question comes from the line of Brett Feldman with Goldman Sachs. Please go ahead.

Put it.

Two more for Jason So last month, and our community Copia Conference, David Zaslav indicated that they would likely be taking a bit of a more targeted approach to deploying discovery plus ahead.

Ahead of the merger closing I'm curious have you or do you intend to modify the rollout or go to market plans.

On HBO Max.

The merger and if so can you give us an example, what that means I guess I'm just curious whether the current run rate of subscriber growth might actually understate the underlying momentum of the business. If you were going to market. The way you would expect after the merger and then the second question is youre nearly a year into this day in date strategy.

G with HBO, Max and theaters I'm curious what you've learned maybe the biggest surprise and then more broadly how is this experience shape. Your view on the role of theatrical distribution and sort of a post COVID-19 DTC driven world.

Sure thing, but very much appreciate the questions in terms of your first.

First question.

Our approach is consistent with what our approach was.

Quarter ago, two quarters ago, three quarters ago.

What I mean by that is that for us it's business as usual.

We're going to be launching in six countries next week in Europe, and we're very excited about that and we've also publicly.

<unk> announced a number of other European country launches in 2022.

So our approach is very much what it had been before.

We're excited if you take a look at the Latin America results what expansion across the globe can bring.

In terms of your second question about our.

Motion.

Some pictures slate and what have we learned.

I'll state the obvious which is not unique to us is that we're in the middle of a pandemic and a pandemic obviously presents very unique circumstances and as you know well we have been very much leading in the first over the wall. So to speak in terms of bringing our 2021 slate to customers.

Customers in a way that can work for them, but also work for exhibition and work for our participants and so.

So what we've learned is that motion pictures continue to matter, we believe theyre going to matter for decades to come and were probably investing in them.

In terms of the road forward, we've committed to 2022 and that's the visibility that.

And that is a combination of two things on one side will be a certain a slate of motion pictures that will have an exclusive theatrical run 45 days. That's that's a quite a bit different from where things were say five years ago in terms of the theatrical run then they will come to HBO Max and then we're also going to have a slate of motion.

We had from Warner brothers that will come directly to HBO Max on day one.

So that's the answers to your two questions Brett Thank you for asking.

Brett if I put an exclamation point on your first question, which is.

We absolutely believe in and did this transaction with the notion.

And that we're moving this business forward.

Direct to consumer marketplace, and it's required that you get to scale and I've said multiple times that runoff.

Window here, where that's a foot race and it's an important foot race.

So theres no point.

The accelerator on that regard it is.

Pictures Baxter is the foundation of.

That business moving forward and how the combined company will continue to go to market.

Everything that we do right now to make the product better and add customers as a step in the right direction and the consistent direction of where the closed and combined business goes.

And.

We all want the shareholders that own a substantial portion of that company moving forward to have a valuable asset one that is growing and one that will be successful in the next generation of of media and we believe we got to do the right things right now to make sure that the business is well positioned.

And make that happen.

Thank you.

Thanks, very much Brent operator, if we can shift to the next question.

And the next question comes from the line of David Barden with Bank of America. Please go ahead.

Hey, guys. Thanks, so much for taking the questions too.

If I could.

First one Pascal.

I think for you.

The way that the industry is growing <unk>.

Has been moving metered plans to unlimited unlimited to premium unlimited.

You called out that now that we're at the end of your one of the promotional.

Retention discounts that you guys are offering the.

Creation of those discounted harp, who is starting to be felt.

The 60 basis point year over year decline.

Can you kind of give us a feeling for how we should expect these two forces to work against one another as year, two and year three see these promotional discounts compound.

As a.

Amazon assuming you continue down this path.

And the runway you have to try to offset that with with core growth.

Yeah.

Recognizing of course, it's just an accounting issue and then the second.

Question would be you mentioned.

You've taken a year's worth of initiatives to try to improve.

The business revenue trajectory could you kind of.

Give us a picture kind of what has happened and what kind of change do you expect to see in the business outlook. Thanks.

So.

Dave on the latter question Youre talking about business wireline group.

Correct Okay.

Okay.

Let me start and Jeff will probably chime in on a few items.

Remember as we as we've said.

The promotions that we are doing one not all customers had taken them. So thats a big factor to keep in mind too.

Yes, the amortization is growing.

But.

The <unk> the cash Hauck, who is there and when you couple the increased the continued.

Viibryd Caspar pool with the expense work that we're doing in the middle of the P&L, we expect to grow.

Both topline and bottom line as we move forward.

Yes.

We'll be some.

Slight degradation in <unk>, but.

When you look at our overall off we're still at the high end of the industry. So that's a consideration to keep in mind. These are very profitable lifetime value subscribers.

As it relates to the business.

Wireline, we started about a year ago.

Wanted to rationalize low profit margin products and services and that effort continues to go would be over time.

More and more of our services in the enterprise space are going to come from our core connectivity product whether it would be.

Wireless or fiber and that's where the growth is going to come and it's a process we are.

Partway through but we think as you get through the latter part of this year to early next year, the comps get a little bit easier.

I'll add I'll ask Jeff to chime in.

Thanks Pascal.

If you look at our business wireline business as we reported segment wise, we are moving customers many of our enterprise customers through a product mix shift we've been doing this for a while.

I think it's important to note that unlike others, we don't report a consolidated business P&L.

That includes wireless and we are actually seeing shift to wireless for many services as many of our customers have moved up and over in the pandemic. That's just a general ups.

Observation more specifically David.

Three parts of our business that we're getting to subscriber grew.

Inner growth and EBIT growth, we've got the first two are.

Our business, while our consumer wireline in our mobility moving in that direction and we are at the cusp of getting our business wireline business to move in that direction.

It's going to take some time, because it's going to require some product mix and product development.

Both Rick specifically areas of the business markets that we at AT&T.

Serve lesser we're underrepresented area and more of the medium sized businesses in the mid market and these customers are more inclined to use shared broadband served up by fiber.

<unk>, our business service class services that we sell to our top end.

Enterprise accounts are a bit more bespoke in specific networking.

Net networks that.

Not necessarily attracted to the mid markets, we have been making moves to shift the product mix into mid.

As John mentioned earlier as our fiber expansion that is.

Not just for consumer but also for business begins to take footing Youll see us shift shares of our revenue in business wireline more transactional based and down market with the execution that we know we can deliver.

And so it's going to take a few quarters as we work through it.

The cost transformation that we're undertaking inside the communications company as Pascal mentioned, we're about halfway through the $6 billion in aggregate for the firm the back half of the transformation program really brings in more operating efficiencies in our business.

Wireline segment that we will see start to accrete.

EBIT growth.

And that part of our business.

Thank you that answers your question.

Very much David operator, if we can move to the next caller.

Okay.

And the next question comes from the line of Michael Rollins with Citi. Please go ahead.

Thanks, and good morning.

Wanted to follow up and forgive me.

You mentioned, a little earlier, but just wanted to.

Unpack this a little bit further in terms of the wireless business, what youre seeing in terms of the rates and participation for unlimited plans and the higher value plans and how much opportunity.

<unk> is in front of the company to upsell customers on these higher value plans that you've been marketing.

And then just secondly back in I think it was March at the analyst day.

AT&T has set a goal for net debt ended the year at 154 billion at three times leverage.

Which infers you can just divide.

With three into the net debt, it's about $51 3 billion of EBITDA ex <unk> for the year and since then it seems like your cost cutting program is moving faster. So just curious if you can give us an update on these goals and is that the right.

<unk>.

Think about the AT&T EBITDA without Directv.

For 2021, Okay.

Mike I'll take the first part of your question. This is Jeff.

There still remains a large opportunity within our base of customers to work them through a more valley.

Higher end of our rate plans and youre kind of seeing that play out in postpaid phone <unk> Pascal touched on this a second ago.

You think about maintaining the industry, leading the highest <unk> of any player in the market, even though we are the third player in wireless.

Being able to do.

Will you at some of these promotional offers that are part of our strategy gives us confidence that we're working our base and our customers up the <unk> stack into higher value unlimited rate plans.

We still have a large portion of our subscriber base that we have not migrated into those rate plans and so we expect.

That we ought to continue pretty much on the course and speed of what the customer wants we're not driving or foreseeing any.

Any unnatural behavior, there were letting the customers choose but it's time for them to take advantage of an offer or to move into a new rate plan and we will continue to execute that so that's.

<unk>.

Room to run.

For the next many several quarters thats not something thats been a dry up in the short term.

Mike a couple of things to keep in mind, while we didn't we're not updating that guidance, we feel comfortable with it.

If you want to get to SaaS.

The base business is.

Both DTE post TPB and.

We want our media, which I think will be information is out there we've provided for Warner Media. We report the results separately. So those are very easily discernible and then if you look at DCP.

For one provided extensive pro forma.

Think to keep in mind is when we compute net debt to EBITDA, we used to trailing 12 months.

In this instance, some of it included <unk> and part of the year and it doesn't include dtb for another part of the year. So that's how you're getting to your three times that's how.

We get the three times in the guidance, we provided but.

Other than that we're not changing the guidance, we think that should get you new zone and if you have any further questions I'm sure. The IR team can walk you through it.

Thanks, very much Mike operator, if we can move to the next question.

And our next question comes from the line of.

I think catastrophe from Barclays. Please go ahead.

Okay.

Thank you.

So I guess, if I could just dig into the fiber business remembered.

Sure.

You said any change in terms of the go to market strategy. I think you gave the pricing claim.

If I'm not wrong during Q3, but more broadly if you could give us some comment around.

What part of the footage nation also include bundles with wireless.

And.

The acceleration in growth in fiber.

You guys have been building out fiber for awhile as a part of the <unk> deal.

And some of that with overlap with your DSL footprint.

In that overlap you did not seem to get the same kind of the trends that you're getting right now. So if you could just expand on.

The difference in go to market.

The customer cohorts that you're targeting and how you expect that to evolve that can be.

Useful.

Yes.

Hey, it's Jeff.

What has been our difference in go to market strategy, we are executing at a faster pace in this bill than we did in the prior build our in fact, the gross additions that we had in our fiber business in the third quarter roughly around 500000 highest ever.

Our network engineering teams are getting of the fiber laid into the ground into customer homes in our cycle time, that's about 30% faster than our prior build in our market. Our marketing organization is tactically out in the markets driving early 30, 60, and 90 day pen rates at two X the levels that we saw.

In the prior build we are absolutely, including wireless as a bundled opportunity for us in this part of our footprint and I'd cite that about seven out of 10.

Additions to our fiber network in this last quarter were new accounts to AT&T.

And therefore gives us an opportunity to go.

Go drive mobility growth as well.

And the footprints, where we built it.

Okay.

Maybe emphasize something Jess.

Maybe quibble, a little bit with your characterization of the previous success.

Quote unquote molasses Bill.

Yes.

There is really not much new fiber build from about 2018 at the end of 2018 for there is a little bit of a hiatus period. There. So I would tell you that a lot of the results Youre seeing right now to just point is really better execution of the team going back in and working in some of the asset base.

To actually improve performance overall.

Now the midpoint of this year, you're seeing some new inventory come into play and we're getting a lot better as Jeff described it moving through penetration rate is faster than if we if we in fact sustain that it's going to make the business case, even a stronger business case.

Because one of the big sensitivities to payback as rates of penetration.

We can keep that going and it can be dramatically better than what we think is already a pretty attractive business case.

And the last point I would make is the nice part about this build in many instances is that we're we're filling in a little bit.

Areas that we maybe didn't complete previously and so is that still an occurs you get some effectiveness.

Marketing messages the ability to go into a market and it sure.

Particular value proposition effectively communicated how.

Do you do with your distribution channels through that so, we'll probably be a little bit more effective and efficient given the base of customers that we have as we build out and fill out over the next several quarters.

Got it can I just follow up I mean in terms of your go to market strategy in wireless.

Device promotions, obviously helped quite a bit over the course of the last year.

When we look at the broadband side of the business.

The current.

Pricing structure and the promotional structure that you have.

Should we basically think of that as the operating steady state or are you thinking more.

More broadly about potentially you know a different kind of a pricing and promotional structure to accelerate this growth.

Right now given the demand that we have for this best in class product at four five times better than our nearest competitor.

Quality of the products.

And the value that we offer into the market.

Like the demand that we're generating this business is about getting fiber built as quickly as we can to serve these customers to give them gigabit level speeds at a really solid price points. So I wouldn't anticipate any change or move so long as our offer.

It continues to gain customers.

Got it. Thank you. Thanks for the question Kannan, operator, if we can move to the next caller.

Okay.

Our next question comes from the line of Frank Louthan with Raymond James. Please go ahead.

Great. Thank you can you walk us through your fixed <unk>.

Wireless strategy and what percentage of the demand do you think.

Of that product comes from enterprises first consumer and then also curious on the outlook for wholesale on wireless essentially losing share I guess subtract one over time, but what about wholesale deals with with other lecture or things like that to try and boost that business. Thanks.

Hey, Frank it's Jeff.

Right now for our broadband business as you know we are focused on fiber, but we do offer some fixed wireless services and it's predominantly focused today in the enterprise segment, where.

Most most of those clients are looking for a <unk> or a <unk> wireless backhaul we are.

Permitting as is everyone else and leveraging our scaled wireless network to maybe augment pockets in areas with some fixed wireless but it honestly is not a lead product for us.

And we won't make that top of the funnel.

For our broadband services your second part of it.

Question was what Frank.

On the wholesale side and wireless.

Potentially lose some share over time with Tracfone deal and what are you what are your thoughts on growing that business, possibly offering.

Wholesale deals to other smaller lacked that are building broadband and so forth.

Kind of boost that wholesale revenue.

Overtime.

Well for sure all of our network assets, we're looking to maximize the yield and because of the investments that we've made in wireless Frank we've got ample capacity sitting inside of our broad network architecture and infrastructure and so akin to what we have announced previously with dish.

Which by the way is operationally often running we've successfully integrated our systems with the dish systems and now providing connections into their distribution network and we're going to look to ramp that in D&O offering for dish over the course of the 'twenty two and beyond.

We remind you that the 10 year 10 year deals as long term and so based on that move you should expect that we are interested in serving all forms of traffic.

So long as they are accretive to our shareowners into our business and I would expect you'll see us as a participant in that if you look also.

Also one last comment Frank if you look at historically, we've been pretty under represented in resale or wholesale and our run rates of our business and so it's been an area of focus for the team and we'll look to grow that line in our business.

Alright, great. That's helpful. Thank you.

Thanks, very much Frank.

Where do we have time for one last question.

And that last question will be coming from the line of Colby <unk> with Cowen. Please go ahead.

Great. Thank you I just wanted to follow up on the.

Six 6 billion cost reduction initiatives.

How long will it take to.

Achieved the back half of backhaul.

Lee.

Would you expect this to actually result in a margin accretion or will the majority of this be reinvested.

And then I guess third on that what segments are we really going to see that show up and then you mentioned I think business wireline.

But is there any others that will be fairly material as well I'm just real quickly.

John in one of your comments, you mentioned going from three to 5 million homes passed per year with fiber.

At least had incurred that 5 million number four is that new or was that always there and that just simply intended to get you to catch up to get to that 39 home pass.

Long term goal or is there an expectation that youre going to go well beyond that 30 million that you had previously mentioned thank you.

Colby I've been pretty clear from the front end of this my views are.

Job is to execute returned to you. Our results would you look at those are really impressive and that's great and that the business to the extent that.

<unk>.

I fully believe there's more opportunity for us to go out and continue to build infrastructure thats highly capable.

That can attract business and I think.

My belief is that this management team as we demonstrate in the market. We can do that through I believe there is an opportunity for us as a company to.

Great.

$5 million a year range.

Kind of add capacity in what we do I think we can get there.

How we get there and how we scale to that and what timeframe will be an artifact of what we come back to you and tell you in terms of our results and how much progress we're making around them.

And we're going to continue to.

Offer more but as I.

I work with the management team internally, it's kind of all I am asking them to think about scaling up their business running their business size of their business, creating vendor relationships that allow us to move that path.

That's the.

Up to us to execute around that to get there.

I'll make a comment just on the other piece and then turn it to Jeff to get to the bulk of it we've given you guidance on cash flow for 2022, 2023 and <unk>.

There's obviously questions that many of you are asking what can they get to that level in <unk>.

You better believe some of the cost savings stuff.

A lot of up into the bottom line because thats, how we get to that level. So the back end of this program. All we've used the front end of it to actually increase our market effectiveness.

And be in a better position in terms of our customer growth and volume. The backend of this program is about actually getting a better efficiency that drops to the bottom line that ultimately.

Jeff as drug comes in play it helps us on the cash flow side, and I think Thats. How you should think about how we've kind of done that and there is some structural approaches that we're using.

Higher longer term issues like changing that infrastructure.

Data structures et cetera, that's harder and longer work, but.

Similar to also have more operating leverage once it goes into service and we get it done and that's really what's underneath that Jeff why don't you go ahead.

Any additional color you might want to add I'm talking yes.

It's not only impacting our business wireline part of the franchise Colby.

Colby.

It's all three.

Ported segments I think we've been investing heavily in these transformation initiatives to go drive growth and improve our cost structure and our effectiveness as an organization.

Simply put we have been hard at work inside of the company preparing for a better execution.

<unk> and a better operating performance and we're seeing signs of that in our wireless business. We're seeing signs. It is now in our consumer wireline business and I would tell you that the business wireline begins to feather in as we move into the back half of the program.

Okay.

First of all thank you all.

Joining us this morning, and appreciate your questions and your interest in the business and as I said at the start of the call.

I think in some respects the quarters more of the same it's been consistent focus and consistent execution and.

And I would say I'm really pleased with our progress overall on how the team is executing.

There are a lot of moving parts and there had been some distractions, but I really am pleased across the board whether in the Communications company a media company teams have done.

Marketable job staying focused on what their task at hand, and I only get more excited about that because as we work our way through this process.

Some of those distractions drop away I think the sky's the limit in terms of what these teams can do with even better execution as they hit their stride around things.

The comment that Phil made I guess, where I would come out on the <unk> point of view of these markets that we're involved in is I'm actually much more bullish.

In domestic about the markets in aggregate.

There's a reason there's a substantial amount of investment moving into these industries and it's because there is there is a tremendous importance.

Inherent value that customers get out of connectivity moving forward.

To think about our businesses.

An obligation side of the company.

Moving into what I would call the Golden age of connectivity and ubiquity and connectivity I actually feel really optimistic about that that there is some really smart operators in this.

This industry they are investing because they have a path to gain return on those things and they're going to do.

The way that intelligent smart and demand is strong in these industries and I believe there may be some structural changes that come out of some of the programs that the government is looking at that could make that demand, even stronger and more robust and I believe that the policy is structured appropriately in this country right.

We can see a really strong.

Forward progress in the communications industry Thats good for all of US on the media side I think we are in a very very unique position with what we've done we set out as we started HBO Max with a description of a product that we thought was going.

To be different was going to be a more focused product with a higher degree of quality and a more distinct brand characterization of what we did moving forward.

If you go out and you look at any third party that's been evaluating that as the team has gained its stride and continue to iterate on the quality of the product quality of the platform.

As we move through the pandemic in terms of our ability to bring new content out in the market ratings of engagement and viewership awards that have come in indications of time engaged on the platform from third parties have all been recognizing the team on that work and I absolutely believe it is a unique.

<unk> of cat that when combined with discovery moving forward, we will only strengthen its capabilities to become one of the must have platforms of consumers moving forward and a tremendous amount of value creation as that customer base is established globally.

So with that we will talk to you as we wrap up the year.

<unk> expect to come back and tell you more of the same and I Hope you all have a great fourth quarter and great holidays, If I don't talk to you before then.

And ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using AT&T Conferencing service you may now disconnect.