Q1 2022 AT&T Inc Earnings Call
Ladies and gentlemen, thank you for.
Standing by.
Welcome to At&t's first quarter 2022 earnings call at this time all participants are in a listen only mode. If you should require assistance during the call. Please press Star then zero and an operator will assist you offline.
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As a reminder, this conference is being recorded.
I would like to turn the conference over to our host Amir Ross with the housekeeping Senior Vice President Finance and Investor Relations.
Please go ahead.
Thank you and good morning, everyone welcome to our first quarter call on the Mirage with asking you head of Investor Relations for AT&T.
Joining me on the call today are John Stankey, our CEO Pascal <unk>, our CFO before.
Before we begin I need to call your attention to our safe Harbor statement.
Says that some of our comments today may be forward looking.
As such they are subject to risks and uncertainties described in AT&T 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 with that I'll turn the call over to John Stankey John Thanks.
Thanks, Samir and good morning to all of you I appreciate you joining us this morning.
Two weeks ago, we reached a major milestone in the repositioning of our business with the completion of the Warner Media discovery transaction less than 11 months after announcing the deal.
I'd like to thank everyone, who played a role in getting this across the finish line in good time and with a little drama just as we promised you.
I'd also like to share how proud we are of the entire Warner media team, David inherits an organization with one of the best global portfolios of beloved intellectual property.
Team with unparalleled talent.
One of the few truly global direct to consumer players.
As evidenced by the continued growth in HBO, Max and H B O subscribers, which closed this quarter at nearly 77 million globally.
$3 million from last quarter, and nearly $13 million year over year.
We're excited about the potential for continued HBO Max growth as the service launches and more new territories.
Warner Brothers discovery is well positioned to lead the transformation, we're seeing unfold across the media and entertainment landscape.
Unlike many of my fellow AT&T shareholders, who own a stake in this new and promising enterprise.
We're excited to continue to watch their success and the value they create as one of the leading global media companies.
So let me turn to AT&T and the new era and opportunities ahead of us.
Our transaction marks a critical step in the repositioning of our business.
We're now able to focus intensely on what we believe will be multiyear secular tailwind in connectivity.
We now have the right asset base and financial structure to devote our energy to becoming America's best broadband provider.
Over a five year period, we expect a fivefold data increase on our networks and we plan to capitalize on the growing desire from consumers and businesses for ubiquitous access to best in class connectivity solutions.
The results we've achieved the past seven quarters, all while undergoing a significant repositioning of our business.
Give me confidence we can accomplish this goal.
Our first quarter financial results are consistent with our expectations and once again demonstrate that our teams are executing well against our consistent business priorities.
We're seeing record levels of net additions in mobility and consistently strong AT&T fiber growth.
Thanks to our disciplined and consistent go to market strategy.
And mobility are strong network performance simplified offers and improving customer experience brought in the most first quarter postpaid phone net adds in more than a decade, surpassing last year's than decade, best first quarter total.
And we're confident we can continue this momentum in a disciplined manner given our subscriber success has come from diversified channels and spanned consumers and businesses.
In fiber, we continue our great build velocity and now have the ability to serve 17 million customer locations.
This expansion continues to allow our business to grow.
In this quarter, we achieved overall broadband subscriber and revenue growth as our fiber net adds more than offset legacy non fiber broadband losses.
And I'm pleased with the improved fiber momentum, we're seeing with our multi gig plans launched early in the first quarter.
It's also noteworthy that we're experiencing improved subscriber growth following the introduction of our straightforward pricing across the fiber portfolio, which does away with discounted introductory pricing.
This improvement in share gains suggest that consumers are finding value and higher quality services, when they're made available to them.
So we've taken a step back.
Let's review our progress over the last seven quarters.
During that time, we've added industry best subscriber totals more than $5 3 million and postpaid phones.
And nearly $2 million in AT&T fiber.
As our fast growing fiber revenues now make up nearly half of our consumer wireline broadband revenues.
This is real and sustainable momentum.
We also continue to emphasize the effectiveness and efficiency across our operations.
As we shared at our analyst day last month.
We expect to achieve more than $4 billion of our 6 billion cost savings run rate target by the end of this year.
Our focus on driving efficiencies continues to show tangible results from our network build out to customer experience.
As we told you.
We're initially reinvesting these savings to fuel growth in our core connectivity businesses.
However, as we move to the back half of this year we.
We expect these savings to start to fall to the bottom line.
Our success over the past seven quarters can also be attributed to our focus on better recognizing and delivering on what customers want.
Our mobility in fiber net promoter scores are up year over year, and near historically low churn levels across all businesses demonstrate how our improvements to the customer experience.
Our real and <unk>.
Delivering a positive impact.
Our business wireline unit continues its transformation.
As we move through this year, we plan to accelerate the pace at which we repositioned the business.
We focus our energy on growing repeatable core connectivity and transport solutions, where we have owners economics.
At the same time, we will continue to rationalize reselling low margin third party products and services.
The expansion of our fiber footprint is enabling our business portfolio to target significant opportunities in the small and medium business market, allowing us to capture a greater portion, but the opportunities in core transport and connectivity.
In addition.
As we open up relationships with more customers, we will have incremental opportunities to continue our growth and business wireless.
We expect to take advantage of these near term opportunities to help stabilize our business wireline unit as we simplify the portfolio and grow.
Activity with small to medium sized businesses complementing our leading enterprise position.
As we thoughtfully fueled growth for services powered by our owned and operated connectivity assets.
We're also being deliberate in how we allocate our capital.
We've taken significant steps to improve our financial flexibility and we're now in a much better place to grow our business as we are significantly invest in the future of connectivity through five G in fiber.
With the completion of the Warner Media Discovery transaction, we monetize more than $50 billion of assets.
Since the beginning of 2021 .
With this transaction, we reduced our net debt by approximately $40 billion in April .
As we share.
We feel as though we're really well suited to navigate this unique moment in time.
This leaves us in a much better position to pay down debt and in fact, we've already addressed some of our near term maturities.
Paid off over $10 billion in bank loans.
This improved financial posture gives us the flexibility to carefully and prudently use the balance of the Warner media proceeds.
To reduce our outstanding debt.
By our Opportunistically using the evolving the higher rate environment to redeem debt securities at lower prices, while also working to reduce cash interest.
In addition.
Our expectations for continued strong cash generation provide us with incremental capabilities to reduce leverage while still paying an attractive dividend yield near the top of the fortune 500.
This improved financial flexibility also allows us to pursue durable and sustainable growth opportunities.
Offer future upside for customers and shareholders.
If you couldn't tell.
I'm proud of all the work the team has accomplished to reposition the business over the last seven quarters and could not be more excited about this next chapter for AT&T.
And our teams are thrilled about the momentum, we're generating with our deliberate and focused approach in attracting and retaining customers.
I'll now turn it over to Pascal to discuss the details of the corner Pascal.
Thank you John and good morning, everyone, let's start by taking a look at our first quarter consolidated financial summary on slide five.
It's important to note that our first quarter consolidated results include the contributions of Warner Media and that last year's first quarter included results of our U S video business embryo.
Accordingly, our reported results do not provide a clear reflection of our business on a forward looking basis. So let me quickly cover a few key points before reviewing the financial results of our new Standalone AT&T operations on the next slide on a consolidated basis, including a full quarter for <unk>.
Our adjusted EPS for the quarter was 77 cents compared to 85 cents in the first quarter of 2021.
In addition to merger amortization adjustments for the quarter were made to exclude our proportionate share of Directv intangible amortization and the gain and our benefit plans.
Year over year earnings declines were primarily driven by Warner media and to a lesser extent certain onetime costs in the communications segment.
The declines in earnings at Warner Media reflect increased investments incurred and watching CNN, plus and expanding new territories at HBO Max eights.
HBO Max and HBO now reached an impressive global subscriber base of nearly $77 million.
<unk> results were also impacted by the advertising sharing agreement entered into with Directv upon its separation in last year's third quarter and the termination of HBO Max wholesale agreement with Amazon late last year.
When excluding revenues from our U S video business in <unk> from the prior year quarter AT&T consolidated revenues were $38 1 billion up one 6% or $600 million year over year.
Cash from operations came in at $5 7 billion for the quarter overall spending was up with capital investments totaling $6 3 billion free cash flow was $700 million for the quarter. One of media had declines of $2 6 billion and free cash flow year over year. This decline was driven by $1 2 billion in <unk>.
Lower year over year securitization of receivables in advance of the transaction.
$600 million and higher cash content spend increased investments in HBO, Max global footprint and wrap up with a C N N plus launch.
As well as NHL right payments and other working capital changes now, let's look at our financials for the new Standalone AT&T on slide six.
On a comparative like for like basis, our financial results for the quarter are in line with our expectations for how we expect the year to trend. However, our subscriber metrics came in better than we expected as market conditions remained strong.
This gives us confidence in the annual guidance provided at our recent analyst day.
Revenues were $29 7 billion up two 5% or $700 million year over year driven by.
Wireless and broadband revenue growth, partially offset by declines in business wireline.
Adjusted EBITDA was flattish year over year as lower retained video costs were offset by peak impact marked <unk> network shutdown.
<unk> success based investments in wireless and fiber and the launch of multi gig fiber plants.
We remain confident that Q1 will be the trough in our year over year adjusted EBITDA trajectory.
We continue to expect the year over year.
<unk> line to progressively improve through the year.
On a comparative basis adjusted EPS for the quarter was <unk> 63.
Versus 58 set in the first quarter of 2021 due to higher equity income from Directv and lower interest expense.
Cash from operations came in at $7 7 billion for the quarter overall spending was up year over year with Standalone AT&T capital investments of $6 1 billion free.
Free cash flow was $2 9 billion as expected cash flow this quarter was affected by several factors.
First.
Higher capital investment, because we ramped fiber deployment and prepared to deploy our five T mid band spectrum bands in the back half of the year.
Second the absorption of three G shutdown impact.
Third.
Increased employee incentive compensation and benefits paid in Q1.
For lower proceeds from securitization.
Directv cash distributions were $1 8 billion in the quarter, which is modestly better than the $1 5 billion contribution in last year's first quarter.
We continue to expect about $4 billion distribution for Directv for the year. So we do expect some moderation.
Given that Q1 is a seasonally low quarter for free cash flow and many of the factors impacting free cash are not expected to repeat we remain confident in the guidance. We provided you during our analyst day to achieve free cash flow in the $16 billion range for the year and on a standalone basis.
Looking forward, we expect to incur restructuring charges over the next few quarters as we continue to execute our transformation initiatives.
The cash impact of these charges has already been contemplated in our full year free cash flow guidance now, let's turn to our subscriber results.
Our market focus areas on slide seven.
Diving a bit deeper into our business unit level performance. The story continues to be simple and straightforward.
The consistent disciplined go to market strategy, we implemented almost two years ago continues to work very well and were delivering strong momentum in growing customer relationships with five gene fiber.
In the quarter, we had 691000 postpaid phone net adds as John said this marks our best first quarter in more than a decade.
This total also excludes impacts of <unk> network shutdown at more than 400000 postpaid phone.
Consistent with industry practice, we have treated this reduction as an adjustment of our base at the beginning of the period.
Churn also remained near historically low levels. Thanks in part to our improving NPS, which is being driven by an enhanced customer experience the strength of our network and our consistent and simple offers we're growing our customer base with this disciplined approach our teams have maintained a strong focus on growing.
The right way with high quality intake and by investing in existing customers.
As mentioned in March we're focused on incentivizing customers to shift to our current unlimited rate plans, which are designed for the five T era and to better meet each customer's unique needs and provide greater value to both existing and new customers.
Looking at AT&T fiber, our customer base continues to grow as we expand availability at the best access technology across our footprint.
We had 289000 AT&T fiber net adds in the first quarter and we expect to accelerate growth from here.
We're excited about the underlying momentum of the business would be an understatement.
We have fiber, we win and gain share in our deployment plans remain on track, we now have $6 3 million AT&T fiber customers.
$1 1 million compared to a year ago, and we expect customer momentum to accelerate from these already stepped up levels. We.
We continue to see strong demand for AT&T fiber as customers seek out faster broadband speeds at an attractive price.
And our fiber churn remains low as AT&T fiber continues to offer a great experience and a consistently high net promoter score now let's take a deeper look at our communication segment operating results starting with mobility on slide eight.
Our mobility business continues its record level momentum revenues were up five 5% with service revenues growing four 8% due to subscriber growth impressively. This growth in service revenue comes despite impacts on service revenue about <unk> shutdown and without a material return of international roaming.
<unk>.
Consistent with our comments on analyst day mobility, EBITDA declined one 8% year over year, largely due to a number of onetime related factors EBITDA was negatively impacted by over $300 million due to <unk> shutdown costs and the absence of the first net in Caf two reimbursement.
We remain confident in our stated expectations for mobility adjusted EBITDA trajectory to improve through the course of the year as these impacts moderate through the balance of the year.
Overall, we continue to see healthy mobility demand, while our guidance does not factor in industry demand levels replicating the strength that we experienced in 2021, our Q1 results came in better than anticipated.
Both our postpaid phone and prepaid phone churn remains near record low levels. Despite a modest uptick among lower income cohorts as certain pandemic level benefits wear off.
Now, let's turn to our operating results for consumer and business wireline on slide nine.
Fiber growth was solid as we continue to win share where we have fiber.
Even with expected declines from copper based broadband services. Our total consumer wireline revenues are up again this quarter growing 2% due to higher broadband <unk> and fiber revenue growth.
Our fiber off who was approximately $60 with gross addition intake off wound of 65 to $70 range. We expect overall fiber offer to continue to improve.
As more customers roll off promotional pricing and onto simplified pricing construct we introduced earlier. This year. In addition, with the launch of our new multi gig speeds in January we have even more opportunity to move customers to higher speed tiers over time, we expect these factors to serve as a tailwind.
To the trajectory of our fiber offer.
We also continue to accelerate our fiber footprint build and now have the ability to serve 17 million customer locations as you heard us share on analyst day, our plans center on pivoting from copper based products to fiber as we make this pivot we expect positive EBITDA growth in 2022 driven by.
Growth in broadband revenues also to help provide you with greater insight into the performance of our consumer wireline fiber operations. We've provided additional metrics are trending materials that can be found on our IR website.
Looking at business wireline, we continue to execute on a rationalization of low margin products in our portfolio in the first quarter, we experienced some impact by the timing of government sector demand due to the delays in passing the federal budget, which caused steeper than expected revenue declines. However, we expect.
Demand to rebound later this year.
While the rationalization of our business wireline portfolio creates incremental pressure on our near term revenues. It also allows us to focus on our own and operated connectivity services as well as growing five G and fiber integrated solutions.
Both areas business fiber and fiber continued to perform well benefiting our mobility segment with business solution wireless service revenue growth of eight 4% and a sequential increase in our first net wireless base by about 300000.
We remain comfortable with our guidance of business wireline EBITDA down mid single digits in 2022.
Shifting to slide 10, I'd like to reiterate our overall capital allocation framework moving forward.
With the completion of the <unk> media transaction AT&T received 44 billion in cash and Warner media is retention of certain existing debt. Additionally, AT&T shareholders received $1 7 billion shares of Warner Brothers discovery, representing 71% of the new company.
This transaction greatly strengthened our balance sheet and provides us with financial flexibility going forward. We now have a simplified capital allocation framework.
First we plan to invest in our strategic focus areas <unk> and fiber as.
As previously said, we expect Standalone AT&T capital investments of $24 billion in 2022 and 2023.
Starting in 2024, we expect our capital investment to begin tapering to around the $20 billion range as we surpassed peak levels of investments in five G and transformation.
The completion of the Warner Media transaction also marks a significant step towards achieving our established goal for net debt to adjusted EBITDA in the two five times range by the end of 2023, we've shared as we get closer to this target we expect our financial flexibility to improve this increases our ability to pursue other ways to deliver.
Incremental value for our shareholders.
As previously said, we expect to deliver annual total dividends of around $8 billion, which represents a $1 11 per common share. This remains an attractive dividend and places to AT&T among the very best dividend, yielding stocks in the U S.
Now, let's take a step back and look at the free cash flow generation expected from our business.
As outlined at our analyst day, we expect to generate in the range of $20 billion of free cash flow in 2023.
After paying dividend and Noncontrolling interest commitments, we expect to have at least $10 billion of cash remaining and beyond 2023. This pace of cash generation will be helped by the tapering down of our capital investment. This is why we continue to feel very comfortable with our capital allocation plans.
I've stated, we're in a much stronger financial position to pay down debt.
And at the end of the first quarter more than 90% of our debt portfolio with fixed and we do not have near term needs to issue debt.
In April we improve our net debt by about $40 billion and paid down over a $10 billion in bank loans, providing us with a lot more financial flexibility. We also provided notice that we plan to redeem an additional $12 5 billion of bonds by mid may reducing our near term maturities.
For the balance of the Warner Media proceeds we plan to reduce our outstanding debt by focusing on pay down of commercial paper to improve our liquidity and opportunistically using the higher rate environment to redeem debt at lower prices. So we feel really confident in our ability to pay down our current debt maturities and effective manner.
And reach our goal for net debt to adjusted EBITDA.
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.
If you would like to ask a question. Please press, one and zero and you will be placed in the question queue.
Our first question will come from the line of John Hodulik of UBS. Please go ahead.
Great Good morning, guys.
Couple of questions on the margins.
First maybe on the consumer side.
Numbers were a little bit better than we thought I mean, if you look back to 2019 as you guys were generating margins in that 39, 40% range.
Given the change in the business and the mix there and higher Rfps do you think you can eventually get back to that kind of level.
Then I guess on the other side of the Ledger consumer business segment continues to be weaker than expected and thanks for the color there but.
How much visibility.
Do you have in the improvement in the margin and the decline there and any other color on the on that sort of rationalization of the portfolio you guys keep talking about.
Should we see this improvement even if we see some economic headwinds later in the year. Thanks.
Yeah.
Hey, good morning, John how are you.
But.
Consumer wireline first.
The thing to keep in mind.
And repositioning this business.
Over the last several years.
Investing in our fiber footprint.
Investing in launching a new high.
In your part.
Our footprint what happens going forward is has the business add subscribers, we expect margins to continue to improve.
And.
Our cost base is relatively fixed once we've laid fiber routes. So we do expect improvements overtime, we haven't guided in terms of specific margins.
Generate but we feel really good about.
The long term.
Few of this business I mean, you look at others in this space margins are really attractive and John I'd add to that if you go in and do kind of decompose.
What's in the transformation program and where we're targeting.
<unk> in our operations and our business and things like.
Reduction of call Center.
Activity that ultimately moves online et cetera, all of those things feed directly into that business.
It will allow us to scale that into the right kind of emerge and structure that I think we've historically been accustomed to given the long lived nature of the asset base that we're deploying.
Answer your question on the business side.
I'll tell you what we have visibility to.
Service your remove us too.
B driving harder owned and operated infrastructure into the low end of the mid part of the market.
In order to do that that's highly correlated to where we are deploying new fiber or where we have existing infrastructure deployed we have good visibility to that part of it. So we know as we deploy what we open up in terms of new market opportunities.
In some cases in order to.
Get that market.
Shifting our distribution channels. So there is work going on around how we ultimately positioned to distribute the product both directly through our own sales force as well as through other third parties.
That's an execution issue.
While we have control over how we progress on that.
Obviously anytime you scale up new channels and you work through things.
Things that you run into that are unexpected or that allow you to move left to right you have to adjust to.
Nothing new that's the kind of thing we work with them.
I think in terms of working through those issues. They usually are cycles that matter from a quarter or two they are not the kinds of things that you hit a brick wall and can't work your way through that.
The area that I would say, maybe we don't have perfect visibility over but it's a question of whether you trust, we can execute and I would tell you my view as.
We know how to do these kinds of things I think I shared with you in the analyst day, one thing that is very clear as we walk into this segment with the AT&T brand on the product and service its incredibly well received and as I mentioned in my opening remarks, when we walk into these customers and we have the opportunity to talk to them about.
A new product it oftentimes leads to a second discussion about possibly moving to other parts of their services like wireless in that transaction and that's the power of us in the business segment being able to go in with a complete portfolio of owned and operated wireless.
Direct fixed transport.
Got it okay. Thanks for the color guys.
Thanks, very much operator, if we can move to the next question Michael Rollins Citi. Please go ahead.
Thanks, and good morning, as you look at the postpaid phone your volume growth in the quarter, how much of that do you attribute to better market share versus just better overall industry growth and can you frame how the economics of these mobile postpaid phone customers are evolving when you consider the <unk> churn.
Well as the cost of acquisition.
Make sure obviously, we don't.
So we don't have it.
Information as to how others are going to report this quarter.
Clearly from the way we look at data have some view of what's going on in the market and I can tell you without backing that up with the actual reports from others. We believe the overall market still remains pretty strong.
We are seeing.
What I would say consistent volumes to what we saw in 2021 in terms of gross.
Ed pool that is occurring in the market and I think we shared with you.
We were guiding we expected that to maybe taper down a little bit this year as we were giving you our estimates and our expectations.
And so far at least through the first quarter, we haven't seen that materialize at this juncture and I would expect I don't know, but my guess is after everybody reports.
Don't be surprised if trends are similar to what <unk> seen in previous quarters in terms of flow share overall for our business.
I don't want to overdrive my headlights on that I could be surprised by what somebody puts on the table, but from my market sensitive data I didn't see a material shift in overall flows here this quarter versus previous quarters, and I feel really good about that especially given the nature of some of the promotional activity that occurred.
During the fourth quarter of last year that we chose not to chase stayed very consistent in the first quarter of this year with our strategies and approach.
And.
Others are throwing a lot of different things out of it.
I don't see us out there with logos and I don't see us out there with $1 incentives to switch that others are using in the market.
Been very stable in our approach.
The thing that I would point to in terms of the overall economics is.
Look at our booth they remain very very stable as we told you they were going to remain despite all of the gains that are coming in here and as we.
We shared with you in analyst day, our cost per gross adds are getting better not worse, because we're scaling in a way now where our fixed cost structure is obviously being spread across a larger number of subscribers on any given quarter.
Good dynamic that's going on there.
Our churn numbers continue to be very very strong with our customer lifecycle is actually looking better than what they've historically looked at means better value. So as we've been sharing with you all along and feel really comfortable that the economics of these customers that we're bringing in are no different right now than they were a quarter ago or two quarters ago.
So we're three quarters ago, and we will take these customers all day long.
Mike I would also just add as a reminder, our.
Fastest growing plan is our unlimited elite, which is our top tier plans. So that tells you the quality of.
But what's happening in the overall wireless space.
Yeah.
Okay. Thanks, very much Michael if we can move to the next question operator, Brett Feldman Goldman Sachs. Please go ahead.
Hi, Thanks, it's actually sort of a two part question on inflation.
First part is we saw one of your competitors earlier this week announced they were going to be increasing or have increased minimum wage for their retail workforce and a big part of their customer facing workforce. So I was hoping you could maybe comment on what youre seeing in terms of labor costs and labor supply and weather.
Or what you have.
Anticipated in your outlook this year for inflationary cost pressures on the workforce and then second John I think you've made some comments recently that.
If you did see inflationary pressures persist you might look at what Youre pricing in place and I think it was implied that you could take price up I was hoping you could maybe just elaborate on how you think about your pricing model. If we were to remain in the sustained inflationary environment and what gives you confidence you can execute a degree of pricing leverage even as the market remains competitive.
Thank you.
Sure Greg how are you.
So look there is no question there is wage inflation and the environment frankly.
Frankly at 7% inflation. There is no question there is pressures across a broad segment of goods and services. We're.
We're not insulated from that I don't think anybody in the industry is insulated from that.
It's not a good position for the overall economy to be in and I think from a policy perspective, it needs to be addressed.
We were pretty deliberate when we did planning for 'twenty two acknowledging that we expected we'd see some wage inflation.
And.
When compared to previous years as we built the plan, we assumed upticks and wages as a result of that.
And we did several revisions waves in the planning cycle I would say those amounts added something with the b and the overall cost structure and our expectations around that.
We're in the middle of as you know, we have labor contracts or labor contracts are extended and ultimately program out wage increases.
We have the luxury in some cases, given the way the current wage marketer job market is set up to people stick around and work here because we have great benefits for middle class folks and the <unk>.
Often go beyond the wages somebody gets paid and as a result of that we've been managing through the dynamics the wage labor market pretty well I.
I will tell you we're in the middle of some negotiations right now.
Those negotiations are likely to land in a place that I think is consistent with how we built the plan. This year, which was a stepped up wage levels from previous historic levels Im.
Im not happy about the fact that lasers horizon as fast as they are we're having to deal with it is going to do.
<unk> is a bit of an uptick in what I would call per individual wages.
The good news is we're doing a lot of investment and other forms of mechanization and automation in our business.
Some of that investment is helping us keep a lid on some of the wage related inflation cost I would also point out that as you look at other parts of our business for people deploy long lived infrastructure like fiber networks.
Wages are a portion of that deployment costs not all of that deployment cost and they are capitalized and they were taken over the life of a product that stays in service for many many many years. So obviously, we'd like to pay less and wages. It's not the end of the world when we're seeing a little.
A an uptick.
A small portion of the cost of <unk>.
Appointment and we can ultimately recover that over the long lifecycle of the product, especially if ways.
This is ultimately go up in the market to your question of pricing.
Im not going to get.
Giveaway or announce anything here.
It's not appropriate to do that but I'll go back to the comments I made.
Excuse me a couple of weeks ago, which is.
<unk> across the board in the economy right now.
We're seeing inflationary pressures and the consumers seen it every place they go.
It's my belief and if we do not see some moderation in this fairly quickly that I think every business in the United States is going to be dealing with the cost of inputs and I don't see the wireless industry been immune from that.
Or any other industry been immune from that and as I shared earlier Theres a lot of different ways. You can deal with price adjustments Theres a lot of different tactics and approaches you can use but when we're looking at the customer base of satisfied as we are when we look at our customer base with some of the value we've been putting back into the product and service over time.
<unk>.
When we look at our current churn levels do we believe we're in a position.
Were forced into a situation, where we have to start maybe taking some price that we can do that and move it through our history would suggest that we know how to do that and we can do that.
We will be very smart and judicious as we have to apply it but running this business are not sitting there and evaluating where we have options to move on pricing and be successful I wouldn't be doing my job properly.
Wanted to maybe go back to a comment I made in my opening remarks, if you look at what we've done on our fiber product. This last quarter, we went to a simplified price structure and I want everybody to understand what this means we are not out in the market right now selling on 12 month promotional pricing on broadband we are.
Selling the customer on a stable price is the duration of their relationship with us in many cases, we are in the market at a minimum of $10 higher to the promotional price the cable or the other broadband competitors have in the market and our volumes were still stellar and theyre continuing to grow.
And we're doing incredibly well in that market and it's a reflection of the value of the product and the service that we're bringing in that we're able to do that it's an example of us being able to smartly understand where theres value in where there's opportunity for us to work the overall value equation, including price to be able to.
Manage our business effectively and we'll continue to do that.
Thank you thanks very much operator, if we can shift to the next question Phil Cusick Jpmorgan. Please go ahead.
Hey.
Couple of follow ups first let's dig into the postpaid phone adds a little more this quarter is there any impact from your own <unk> shut down on a reported ads and what about the shutdown of T. Mobile CDMA network do you see any impact there in the first quarter or maybe second quarter.
Hi, Phil.
The short answer is no on the first one as you know we don't.
And we count net ads of migration of the <unk> customer to another service plan is there.
The net add Thats just a migration.
No there wouldn't be any impact to that and as we've shared with you. We restated our base numbers those are out there for you to see.
And so I think everything you can look at including looking at our booth characteristics. After the restatement you should look at it and I would actually say this is probably one of the best Air interface transitions I've ever seen when I think about the shutdown of the <unk> network and now the shutdown of the <unk> network on a.
Proportional basis, and the number of subscribers than what we were able to do here I think the team executed incredibly well.
Relative to the flow share in the market today.
I think we have seen over the last several quarters.
Sprint is.
Issue for T mobile to migrate manage and I know, they're having to touch that basis, they're shutting down the CDMA network and moving things through.
Anytime you do that that can be disruptive to our customer base.
I think we've benefited in some flow share for sprint customers, who have been evaluating what they want to do and see AT&T as.
It is a good choice and a good value as they make that decision as to whether or not they wanted to get a new handset and who they want to get it with and there has been an element of that in the flow share in the market over not just this last quarter, but several quarters. As this has been going on and there was an element of it in this quarter, but I don't think there was anything that was out of pattern from what we saw.
And in previous quarters.
It's still just as a reference point 300000 net adds this quarter were from first net again nothing to do with.
This <unk> migrations.
Okay, and then second if I can we've got a guide out there for 3% plus service wireless service revenue growth at four 8% this quarter is there.
I mean, there is comping issues, but anything in the numbers that we should think is going to be a headwind that would drive a significant deceleration. Thank you.
Okay.
We feel really good about how the business is performing and.
And we guided to 3% plus as you've heard from John previously this management team is in the realm of <unk>.
Trying to put out guidance on a conservative end of the spectrum.
With that said the one thing I would remind you as you move through.
Next quarter, we're going to have it.
A full.
Three months impact of the <unk> migration, so that is going to hit our crew some but we feel really good about the overall piece.
The business and how we're executing.
Thanks Pascal.
Thanks, very much Phil operator, if we can move to the next question Simon Flannery Morgan Stanley . Please go ahead.
Great. Thank you very much I wonder if you could talk about C band, a little but I think you said that you would be ramping.
Ramping the deployments later this year.
Just give us some updates on when we expect that to really start scaling and what youre seeing in the supply chain then.
There's been a lot written about fixed wireless recently and we've seen some good momentum in that market as you get the C band up why do you think in terms of out of market opportunities or even that the opportunity to upgrade some of your DSL base that may not be getting fiber anytime soon or non non fiber base. Thanks.
ISR.
So the scaling on C band is happening now.
And that will continue or not as we told you.
We're deploying mid year.
We have the right kind of equipment for our one touch work between the two different spectrum bands that we can touch the tower once and move through we have.
The capabilities to do pre work on that obviously there are things that we can deploy today.
To get ourselves ready and make sure that we're in right position and we can start spending on and be in a position to scale that turned up pretty rapidly as we had mid year. So I'd say as we told you you've already seen it move into some of the capital numbers in this quarter and it will continue to ramp as we move through the middle of the year.
And then that positions us to do the rapid turn up in the second half of the year and hit the top targets.
<unk> communicated to us through the the analyst day.
On supply chain.
Yes.
Insert upon this I don't ever want to say, we are in good hands, but here's the dynamic that I think is occurrence I actually think for the industry in aggregate globally, there are going to be some supply chain pressures.
At least from what I know aware chip manufacturing as it's going back into some of the key Oems.
However, I think what you should keep in mind is that the north American market.
It's an incredibly profitable market for providers of equipment on a global basis.
If you were to start ranking it relative to other continents. It is the most profitable market of any content out there.
So as a result of that if you're into a situation where there is some degree of constraint.
If you're an equipment manufacturer you have the motivation to make sure that you supply your most profitable market first and as.
As a result of that I don't want to say that we're out of the woods, but I think that we're likely to see a prioritization given the dynamics of this market that may put other parts of the globe a little bit lower down the list in terms of availability of equivalent services moving forward.
Right now I think we have a good handle on things that our vendors are telling us they can meet our build expectations.
<unk> done a lot of second order diligence on our equipment, we're not just taking their word for it we look at sourcing on key components within it we can't do every element and sometimes it's the smallest and serious things that ends up causing a problem.
Looked at the harder things like chip levels.
And feel that there is confidence in those estimates right now that they can bring them through and so I'm not expecting that to be a problem but.
As you know the global supply chains are fragile right now.
Crazy things happen, whether it's neon gas coming out of the Ukraine or whatever.
We'll continue to work through that on the fixed wireless side.
I think you hit the nail on the head.
Look we have hundreds of thousands of fixed wireless subscribers already.
We've used it pretty aggressively in parts of the business segment, where a particular business customer that we support finds that to be the right and best solution for their particular business is set up.
We continue to believe that they are going to be applications for fixed wireless deployment moving forward and we think our network will be well suited to do that after we get through the mid band deployment.
But to your point, it's going to be.
I would call use specific.
I don't intend to go into dense urban and metropolitan areas, where I can build fiber infrastructure and offer broadband and try to use fixed wireless as the solution to serve broadband customers, where we see estimates traffic growing five X over the next five.
Years and performance requirements needing to get significantly better and we watch our fiber base, we watch our customers and we don't believe we watch our copper base of customers that we don't believe a product thats doing sub 100, megabits is going to be a viable product in the market over the next couple of years based.
How were seeing consumers use the service and what they expect to do in some of these urban areas, where there is broader and more.
Dense environments with more people in 11 unit, but there are clearly places in more rural areas, where fixed wireless will be the best way to get the most amount of bandwidth out to a customer.
We believe we can play in those spaces and there'll be some former ADSL locations or fixed wireless will be a substantial step up in opportunity and theres going to be places, where the government comes in with subsidy and very less densely populated areas that fixed wireless is going to be the solution and sure there may be.
Some niche customers, who can live on.
A very niche oriented products for their particular use characteristics and find it interesting, but I don't believe thats. The main part of the market and I think it's really hard to market niche broadband products frankly over time and I think market performance of what we're able to do is we blanketed an area with a robust.
Fixed fiber broadband service are showing in the numbers that we're putting up in our performance in the market right now.
Thank you.
Thanks, very much operator, if we can move to the next caller, David Barden Bank of America. Please go ahead.
Hey, guys. Thanks, so much for taking the questions a few higher level questions about the new AT&T.
John or.
Maybe old AT&T, depending on how you think about it.
Is the new AT&T, maybe if I'm going to be greedy out three questions number one is the new AT&T, a dividend yield or or a dividend grower.
The second question.
Is John last I think at the analyst day.
Previewed that your plan was after the separation that you would kind of refresh.
AT&T is go to market plan.
I was wondering if you could kind of maybe share an evolution of those thoughts are set some expectations around what we should see.
And then finally Pascal could you kind of describe and maybe share a little of the geography about how they go forward financial relationship between AT&T and Warner Media Discovery will work I E.
Offering HBO Max free in the wireless business and those sorts of things that would be super helpful. Thank you so much guys.
Hi, Dave.
Give the front end and they will try to do all three of them and Pascal can jump in and offered and nuanced.
We are a dividend competitor moving forward, meaning I want the dividend to remain at a competitive level relative to others out in the market, which means I would pay attention to the yield of the dividend.
As we've told you as we move past 2023, and we start to think about what we do with discretionary capital is we have the balance sheet, where we want it to be board's going to evaluate where the best returns come back into the business.
There's a lot of choices at that point that could be what we choose to do on equity can be choose on what we choose to do with divvy.
Dividend it could be choose could be choices, we make what we make within the deployment on new business opportunities within the business for organic growth.
We will evaluate those and the complete portfolio of where we stand and the relative competitiveness of the value proposition of the AT&T equity with others in the market and adjust accordingly.
And so to answer your question, we will pay attention to the yield, but I don't necessarily intend to every quarter look at it and say my expectation is that I have to grow the dividend in any given quarter relative to not answering the question of how do we stand competitively in the market and whether or not we think we've got the right kind of mix of how we're investing our cash.
Capital and deploying it within the business.
When you ask about refreshing the go to market plan.
Could possibly be two things are driving that one could be comments I've made about what we're doing to refine the brand.
If that's kind of the angle you are going after is that where your question is.
I think more specifically John .
The market has seen your kind of <unk>.
Highlight this as a positive youre very consistent go to market plan on customer retention.
The new and existing customer.
Handset upgrade plan.
Been pretty solid for almost two years now.
And I think you hinted that.
There would be a change and I think people were interested in hearing a little bit more about it well there'll be a change when it doesn't work.
It's working just fine.
I'm, probably not going to tell you what the change is going to be when it doesn't work anymore, because that would kind of be self defeating but it's working just fine I would've guessed.
Maybe last year that we might be hitting a point, where we had to think about it differently. We're not.
I think thats great.
We have thoughts on where our next path will go if we need to go down that path.
We're not at that point at this juncture I love the momentum we're seeing I think it was a great quarter.
I like what we're seeing right now and I like that we're watching others, having two in any given week or month adjust their approach in the market. While we continue to do exactly what we're doing and as we continue to have the opportunity to.
Grow our footprint between the two services it opens up even more opportunity for us to do things on a combined basis that we're seeing really good progress on admittedly our new footprint is still relatively small it will grow over time, but I'm really excited about what that means for us moving forward in the future and I think as I would.
Stress.
One of the things Thats really important to understand is we're not getting our growth just through one set of go to market actions here.
I know you are focusing your thinking about what we're doing in the consumer space right now, but I want to stress first net has been really strong for us what we're doing in the business customers that we have close relationships have been really strong for us we're going to see us start to grow and some wholesale revenues later this year.
That we have not had in our mix up to this point in time, so our growth portfolio is a balanced portfolio and it's not hinging on any one strategy and I've been saying this all along you need to understand that there is not any one thing we're doing it's a variety of things that we're doing on distribution there.
Adding that to the sum total of this and feel good about that.
Your last question on financial relationship with Warner Brothers Discovery.
We expect there is going to continue to be a relationship with Warner brothers discovery going forward.
I expect that that relationship.
There will be important to both companies, but I don't expect overtime.
<unk> going to be ultimately exclusive.
<unk>.
Warner Brothers discovery will want flexibility to be able to do things with a variety of players in the market.
I think I understand why they would want to do that I think there are things that AT&T can do to accommodate that and still have the right value proposition for our customers moving forward, but I still expect there'll be a strong trading relationship given what we've had in the market.
As a portion of the success that we've had in being able to keep and retain customers moving forward and we'll fine tune that a bit as we move forward and make sure it's right for both companies.
But I don't expect that we will continue to be what I call a captive or exclusive arrangement of <unk> do you want to add anything.
The only point, Dave I'd say on your first question on the dividend yield growth.
The way, we're thinking about generating returns.
Forward dividends are only one part of it we're going to hold ourselves accountable to growing earnings at the stock price and it's a mix of overall.
<unk> returned to our shareholders and Thats, what we are looking to optimize over time.
Okay.
Thanks, very much operator, if we can shift to the next question.
Doug Mitchelson.
Credit Suisse. Please go ahead.
Thanks, so much.
John .
Following up on the media side with regards to media streaming piracy is there a place for AT&T to gain any economics by helping streaming services reduced piracy given the breadth of your broadband footprint I mean, Netflix, losing $50 billion market cap yesterday suggests there might be value of the streamers and I would think it would be important the value you're giving your customers of HBO or <unk>.
Or where that evolves and to help size that how much password sharing did you see with HBO in the U S and then.
If I could just sort of follow up Pascal I just want a clarification. The Capex guide $20 billion of cash spend plus paying down $4 billion vendor financing in 2022, what should we anticipate for Capex purchased on new vendor finance. Thank you Bob.
Doug So if I go back I don't know if at all play a historian here, but if I go back probably three years ago.
There were several comments I made her observations I made about the spud.
Business, one of which was.
That managing customer subscriptions was going to be an important element of the long term sustainability of the business and that was at a time when.
I think somewhere in the industry may be advocating that ramp of password sharing with somehow a good thing for these products.
And I had a little bit more jaded view of that I think there were probably some articles that were written the criticize me for having a little bit more jaded view of that but it.
It drove a lot of the thought process at the front end of the HBO Max product, where we were thoughtful about how we built the product.
And we are thoughtful about making sure that we gave customers enough flexibility, but we don't want to see ramp at abuse and so on.
I'm not going to go into all the details, but there were a lot of things and features built in to the product that are consistent with the user agreement.
Yes.
Terms and conditions of how they can and can't use it and we've enforced and we've enforced them obviously in a way that I think has been.
Customer sensitive you don't see anybody complaining massively about it but I can tell you that we actively in any given month.
Are looking at how particular users are using the product.
It has features and capabilities technically to limit what.
I would call ramp at abuse and so.
I would tell you that I think thats, the right way for the industry to be managed.
I think maybe summer going to adjust practices and approaches over time to try to get their arms around that but I don't think its the broadband providers.
<unk> and making that happen I think it's the owner owner of the applications role in making that happen and I don't necessarily expect that we'd be trying to work on a product or service to market back to other providers to say, we can help you manage that I think there are adequate tools available in software.
And then how you manage your application to be able to do that and I can tell you from our own experience, we feel like we've done that reasonably effectively in the interest of the product.
I'll, let Pascal I'll go ahead, and maybe pick up the second part of the question.
Hey, Doug here is the way.
I think about we havent provided guidance specifically on how much vendor financing commitments, we will enter into each year.
<unk> overall cash payment guidance.
So we've provided for 'twenty, two and 'twenty three both years is $24 billion. So anything we do this year, we'd have to pay next year that would be captured in that $24 billion guide and so.
While we haven't provided guidance you should have a pretty good sense about where the overall trajectory should be.
Alright, Thanks, Bob Thank you very much.
For one last question operator.
Hi, Chip <unk> Chip partners. Please go ahead.
Thanks, Pascal I was hoping to unpack some of the fiber comments you made earlier you talked about.
Rising subscriber growth over the course of the year and then John you talked about basically higher <unk>.
Basically basic charging $10 higher than cable I guess first.
When you look at the $2 89 that you did this quarter what was the mix of conversions from your own customers versus taking it from some other competitors that are out there and then secondly.
In terms of fiber.
If you think about higher pricing are you still seeing that kind of.
The penetration rates after year, one and year two that we've historically seen when other comprehensive build out fiber or does the higher pricing changing kind of the penetration rates that you think you can achieve.
First second third year of <unk>.
Rolling out these new.
These new services.
Yes, well, let me see function.
Ask your question Scott can jump in if he wants to first of all we don't we don't disclose the mix.
What I would say to you is.
What you should understand is.
We do give you some information that you should be able to understand that we're getting a healthy growth of new subscribers to AT&T.
Yes.
You know I think our aggregate share numbers in broadband in the market today.
You know where those stand we've shared with you that our pen rates.
After we're in the market about three years has roughly an equal split of market share, which is a substantial increased where our aggregate market share in our broadband business previously stood.
Can't.
<unk> three year period of time of fiber growth to get to equivalent market share in an area do that without taking customers from the other side of the house, it's mathematically impossible to do that.
So.
I think the way you think about it if I were in your shoes and analyst and you look at cash flows over a three year period. When you look at footprint expansion and you see that market shifts.
You should conclude over time that we're actually picking up.
As I've described.
Your points in a way that I've never seen a product move in my career.
Now admittedly, we've put a lot of money into this infrastructure.
And we should expect to see that kind of a share point move and we're getting it so.
We are winning our share of new customers as a result of this and we report to you as well our aggregate revenues and we report to you our growth and decline in our fiber and our copper base and I think it's pretty easy for you to see the motion of what's happening in the copper basis to how much of it is likely moving to fiber and how much.
Each of it isn't.
I feel really good about how we're competitively performing.
I see nothing in our performance that suggests we should be tamping down ultimate pen rates because of our approach quite the opposite as we shared with you our pen rates are accelerating their not declining.
If you look at where we were several years ago.
A lot of our new builds right now, we're achieving year to pen rates in year one.
And Theres a lot of reasons behind that not just one the great product is the foundation of it.
Part of it is how we're building right now we are much less Swiss cheese, which allows us to be a lot more effective in our marketing and we developed much better tactics as we move into the neighborhood to be able to get early adopters to move then at a much higher rate and pace.
That has a huge impact on the economics of the business case, if we sustain that moving forward.
I'm going to frankly be re looking kind of the overall economics of the fiber business case, because one of the big variables on leverage in the business cases, you can accelerate your penetration by year. It drew.
Dramatically improves kind of the return characteristics. So I'm really proud of what the team has done in that regard and we have no expectation by the time, we get to year three that that's going to suggest that we shouldnt expect our split of the market.
Results of that remember, we're not charging more to the customer we're giving the customer a better experience, we're getting rid of promotional pricing. It is a pain point for customers. They hate it they hate the 12 month Mark.
When they are using another service.
That 12 month, mark means or prices going up 15% or $20.
That's just a really bad things for our customer so.
So now we put out a very simple straightforward constant price, where the customer isn't going to see that step up of 12 months. They know what the equipment pricing is on the front end, they're getting a square deal, they're getting a great product and they're happy as clams and it shows in the data.
Thanks Anna.
Currently I guess the high split investments if you can call. It that by cable is not really helping to fight those share shifts can I just switch to wireless John you mentioned.
About wholesale is another component of growth and then I looked at the wholesale revenue this quarter and it didn't move much from Q1.
I guess that just implies that you are in the very early stages of the shift of that dish wholesale traffic to your network. How do we expect that to ramp is it linear or is it I know you've already started to connect to dish.
How does how do how should that play out over the course of 2022 and three.
It's an accurate assumption.
It has to do with the ramp directly from dish.
And I think the way you should think about this.
Information that I think <unk> got a little bit of a reprieve.
From T mobile on sort of the legacy network availability and some help on that slowed down the front end, a little bit and I think youre aware of.
Our dishes and their deployment and debugging.
Their network, so that it actually can function and work properly I think they recently announced the milestone as to what they're doing around that those two things are the drivers of <unk>.
When that transition occurs combination of when those customers need to move off of another network as well as <unk>.
Is dish starts to move people onto their network, new customers coming in and those all play in the wholesale arrangement is that volume starts to ramp. So I think a surrogate for understanding that trend line will be watching the loading of new customers on the dishes new network capabilities.
Thanks, very much work and with that I'll turn it over to John for some final comments.
Just really briefly to all of you first of all.
Thanks for joining us today, and I really want to extend my thanks and appreciation to all of you on the call.
I know, it's been going on internally at AT&T in terms of the number of filings schedules. We've had to develop the information we've had to put out over the course of the last month or so.
And I know that that puts a lot of work on all of you to kind of parse through that.
Get through this transition that we've been working through as a business.
Tim I appreciate you for your patience in that regard.
What I can promise is it should settle down here, a little bit going forward and I'm as excited about that as I am sure. You are so thanks very much for being with US today, and we'll talk to you again in 90 days.
Okay.
Ladies and gentlemen that does conclude our conference call for today on behalf of today's panel, we'd like to thank you for your participation and thank you <unk>.
Have a wonderful day you may now disconnect.
Okay.
Okay.
Yes.
We're sorry your conferences ending now please hang up.
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