Q3 2022 AT&T Inc Earnings Call

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Thank you for standing by welcome to At&t's third 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. Following the presentation. The call will be opened for questions. If you would like to ask a.

A question. Please press one and then zero you'll be placed into the question queue.

<unk> question queue and would like to withdraw your question you can do so by pressing one and then zero.

As a reminder, this conference is being recorded.

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

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

Thank you and good morning, everyone welcome to our third quarter call on the <unk> head of Investor Relations for AT&T and joining.

Joining me on the call today are John Stankey, our CEO Pascal to rush our CFO .

Before we begin I need to call your attention to our safe Harbor statement. It says that some of our comments today may be forward looking.

As such they are subject to risks and uncertainties described in At&t's SEC filings.

Results may differ materially.

As always additional information and earnings materials are available on the Investor Relations website.

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

Thanks, Sameer and good morning, everyone. This morning, we shared our third quarter results, which yet again demonstrate our strong execution and delivering critical connectivity services to our customers.

Earlier. This month, we saw just how vital these services truly are.

And the devastating aftermath of hurricane in the.

The ability to connect with others proved to be invaluable to so many people.

Our teams were yet again.

Some of the very first to arrive on the scene working tirelessly for our customers.

The effort they made along with first responders supported by first net to keep our network running in some of the hardest hit areas was nothing short of Iraq.

I'm really grateful for their sacrifices.

And all of AT&T is proud of their efforts.

I'd also like to say, thank you to our teams for their solid execution and deploying our mid band <unk> spectrum.

And building out best in class fiber based access solutions.

As you can see from our results we continue to deliver strong customer growth on the back of our focus five G and fiber strategy.

The demand for fast and reliable <unk> and fiber is at an all time high and our disciplined and consistent go to market strategy continues to resonate.

In addition, as we begin to lap investments, we made to optimize our networks improve our distribution and transform our business. We're now seeing the benefits of our growth fall to the bottom line as we suggested they would and as evidenced by accelerating adjusted EBITDA growth.

Let me dive in a bit and mobility, we posted another strong quarter of growth by adding 708000 postpaid phone net adds.

As I've stated in prior quarters, our consistent results are being driven by an improved value proposition a better network experience and our ability to meet our customers where their needs are.

We're creating efficiencies through our distribution and acquisition costs are improving.

This is helping us drive further gains in operating leverage.

This past quarter, our teams delivered across three key performance measurements strong postpaid phone net adds accelerating <unk> growth and higher mobility EBITDA in fact.

The third quarter marked our highest wireless service revenue growth year over year and more than a decade, and we now expect to achieve wireless service revenue growth at the upper end of the 4.5% to 5% range.

This is about 200 basis points higher than where we expected to land at the start of the year.

To continued net adds strength and <unk> growth.

Now, let's jump to fiber, where we continue to invest in building out a premium network and deliver on our stated expectations for steady customer growth.

The success of our strategy as evidenced by the fact that we just posted our 11th straight quarter with more than 200000 fiber net adds with 338000 net adds this past quarter.

We're finding success in serving more customers in new and existing markets with what is the best wired Internet offering available.

We're increasing share in our fiber footprint.

And converting more IP broadband internet subscribers to fiber subscribers.

This is driving favorable ARPA trends and profitable growth within our overall consumer wireline business.

Ultimately.

Our fiber strategy is a long term play centered around our best in class network technology with a multi decade lifespan.

What others finally decide they need to upgrade their infrastructure, we will already be providing our customers with great service and sustainable technology simply put.

Where we have fiber we win and the numbers show, we expect to keep winning.

So let's step back for a minute and take a look at what we've done so far this year across three quarters.

We've achieved what we expect will be an industry best with more than 2.2 million postpaid phone net adds. Additionally.

Additionally, our teams are deploying our mid band <unk> spectrum quickly and efficiently.

Spectrum assets, we're rolling out are performing even better than our high expectations.

As a result, we have achieved our already increased year end target of $100 million mid band five G Pops and now expect to reach more than 130 million people by the end of the year nearly double our expectations when we entered the year.

This progress is benefiting our customers as well in fact since the start of the year are already consistent download speeds have increased materially as a result of our mid band deployment.

We're also approaching 1 million AT&T fiber net adds for the year and we've added nearly two 3 million fiber locations through three quarters to bring our total customer locations to 18 and a half million.

This keeps us on track to achieve our target of $30 million plus locations by the end of 2025.

In summary, I'm very happy with the strong high quality and durable customer adds network enhancements and improving financial returns, we're seeing across our twin growth engines <unk> and fiber.

Moving to our next priority, it's more important than ever that we'd be effective and efficient across our operations.

We continue to have strong visibility on achieving more than $4 billion of our $6 billion transformation cost savings run rate target by the end of this year.

As I said earlier, we're beginning to see savings start to contribute to the bottom line.

We're transforming our business as the world continues to face would feels like a period of uncertainty.

Many of the economic trends that we spoke about at the start of the year and the assumptions that we've been operating under are now coming to fruition.

This is one reason why we focus so intently on.

We are orienting our business, whether it was asset dispositions investing and cost transformation.

Or a proactive decision to address rising inflation through a measured pricing strategy.

As a result, our balance sheet has improved.

Our network performance continues to get better.

We're now seeing some benefits to our profit trends.

This is a direct result of acting when we did and how we did it.

Our third quarter results demonstrate that our business can deliver even against the challenging backdrop.

The current environment is not easy to predict.

But our flexibility affords us the ability to meet or surpass all of our financial commitments, while investing in the best technology available.

Now.

Turning to our capital allocation strategy.

The long term economic justification for our investments in <unk> and fiber.

Remains fundamentally sound.

And we're continuing to invest through this cycle to support future growth.

These investments will prove to be the foundation of AT&T over the next few decades.

We feel confident our approach will prove to be increasingly beneficial with each passing year as data demand and traffic continues to grow dramatically.

Our strengthened focus on core connectivity is helping us meet customers' needs and we're growing mobility and fiber subscribers in a disciplined and profitable manner quarter after quarter after quarter.

This makes me very comfortable with our ability to continue improving the cash yields of our business going forward.

Our free cash flow for the quarter was in line with our expectations, Despite higher third quarter capital investment spend.

We're on track to deliver on our previously stated $24 billion capital investment plan for the year.

At the same time.

We hope this healthy free cash flow for the quarter gives you confidence in our ability to achieve our target for free cash flow in the $14 billion range for the year level.

A level that is more than ample to support our $8 billion dividend commitment.

Before I turn this over to Pascal <unk>.

Allow me to finish with this.

Our results demonstrate that the strategy, we put forward more than two years ago is the right strategy for not only the future of our business, but for the future of the communications industry.

Focused on creating sustainable and scalable businesses.

Drive our free cash flow a flywheel for many years.

We continue to hold ourselves accountable for earnings growth against our historic levels of investment, which you'll see through improved cash conversion moving forward.

We're confident that the investments and choices, we're making will benefit our customers and shareholders now and in the future. While also setting the stage for our next act.

As America's best broadband provider.

Let me now turn it over to Pascal to discuss the details of the quarter as skol.

Thank you John and good morning, everyone, let's start by taking a look at our subscriber results for our market focus areas on slide five.

Our consistent mobility strategy remains successful as we delivered 708000 postpaid phone net adds in the quarter.

Since we began our transformation nine quarters ago, we've delivered nearly 7 million postpaid phone net adds along with improved offerings.

Looking at AT&T fiber, we totaled 338000 net adds in the quarter. This marks our second best quarter ever.

Our planning consumer wireline remain centered on pivoting from a copper based product to fiber and we're doing just that.

Over the past nine quarters, we've gone from $4 3 million AT&T fiber subscribers to now approaching a subscriber base of $7 million. So we're really pleased with the momentum we have with customers in the marketplace across mobility and fiber now, let's move to our third quarter consolidated financial summary on slide six.

As a reminder, with the closing of the Warner Media transaction April historical financial results have been recast to present Warner media at certain other divested businesses, including Rio Zander and play them as discontinued operations.

Additionally, there continues to be some year over year comparative challenges as the prior year results also included Directv for one month and other 2021 dispositions for a partial quarter.

Therefore, we are applicable I will highlight our financial results on a comparative like for like basis.

Comparative revenues for the quarter were $30 billion up three 1% or more than $900 million versus a year ago. This is largely driven by wireless revenue growth and to a lesser extent higher Mexico and consumer wireline revenues.

This was partly offset by a decline in business wireline.

Comparatively adjusted EBITDA was up nearly 5% year over year as growth in mobility consumer wireline in Mexico were partly offset by decline in business wireline we.

We expect the year over year EBITDA trend lines to improve for the balance of the year as we continue to grow our wireless and fiber customer basis and lap <unk> network shutdown costs and stepped up investments in technology that began in the second half of 2021.

Adjusted EPS from continuing operations for the quarter was 68 on.

On a comparative Standalone AT&T basis, adjusted EPS was <unk> 62 in the year ago quarter.

The quarter also includes a recurring favorably impact of about $140 million to adjusted EPS from retirement medical benefits plan change.

For the full year, we now expect adjusted EPS from continuing operations to be $2 50 or higher.

Cash from operating activities for our continuing operations came in at $10 1 billion for the quarter up 9% year over year.

Capital investments of $6 8 billion was up $1 3 billion year over year, and we continue to expect capital investments into $24 billion range for the year.

Free cash flow was $3 8 billion Directv cash distributions were about $1 billion in the quarter.

Overall, we remain on track to achieve our surpassed all of our previously shared financial targets for the year now.

Now, let's take a deeper look at our communications segment operating results starting with mobility on slide seven.

Our mobility business continues its strong subscriber momentum and positive profitability trends.

<unk> were up 6% with service revenues growing five 6% driven by subscriber growth.

Mobility postpaid phone <unk> was $55 67.

86% sequentially and two 4% year over year. This continues to come in ahead of our expectations. This is largely a result of benefits from our targeted pricing actions improve roaming trend and more customers trading up to higher price unlimited plans.

With regard to EBITDA, we delivered our highest mobility EBITDA ever year over year mobility, EBITDA increased five 5% driven by wireless revenue growth.

Confident that mobility EBITDA growth will continue to accelerate through the balance of the year due to revenue growth and the lapping of <unk> network shutdown investments that began in the second half of 2021. So we're really happy with our mobility performance and our consistent strategy is yielding great results.

Now, let's turn to our operating results for our consumer and business wireline on slide eight.

Our fiber growth remained strong and we continue to win share where we have fiber our total consumer wireline revenues are up again this quarter, even with continued declines from non fiber broadband services grew.

<unk> revenues grew six 1% due to fiber revenue growth and higher broadband <unk> driven by customer mix if the fiber.

Our fiber <unk> was $62.62 and we expect that to continue to improve as more customers roll off legacy promotional pricing and onto simplified pricing construct.

Looking forward remember that seasonality in the fourth quarter typically result in lower industry net adds we expect EBITDA growth to remain strong on a year over year basis for the balance of 2022.

This will be driven by growth in broadband revenues.

And the lapping of technology investments that began in the second half of 2021.

Looking at business wireline, we continue to restructure and rationalize our portfolio with a focus on core connectivity, where we have owners economics. In this regard we continue to grow our connectivity services revenue as both <unk> and fiber offerings continue to perform well.

Our enterprise mobility momentum remained strong with business wireless service revenue growth of seven 9% and a sequential increase in our first net wireless base of 334000.

Additionally, we had about $100 million in revenue from intellectual property transactions in the quarter. This is about $80 million more than the prior year for context. This is an action we've taken in the past when favorable opportunities arise.

Now I'd like to quickly touch on our capital allocation strategy.

All our priorities remain unchanged and we're largely past the heavy lift of Reorienting, our company's focus on our core connectivity strengths as a result, we've establish a more sustainable financial structure that better positions us for the current environment.

We also have enough flexibility to invest in our business, while meeting our financial obligations in the third quarter to $3 8 billion in free cash flow. We delivered was largely in line with our expectations and given the expected timing of our capital investments we feel good about our line of sight to achieving our free cash flow target.

In the $14 billion range for the year.

We are very comfortable with our cash levels after paying our dividend commitments and this should only increase in future years, as we expect cash conversion to improve from here.

Our results today have only further solidified our confidence that we will exit 2022 stronger than we entered the year in fact, we continue to expect.

And higher free cash flows in 2023.

We also plan to continue to use excess cash after dividends to reduce debt with the goal of reaching a net debt to adjusted EBITDA range of two five times as we typically do we'll provide 2023 guidance when we share our fourth quarter results.

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.

Of course, and as a reminder, if you have a question today. Please press one then zero on your telephone keypad.

Our first question today comes from the line of Phil Cusick with Jpmorgan. Please go ahead.

Hi, guys. Thank you.

Short and Sweet I love it.

I guess first Pascal the free cash flow bridge to $14 billion just.

To reiterate.

Help us think about.

That as we go into the fourth quarter, you need at least $6 billion and you said capex. It sounds like it's coming down Thats a good part of it.

And then as we think about next year for what you can give us how should we think about things like taxes pension as well as the.

And the industry overall.

I know you don't want to update it but given how much. The world has changed is that $20 billion free cash flow guide even relevant anymore. Thanks very much.

Hey, Phil.

I appreciate the question and good morning.

Maybe let's start.

With regard to the $14 billion for this year the simple way to think about it we delivered $3 8 billion this quarter.

And that is when we spent $6 8 billion in cash and capital.

Next quarter, we reiterated our guidance for the full year 2000, 4 billion. So next quarter that would suggest around $4 5 billion.

And so you do the simple math that gets you exactly where you need to get to for the full year and as a general matter as well the fourth quarter.

Half of the year, we always convert at a higher rate in the first half.

So overall great line of sight.

In terms of next year, you mentioned the macros that is the very reason why we are not providing updated guidance right now and we're going to stick to our.

We communicated last quarter Matt.

We will update you at year end when we report our fourth quarter results with that said as you heard in my prepared remarks, we expect EBITDA and cash to grow next free cash flow to grow next year.

Let's just look at this past quarter, we grew cash from continuing ops.

Nearly 10%, so really strong growth organic growth from the business and this is exactly what we anticipated coming into the year. What are the factors that are going to drive improved earnings and cash next year.

Mobility, our mobility business is performing much better than we expected coming into the year our subscriber.

Subscriber basis.

Bigger than we anticipated and RP trends are better.

To fiber.

Fiber is performing really well and.

The mix shift that we're seeing to fiber comes with higher profit margins.

So that's also.

Expected consumer wireline is expect to grow next year.

We should see some moderation in the overall business wireline trends because of the cost efforts that we are.

We are undertaking and then you layer on top of that things like transformation savings more broadly.

Starting the quarter's bottom line as our investments begin to peak.

<unk> and <unk>.

Begin to dissipate over time so.

And lower interest is another factor to keep in mind as we delever.

All of that is going to be partially offset by.

Higher cash taxes.

Magnitude I'd say, it's consistent with what we've previously guided and then.

Slightly less.

Phoebe.

Distributions and.

All in all we feel really good about the trajectory of that business and when you look at an annual dividend commitment.

$8 billion.

Free cash flow.

The model is working exactly as we anticipated.

Yes.

Thanks Pascal.

Sure.

Thanks, very much Phil if we can move onto the next question. Our next question comes from the line of Brett Feldman with Goldman Sachs. Please go ahead.

Thank you for taking the question and it really just sort of two here on fiber. The first is it's great to see it the fiber net adds continue to gain momentum how the larger fiber broadband subscriber base and the non fiber, but you haven't quite turned the corner sustainably yet on net positive broadband growth.

Hoping you can comment on how you see the path unfolding. There do you just need a bigger fiber footprint to get there and then the follow up on that question is there was a report yesterday.

Considering the potential fiber JV.

Is somewhat limited in what you can say so that the higher level question would be your existing fiber build has been completely funded out of your cash flow from operations. So if you were looking to do something incremental including with a partner what kind of boxes would you have to check because this is about speed or breath or potentially something else. Thank you.

Hi, Brett.

Sure.

Question.

Certainly a bigger fiber footprint allow.

Allows us to improve our relative net add performance in broadband.

I think the short answer to your question is for the next several quarters will be in this dance around what I would call at least on the subscriber accounts something close to near zero.

You ought to understand as Pascal just indicated to you our yields on fiber customers are of course, much better than our copper customers combination of <unk> churn characteristics and frankly, the operating performance profile, which.

I know you've observed that there is still room for margin expansion in the consumer wireline business.

We should be looking at that relative to others in the industry and I think that's an accurate observation over time as we continue to scale that business. It will continue to improve profitability in it but.

We still have several quarters of.

Working through the dynamic of.

Getting the legacy dynamics out of the business.

Focusing on the new infrastructure in the growth.

That's the journey, we're committed to and I think youre seeing that it's got strong economic promise as we move through that and continue to increase the size of the fiber base.

I don't know that I could add a whole lot to you.

Your question about.

What we might think about in terms of doing other fiber builds that are out of our operating territory first of all I'm not.

Im not to make knowledge or comment specifically on some of the speculation that's shown up in the media.

But I think I have shared most recently when I was in Arizona, and we were doing the work in Mesa.

We're evaluating it under many of the same.

Criterion circumstances, if we look at within our existing operating footprint number one can we go in and be the first fiber provider and an area to do we believe it's a market where the brand is going to perform and we will get the rate and pace of penetration that we need to make an economic return on it.

Three.

We build because of the dynamics around the particular municipality or area cost effectively and quickly with a relatively low overhead around that and get.

What I would call an operating scale in that geography that warrants the fixed cost infrastructure startup.

And then finally do we think that there is some interplay in terms of having the asset and improving value and our wireless business as we operate in the area as well and it varies into our distribution. So.

To the extent that we found opportunities like that that had as competitive returns is building in our region. I think the management team would have to evaluate those types of things and think about how that it moves forward on them.

I would tell you as I've indicated as well.

There'll be some federal subsidy moneys coming in in places and we should use that same set of criteria and that same model. As we think about are there opportunities for us to impair our capital with possibly.

Capital to open up opportunities that we might not have pursued otherwise.

Okay. Thank you.

And thanks very much.

Alright. Our next go ahead is from the line of Simon Flannery with Morgan Stanley . Please go ahead.

You very much John you opened your comments mentioning the world faced a period of uncertainty you have been looking at that for a little while it would be great. If you could John on Pascal update us on what Youre seeing real time, both on the business side in terms of cutting back on it budgets et cetera, and then how that may evolve over the next few quarters.

As state deal with them.

Some of the stresses from inflation demand and then on the consumer side, obviously, you had called out the DSO issue last quarter.

The free cash flow reiterated it this quarter. So perhaps you could update us on payment trends on bad debts, and how we should think about churn here as youre sort of pricing increases sort of mature going forward. Thanks.

Sure Simon why don't I start and then Pascal is welcome to add any color.

Appropriately here.

Look on the business side.

One is I would tell you I think the overriding dynamic and business is actually <unk>.

Disconnected from the economy and that is we're in a.

Secular change to cloud.

We're in a secular change to SDN.

And.

We've talked about that and I've talked about it and Thats one of the reasons, we're repositioning the business segment.

And I think it's one of the reasons why us making sure that we are very.

Careful in how we deploy owned and operated infrastructure that we can handle business workloads on it is so important to us.

When we think about that dynamic we actually play very well into an efficiency story for most established and large businesses and it's a little bit of a painful transition, but over time, we'll get through it and there'll be upside back in our core connectivity business on owned and operated infrastructure and that's simple.

The private networks. So we had previously put out that we're highly managed and highly architected are now moving to SDN based or technologies that are less managed but more bandwidth intensive.

And we want to play into the uplift on putting more bandwidth intensive infrastructure out there and selling those connections on owned and operated infrastructure, but the.

Enterprise gets efficiency benefit out of SDN, because those less managed networks are not as costly to them on an aggregate basis and so I don't I don't think the move from an economic perspective.

If there are budgets that are strapped is necessarily going to impact that transition if it did anything it might slow it down a bit if it slowed it down it would probably frankly be somewhat beneficial to us because margin structures on existing architectures are a little bit more attractive than on new infrastructure.

But if ultimately people view it as an efficiency move and they want to run their businesses more efficiently I think those trends are manifested in what you've seen over the last.

Several years in the business and I don't know that it will necessarily adjust as a result of that in.

In the small business side, certainly small business formation can be hit during a down economic cycle and I would expect that in the business segment that might be something that we ultimately see occur if there is a more moderate economic.

Economic growth environment.

Once again, unfortunately for us we're under indexed in the small business segment.

We're working to change that and we are demonstrating progress in that regard, but my embedded base of subscribers in that area for what we do and advanced networking.

It is not as strong in the fixed market as I might like it to be so I don't know that we will be overly impacted by that we could see some softness in the wireless space or if in fact the economy ultimately.

Did have a little bit harder sledding moving forward that might moderate some wireless growth but.

Look we've been getting more than our fair share in that segment a lot of it's been driven out of first Matt I don't expect that that trend is necessarily abate right now even.

In a down economic cycle relative to some of your other questions on other economic characteristics and how it impacts the business we've seen no change.

And DSO relative to last quarter.

We are back to pre pandemic levels.

We characterize that for you last quarter, there hasnt been any additional slip.

I think you accurately reflected to you in our guidance what the impact was going to be for the year last quarter, that's still tracking consistently with what we articulated to you.

We are seeing.

That start to return back to pre pandemic levels.

We'll have to watch that as the economy sours further.

And to correlate to what occurs in the economy, but I see nothing right now that would suggest for out of pattern on anything we certainly haven't done anything to change credit standards, and our approaches and practices to managing credit quality.

And I think you've seen how we performed in the past in that regard, but we have a high quality base that allows us to kind of manage through those dynamics are reasonably well if the economy goes one way or the other.

As I characterized earlier today in some of my public comments churns up a bit it's not out of line with what we expected when we did the pricing changes.

We're able to execute the pricing change in a way that we feel very comfortable with most importantly, the vast majority of our customers are talking to us, they're making adjustments to their plans moving them into higher value.

Plans that while having higher <unk> on them return more value to the customer that allows them to be stickier and longer lived customer we think that over the long haul is great on the margin. There has been some churn moving out that we expected it's no greater than what we expected it still makes.

The pricing changes accretive overall and you certainly have seen that manifested in the numbers and the operations that have come forward.

Great. Thank you John .

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

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

Okay, great. Thanks, guys.

You guys had some real momentum in wireless in terms of subs Aqua and now even margins.

Give us a sense for what kind of visibility you have.

Those three metrics continue to head in the right direction.

And then as a follow up.

With our broadband fiber expansion and potentially the off balance sheet JV is there any change in the view on fixed wireless.

Both Verizon and T mobile, having a lot of success in selling that product just your review on that as we head into 2023.

So John I think our visibility is really good I mean, we were on a subscription base business and as you know those customer relationships tend to be pretty sticky relationships.

We have every ability to understand.

How we are bringing a customer and today and at what profitability level. They are coming and we understand the base and how the base is performing I think we have.

Reasonable ways to look at some of the dynamics have changed around things like roaming and have visibility toward those impacts and how theyre going to work through.

Just heard my commentary was Simon on some of the bigger drivers of profitability in the subscription business around churn and.

How we think about the dynamics associated with that.

So when I look at our ability to kind of understand why we're getting operating momentum we communicated to you at the beginning of the year that you should expect a back half story on this and you are seeing the back half story and now we're in the middle of the fourth quarter right now.

We're obviously aware of what our numbers are right now and I would say, we have confidence that we're going to be able to deliver.

Those continued leverage dynamics that we've talked about so.

I feel pretty good about our visibility on that subscription base that we built a quality subscription based and brought in.

Quality customers that are now starting to give us that profitability lift.

As well as.

We have visibility into our cost structure and all the work that we've done around that and as I've said since the beginning of the year that we would start to see some of that moved to the bottom line.

As we stabilized our promotional position in the market, which I think you've seen us do.

And we are still maintaining market momentum with that and so I feel really good about it.

I don't know that anything has changed in fixed wireless as I've said.

<unk> believes that it has a place in our portfolio.

That place is not broad scale deployment in every operating territory and geography that we operate in.

The way I would characterize it I'd, rather take a million new fiber customers. A year, then 1 million new fixed wireless customers a quarter.

The value equation of those million fiber customers is a far superior value equation for the long haul for our shareholders.

As a result of that we're focused on ensuring that we can continue to grow our fiber footprint and bring on those high value sustainable durable relationships.

Where we're able to have the network infrastructure that matches consumer consumption dynamics now and into the future fixed wireless will be that answer.

A small number of geographies and applications and homes it will not be to our entire nationwide base and so we're investing shareholder money at the front end right now just to drive top line growth that I don't think is sustainable over a 345 year period is not the best use of.

And my management team's time and the best use of our scarce capital. The best use of it is to put it against putting and durable infrastructure continuing to bring on a high value wireless customers build our wireless network to be really effective in the next set of applications that are growing.

To be necessary to bring the promise of five <unk> to life as we start to see the dynamics of autonomy and vehicles emerge some of the medical monitoring capabilities private five G that starts to work into the enterprise space.

We want our wireless network to be ready to service those workloads and do it in a pristine fashion because we think those revenues will come back with the kind of margin characteristics that we've typically operated the wireless business at and so I feel really comfortable with our balance about that and we will use fixed wireless.

As we move into next year, where it's appropriate to use it but it will not be broad scale.

Great. Thanks, John .

Basketball is missing anything from your perspective there no.

Thanks, very much John and we can move to the next question.

And our 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 I guess, a couple if I could.

The first question Pascale could you talk a little bit about how.

The interest rate environment is affecting the income statement I guess, specifically with respect to probably two items. One is the fixed versus floating and the other would be how the net impact on the pensions is being affected in terms of.

Discount rate for the PPO and then obviously the impact on returns of the portfolio.

The second piece I would ask would be.

On the wireless business.

Obviously, the dish wholesale arrangement.

It is expected to be kind of a big contributor or a tailwind as we go into the year could you talk about how if at all Thats affected this year's performance to date and how we might expect that to evolve. Thanks.

Okay.

In terms of.

First the interest rate environment.

One of the things that we did gave over last.

Two to three years is to really re <unk>.

Brock our maturity towers and.

We took advantage of historically low interest rates, we were seeing coming out of the pandemic as a result.

Right now we have eight eight.

The debt.

Tower.

Is that fair.

Pending that are yielding around 4% on average and 95% of it is big.

And if you look at our maturities over the next several years.

Free cash flows after dividend could largely handle those.

In the instance that.

There are slightly higher towers, we can always roll on a short term basis, but what we've done is we've reconstructed.

The way we are managing capital such that we can really continue to delever over the next several years without any meaningful need to go out to market to raise cap raise debt.

That.

Interest rate in terms of pension mark to market.

In terms of pension.

Picture from a cash standpoint for the foreseeable future.

Let's talk the next decade is probably no need to fund the pension plan now with that said there is.

The discount rate coming down we've had some.

Going up that we've had some big gains that we normalized out of our earnings on a.

Gone through next year, I would expect higher pension expense because of.

The fact that now we have we're going to be discounting at higher interest rates.

But all in all those are noncash piece.

When we think about the long term.

Profile of operating this company.

Most important to us.

There is no need to.

Patrick.

Future.

And in terms of the <unk>, it's not a meaningful contributor this year, we would anticipate as we look out the next several years it should it should ramp up.

We feel really good about the overall arrangement with this.

Thanks, so much thanks, Greg Thanks very much.

Operator, if we can move to the next question.

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

Thanks, Jim.

Just thinking a little bit more to wireless presentation. It.

It was flagged that business wireless service revenue grew 8% year over year and I think in total was around 6%. So curious if you could unpack a bit more of the differences in trends that you're seeing between the business side of wireless in the consumer side of wireless.

Then you guys were talking about the next ages of five G any opportunities.

I was reading the press release that you're flagging.

Success of Iot and connected device volumes.

And curious if you could unpack that a little bit more in terms of.

I think the odd.

Automotive industry was one place you referenced in the release on success, where you're seeing success in those verticals and are you seeing any kind of inflection.

In the near to medium term, where if <unk> Iot opportunity.

A more expansive for AT&T in the industry.

Sure Let me see if I can get your first question I think I understand what Youre looking for if I don't quite hit. This then feel free to follow up with me, but.

Look there is no two businesses are alike as the first thing I would tell you.

So as you look at kind of how you would characterize the relative profitability of our business subscribers coming on a lot depends on which segment youre looking at.

I would tell you generally speaking.

Our highest <unk> dynamics tend to occur in the consumer market.

When you kind of look at what we're able to do in family plans structures and what occurs there are growth in business still highly profitable growth.

But under some construct like what we are able to do with.

First net.

<unk>.

As you would expect people who buy at larger volume tend to get better rates and so you see that ultimately flow through where maybe your <unk> dynamics around business.

Are going to be a little bit less than what they might be in our consumer segment, where people aren't able to buy at that kind of volume.

Now having said that you are looking at our overall ARPA trends and youre seeing them improve.

And start to accretive to grow.

Yes.

Reflective of the fact that while we are doing very well and the business segment, taking share we're still growing <unk> in aggregate.

So despite that those differences.

And the average rfps and what's occurring.

We are still managing to grow that <unk> dynamic overall.

That's a healthy place for us to be right now and as you've seen our margin structure relatively stable as we go through this this quarter.

What's helping of course on some of the cash yields.

On the Iot side look our main stay of profitability in Iot comes in vehicles that really hasnt changed.

I don't expect in the near term over the course of what I would call the guidance and planning cycle that thats going to demonstrably change moving forward I think there's a good opportunity for us to find the next level of growth in automotive and I think we given our strong position in that market today are well positioned to continue.

<unk> to work in that regard and I think when you when you think about each vehicle out there and the intensity of communication thats going to occur there is an opportunity for growth in that space to build on and that's one of the most attractive areas that we'll continue to push and do I think that over time that.

In the spaces of manufacturing in medical devices that Theres also an Iot opportunity to develop that as we get beyond what I would call the planning and guidance cycle that we'd give you I do but I don't think those are going to be the kind of thing that as we characterize an update for you for.

2023, youre going to see those factor in any meaningful way and kind of business to business revenues that you look at and say that they are pattern changes overall, hopefully thats responsive to your questions. Mike If you want to refine the first one feel free to follow up here.

Thanks, It's very helpful and I was just thinking Steven on the top line service revenue side.

Business service revenue growth faster than the overall and then.

Consumer.

Is that something that you would expect to continue with it.

It's just going to be a bigger contributor to the wireless business going forward.

I do expect that it's going to be the case, because as we've shared with you.

A number of dynamics going on in our distribution strategies.

That have driven that and this is.

We keep saying I'm not sure is fully being processed that.

Our stance in the market and how we're offering in the market is not just driven by a promotional device stance. This is partly driven by we have managed to shift our distribution strategy and our approach into the market and we're doing better in these segments.

These are not sales that are necessarily being driven by people walking into stores taken an upgrade on the device and that's why our overall profitability dynamics are shifting in the way they have been and we've been able to give you some visibility to how thats occurring.

When were successfully taking share in the public sector undertakings like first net and when Theres a affinity dynamics that start to work into that into households, the first responders and when we're more effective at tuning our distribution in the mid part of the market for business and where we've historically done you are going to see.

Oster growth for us in the business segment.

I think the results speak for themselves of what we're able to bring in.

Relative to the balance of the industry on that.

Thanks.

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

And our next question comes from the line of <unk> with Barclays. Please go ahead.

Sure.

Thank you.

A couple of equity I mean first on the fiber side.

We've seen penetration growth.

Okay.

Absolute number keeps growing and accelerating every quarter sequentially, but then when you look at it in terms of penetration rate.

I think it slowed a little bit worse than what you were able to achieve last theater. So it would be good to understand.

One the puts and takes data and how we should expect that.

And as we go forward.

And then I guess from associated question is non fiber decline data vocal accelerating and so yes.

How much of the growth that you're seeing in fiber is on account of transfers from maybe.

Non fiber tonight to the fiber side.

And lastly, just backed.

Gatlinburg, Tony begin preclinical abate for next year.

Give us a sense of what kind of.

Macro variables are being assumed.

For that guidance in terms of.

Potential recession.

Click environment in general Thanks.

So let me take the first part of your question and then ill.

Pascal do some clean up here.

So.

First of all what you should expect is that over the lifecycle of the build and I think we've been pretty clear on giving you insights into this.

Let's call it the first 30% of penetration goes.

Relatively quickly in the next 20% it takes a little bit longer and so it would be natural that as we build.

But when you kind of get yourself to a 30% penetration rate youre going to see that curve start to slow down a bit and thats to be expected I.

I think the biggest change that's occurred in penetration.

Is how quickly we're getting to the 20% level.

Versus historic numbers and as we shared with you previously.

We've kind of doubled our pace the penetration on the front end of that curve.

And I'd also share with you that if you look at a typical return characteristic cash flow analysis of the the investment of fiber there are effectively three big things that drive that return dynamic and how effective the returns are.

One of which is rate of penetration.

And when we did the original assumptions on kind of our fiber business case, we had a much more ratable and deliberate ramp into that first 30%.

Subscribers and the business case and now what we can manage to do as we manage to effectively take a year off.

The cycle to get to the 20% Mark that has a huge impact on accelerating cash flows to the front end of the business case and it has a meaningful impact on the characterization of returns even if you don't increase the ultimate assumption on what the terminal penetration.

<unk>.

And so I would tell you we've already kind of had success in that regard we characterize that for you, but we have not made any assumptions that once you hit that 30% level that the back end is going to go any faster and so I think youre going to see a degree of penetration slowdown as we kind of hit that 30.

Percent and Thats to be expected it's been historically.

That doesn't mean, it's a bad thing it just takes a little bit longer to kind of get to what I would call as the market norm and kind of stability and how we expect shares to be allocated between the various players in the market.

So hopefully that gives you a little bit of sense on that.

We don't publicly disclose the transfer rates and kind of what's going on there.

But.

Look.

Got enough public information that we shared with you.

I think you pretty well can we conclude that if we're turning in the kind of numbers. We're turning in that there's got to be a meaningful percentage of that total fiber increased number that's coming from competitors in order to deliver the number.

We watch it we track it closely.

I think both are good right because what we know that any customer we moved from legacy your embedded infrastructure over to fiber becomes a new established long term customer with us they're not going anywhere once we get them on fiber, but most importantly, we don't turn in the kind of numbers we communicated.

This quarter, unless we're doing something that's moving share in the market and we all know where that share has to come from it's coming from in almost all cases, the embedded cable provider.

And.

Our free cash flow.

Earlier, we're not updating our guidance for 2023.

But.

What I did say.

Over three quarters of the way through this year and based upon our view of the macros and all the potential risks we expect this business to grow.

<unk> and free cash next year and for all the regions.

Articulated earlier on and in terms of just the broader macro look we're not immune to them, but these businesses are generally more resilient.

Even in economic stress situations. So overall I mean, we will give you an update next year.

Alright, thank you.

Thanks, very much con.

Operator move to the next question.

Of course, our next question comes from the line of Frank Louthan with Raymond James. Please go ahead.

Great. Thank you very much with your success with wireless.

Just wanted to be clear how are you thinking about the promotional activity going forward.

Any need to back off some of that promotional activity, you're clearly seeing good strong margin improvement without that.

And then I had a follow up question on the fiber JV.

Not wanting to comment on the story, but conceptually would you be open to some outside investments, possibly reach some of those areas of your territory that arent necessarily economical with your own capital going forward. Thanks.

Frank Thanks for asking a quarterly question on whats sustainable it was sustainable for another quarter and Thats been two and a half years now.

Let you know next quarter if it's.

Two years, two and three quarter years, so I feel really comfortable with where we are I think youre seeing the strategy play out.

I look at where the market sits today and I'll reiterate what I said earlier in the call.

We're not the one out there at $1000 for new iphones right now.

Or a different place than I believe both of our primary competitors.

And I also characterize for you.

Need to understand a lot of our growth is not coming from what we have is offers that were communicated in the market.

Mike's question is a really important question, but looking at the consumer business mix.

When we think about how we're spending our promotional dollars.

I would characterize for you on the Goldman conference that there is a lot of other aspects of promotion.

Our advertising gets done how heavy you have to be to communicate your message if youre doing a more promotional stance.

What you have to do in your channels to Incent people to sell and change things.

The formula in the mix, we have is a very competitive formula in mix right now across consumer and business across our mix of promotional strategies, our distribution partners and one should not just simply say because of the lead offer that's being communicated and mass advertising is X.

Ask whether or not that sustainable. The question is are our customer acquisition cost sustainable youre seeing the profitability improvement youre seeing the ARPA improvement and I think that's a pretty sustainable equation im not going to comment on a fiber JV structure I will make an observation Frank it's my duty.

To always keep our mind open to new ideas.

It's my responsibility and running the business. So that there is an opportunity for us to do something that's in our wheelhouse. That's in the strength of the capabilities that we have as a company and its core and foundational to our brand to try to ensure that we seize those opportunities and move forward on them.

Certainly have a past practice.

Wireless business was built with partners I think you should understand and look back and we've done that effectively in the past and things that we've done and we've done it in a responsible way for shareholders and thats been a means for us to think differently about how footprint expansion can be done.

We certainly use that kind of an approach before we understand how the approach works I think about it and aspects to all kinds of elements of our business and I've got to keep an open mind to those things moving forward.

Thank you very much for helpful. Thanks.

Operator, we have time for one last question.

And that question comes from the line of Walter Paycheck with light shed. Please go ahead.

Thanks.

John .

When I look at postpaid, which is probably the primary focus for.

For the company.

You increased revenue or its accelerated from the past eight quarters. So I guess when I look at the first part of that you've kind of referenced that in the last question we were talking about.

Our wellness.

Talking about the handset promotions that you saw very good subscriber growth and that sustained.

Now when we look at the past year has been in part on price increases to some of the legacy plants. So now you've got this whatever 60%.

6% growth in postpaid.

If you just sustain that going forward that would probably be consensus.

You, probably don't need the span, but when you look at 'twenty three.

Is it going to be a component of more price increases.

Or do you think subscribers.

For growth today and my <unk>.

Question number two is related.

As part of the ARPA increase for others was funneling and.

Netflix or for your case HBO Max that you cut.

And I think in June 1st for new customers, maybe thats been helping your profitability on our now but.

Is there an opportunity to repackage some of these streaming services into.

Youre offers in order to get <unk> a bit higher.

So I.

I appreciate the question first of all.

I think it's important when you look at the disclosures on what we've given you for the quarter.

As you know Theres always some one time things that pop into a given quarter that that drive the numbers I think your overall characterization is accurate, which is we're improving the yields of the revenue growth to what falls to the bottom line on EBITDA I'm not going to suggest that.

Simply because we're going to get 6% revenue growth that we should expect that we're going to immediately get to 6% yields, but you've seen those yields improving each quarter and we have a lot of confidence that that's going to continue to occur and it's consistent with the guidance that we've given.

Moving through the balance of this year and I think we have really good visibility for that improvement to happen and there is a lot of factors that move into that one of which is managing the cost structure more effectively in 'twenty three.

Well I don't know exactly what the environment is going to be and I'm not going to announce anything today in the market.

We will announce any changes we make in the market when it's time to change it.

But when I look at the reality of the inflationary environment and understanding.

And this kind of a rapid inflation environment, you need to manage the revenue side of the equation as well as your managed cost side of the equation. The answer to that is yes, I think thats, what a responsible management team does.

Exactly what level, we choose to pull the artifact of the environment.

We find ourselves in but I can assure you the team has sat down and as we've looked at planning and as we prepare to give you guidance for the year. We will ensure that we have the right options and levers available to us to adjust to that and as I said, we've got to work both sides of that equation.

I'm not going to tell you today that pre announce a set of tactics or strategies around that especially on things that are relative to how we price in the market.

On the content side.

I don't think we've got many benefit walk from from content relative to the industry, we still have a lot of customers.

Get content bundled into their services and we still view that as an important aspect of how we compete in the market and as I think I shared last quarter I would expect going forward that we will have opportunities.

To incorporate content offerings in different ways into our portfolio, we still view our relationship with <unk>.

Warner Brothers Discovery and HBO Max is being unimportant wanted it's been.

Valuable and effective for us, but there's also others that could be worthwhile and beneficial to us.

We're adjusting our strategies as we move into 'twenty, three I think youll see some things adjust and change as we do that.

I think I'd say stay tuned I think youre going to see content and sillery services continue to be part of the wireless bundle in the industry moving forward I think we will play in a prudent fashion and our overall promotional dynamic as I said earlier, managing effectively as part of that overall cost structure.

And it will allow us to do a number of flexible things now that we don't necessarily have a captive content engine so to speak under the umbrella of AT&T.

Yeah.

Thanks very much for the question.

And thank you everyone for your participation and interest in AT&T with that we'll conclude the call and look forward to connecting again post our fourth quarter results.

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

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We're sorry your conferences ending now please hang up.

[music].

[music].

Okay.

Thank you for standing by welcome to At&t's third 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. Following the presentation call will be opened for questions.

Like to ask a question. Please press one and then zero you'll be placed into the question queue. If youre in question queue and would like to withdraw. Your question you can do so by pressing one and then zero.

As a reminder, this conference is being recorded.

I would like to turn the conference call 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 on the <unk> head of Investor Relations for AT&T.

Joining me on the call today are John Stankey, our CEO Pascal to rush our CFO .

Before we begin I need to call your attention to our safe Harbor statement. It says that some of our comments today may be forward looking.

As such they are subject to risks and uncertainties described in At&t's SEC filings.

Results may differ materially.

As always additional information and earnings materials are available on the Investor Relations website.

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

Thanks, Sameer and good morning, everyone. This morning, we shared our third quarter results, which yet again demonstrate our strong execution and delivering critical connectivity services to our customers.

Earlier. This month, we saw just how vital these services truly are.

And the devastating aftermath of hurricane and the.

The ability to connect with others proved to be invaluable to so many people.

Our teams were yet again.

Some of the very first to arrive on the scene working tirelessly for our customers.

The effort they made along with first responders supported by first net to keep our network running in some of the hardest hit areas was nothing short of Iraq.

I'm really grateful for their sacrifices.

And all of AT&T is proud of their efforts.

I'd also like to say, thank you to our teams for their solid execution and deploying our mid band <unk> spectrum.

And building out best in class fiber based access solutions.

As you can see from our results we continue to deliver strong customer growth on the back of our focused <unk> and fiber strategy.

The demand for fast and reliable <unk> and fiber is at an all time high and our disciplined and consistent go to market strategy continues to resonate.

In addition, as we begin to lap investments, we made to optimize our networks improve our distribution and transform our business. We're now seeing the benefits of our growth fall to the bottom line as we suggested they would and as evidenced by accelerating adjusted EBITDA growth.

Let me dive in a bit and mobility, we posted another strong quarter of growth by adding 708000 postpaid phone net adds.

As I've stated in prior quarters, our consistent results are being driven by an improved value proposition a better network experience and our ability to meet our customers where their needs are.

We're creating efficiencies through our distribution and acquisition costs are improving.

This is helping us drive further gains in operating leverage.

This past quarter, our teams delivered across three key performance measurements strong postpaid phone net adds accelerating <unk> growth and higher mobility EBITDA.

In fact.

The third quarter marked our highest wireless service revenue growth year over year and more than a decade.

And we now expect to achieve wireless service revenue growth.

The upper end of the four 5% to 5% range.

This is about 200 basis points higher than where we expected to land at the start of the year.

Thanks to continued net adds strength and <unk> growth.

Now, let's jump to fiber, where we can.

Continue to invest in building out a premium network.

To deliver on our stated expectations for steady customer growth.

The success of our strategy as evidenced by the fact that we just posted our 11th straight quarter with more than 200000 fiber net adds with 338000 net adds this past quarter.

We're finding success in serving more customers in new and existing markets with what is the best wired Internet offering available.

We are increasing share in our fiber footprint.

And converting more IP broadband internet subscribers to fiber subscribers.

This is driving favorable our food trends and profitable growth within our overall consumer wireline business.

Ultimately.

Our fiber strategy is a long term play centered around our best in class network technology with a multi decade lifespan.

What others finally decide they need to upgrade their infrastructure.

Will already be providing our customers with great service and sustainable technology simply put.

Where we have fiber we win and the numbers show, we expect to keep winning.

So let's step back for a minute and take a look at what we've done so far this year across three quarters.

We've achieved what we expect will be an industry best with more than $2 2 million postpaid phone net adds. Additionally.

Additionally, our teams are deploying our mid band <unk> spectrum quickly and efficiently.

Spectrum assets, we're rolling out are performing even better than our high expectations.

As a result, we have achieved our already increased year end target of $100 million mid band <unk> Pops, and now expect to reach more than 130 million people by the end of the year nearly double our expectations when we entered the year.

This progress is benefiting our customers as well in fact since the start of the year are already consistent download speeds have increased materially as a result of our mid band deployment.

We're also approaching 1 million AT&T fiber net adds for the year and we've added nearly $2 3 million fiber locations through three quarters to bring our total customer locations to 18 or that $5 million.

This keeps us on track to achieve our target of $30 million plus locations by the end of 2025.

In summary, I'm very happy with the strong high quality and durable customer adds network enhancements and improving financial returns, we're seeing across our twin growth engines <unk> and fiber.

Moving to our next priority.

It's more important than ever that we would be effective and efficient across our operations.

Continue to have strong visibility on achieving more than $4 billion of our $6 billion transformation cost savings run rate target by the end of this year.

As I said earlier, we're beginning to see savings start to contribute to the bottom line.

We're transforming our business as the world continues to face what feels like a period of uncertainty.

Many of the economic trends that we spoke about at the start of the year.

And the assumptions that we've been operating under are now coming to fruition.

This is one reason why we focus so intently on Reorienting, our business, whether it was asset dispositions.

Investing in cost transformation, we're on.

Our proactive decision to address rising inflation through a measured pricing strategy.

As a result, our balance sheet has improved.

Our network performance continues to get better.

And we're now seeing some benefits to our profit trends.

This is a direct result of acting when we did and how we did it.

Our third quarter results demonstrate that our business can deliver even against the challenging backdrop.

The current environment is not easy to predict.

Our flexibility affords us the ability to meet or surpass all of our financial commitments.

While investing in the best technology available.

Now.

Turning to our capital allocation strategy.

The long term economic justification for our investments in <unk> and fiber remains fundamentally sound and we're continuing to invest through the cycle to support future growth.

These investments will prove to be the foundation of AT&T over the next few decades.

We feel confident our approach will prove to be increasingly beneficial.

With each passing year as data demand and traffic continues to grow dramatically.

Our strength and focus on core connectivity is helping us meet customers' needs and we're growing mobility and fiber subscribers in a disciplined and profitable manner quarter after quarter after quarter.

Makes me very comfortable with our ability to continue improving the cash yields of our business going forward.

Our free cash flow for the quarter was in line with our expectations, Despite higher third quarter capital investment spend.

On track to deliver on our previously stated $24 billion capital investment plan for the year.

At the same time we.

We hope this healthy free cash flow for the quarter gives you confidence in our ability to achieve our target for free cash flow in the $14 billion range for the year level.

A level that is more than ample to support our $8 billion dividend commitment.

Before I turn this over to Pascal <unk>.

Allow me to finish with this.

Our results demonstrate that the strategy, we put forward more than two years ago is the right strategy for not only the future of our business for the future of the communications industry.

Focused on creating sustainable and scalable businesses.

Drive our free cash flow flywheel for many years.

We continue to hold ourselves accountable for earnings growth against our historic levels of investment, which youll see through improved cash conversion moving forward.

We're confident that the investments and choices, we're making will benefit our customers and shareholders now and in the future. While also setting the stage for our next act.

As America's best broadband provider.

Let me now turn it over to Pascal to discuss the details of the quarter as skol.

Thank you John and good morning, everyone, let's start by taking a look at our subscriber results for our market focus areas on slide five.

Our consistent mobility strategy remains successful as we delivered 708000 postpaid phone net adds in the quarter.

Since we began our transformation nine quarters ago, we've delivered nearly 7 million postpaid phone net adds along with improved dotcom.

Looking at AT&T fiber, we totaled 338000 net adds in the quarter. This marks our second best quarter ever.

Our planning consumer wireline remains centered on pivoting from a copper based product to fiber and we're doing just that.

Over the past nine quarters, we've gone from $4 3 million AT&T fiber subscribers to now approaching a subscriber base of $7 million. So we're really pleased with the momentum we have with customers in the marketplace across mobility and fiber now, let's move to our third quarter consolidated financial summary on slide six.

As a reminder, with the closing of the Warner Media transaction April historical financial results have been recast to percent Warner media at certain other divested businesses, including Rio Zander and play them as discontinued operations.

Additionally, there continues to be some year over year comparative challenges as the prior year results also included Directv for one month and other 2021 dispositions for a partial quarter.

Therefore were applicable I will highlight our financial results on a comparative like for like basis.

Comparative revenues for the quarter were $30 billion up three 1% or more than $900 million versus a year ago. This is largely driven by wireless revenue growth and to a lesser extent higher Mexico and consumer wireline revenues.

This was partly offset by a decline in business wireline.

Comparatively adjusted EBITDA was up nearly 5% year over year as growth in mobility consumer wireline in Mexico were partly offset by decline in business wireline we.

We expect the year over year EBITDA trend lines to improve for the balance of the year as we continue to grow our wireless and fiber customer basis and lap <unk> network shutdown costs and stepped up investments in technology that began in the second half of 2021.

Adjusted EPS from continuing operations for the quarter was <unk> 68 on.

On a comparative Standalone AT&T basis, adjusted EPS was <unk> 62 in the year ago quarter.

The quarter also includes a recurring favorably impact of about $140 million to adjusted EPS from retirement medical benefits plan change.

For the full year, we now expect adjusted EPS from continuing operations to be $2 50 or higher.

Cash from operating activities for our continuing operations came in at $10 1 billion for the quarter up 9% year over year.

Capital investments of $6 8 billion was up $1 $3 billion year over year, and we continue to expect capital investments into $24 billion range for the year.

Free cash flow was $3 8 billion Directv cash distributions were about $1 billion in the quarter.

Overall, we remain on track to achieve our surpassed all of our previously shared financial targets for the year.

Now, let's take a deeper look at our communications segment operating results starting with mobility on slide seven.

Our mobility business continues its strong subscriber momentum and positive profitability trends.

<unk> were up 6% with service revenues growing five 6% driven by subscriber growth.

Mobility postpaid phone <unk> was $55 67.

Up 86% sequentially and two 4% year over year. This continues to come in ahead of our expectations. This is largely a result of benefits from our targeted pricing actions improve roaming trend and more customers trading up to higher price unlimited plans.

With regards to EBITDA, we delivered our highest mobility EBITDA ever year over year mobility, EBITDA increased five 5% driven by wireless revenue growth. We remain confident that mobility EBITDA growth will continue to accelerate through the balance of the year due to revenue growth and the lapping of <unk>.

<unk> network shutdown investments that began in the second half of 2021, So we're really happy with our mobility performance and our consistent strategy is yielding great results.

Now, let's turn to our operating results for our consumer and business wireline on slide eight.

Our fiber growth remained strong and we continue to win share where we have fiber our total consumer wireline revenues are up again this quarter, even with continued declines from non fiber broadband services.

<unk> revenues grew six 1% due to fiber revenue growth and higher broadband <unk> driven by customer mix if the fiber.

Our fiber <unk> was $62 62, and we expect that to continue to improve as more customers roll off legacy promotional pricing and ought to simplified pricing construct.

Looking forward remember that seasonality in the fourth quarter typically result in lower industry net adds we expect EBITDA growth to remain strong on a year over year basis for the balance of 2022.

This will be driven by growth in broadband revenues and the lapping of technology investments that began in the second half of 2021.

Looking at business wireline, we continue to restructure and rationalize our portfolio with a focus on core connectivity, where we have owners economics. In this regard we continue to grow our connectivity services revenue as both <unk> and fiber offerings continue to perform well.

Our enterprise mobility momentum remains strong with business wireless service revenue growth of seven 9% and a sequential increase in our first net wireless base of 334000.

Additionally, we had about $100 million in revenue from intellectual property transactions in the quarter. This is about $80 million more than the prior year.

Context. This is an action we've taken in the past when favorable opportunities arise.

Now I'd like to quickly touch on our capital allocation strategy overall, our priorities remain unchanged and we're largely past the heavy lift of Reorienting, our company's focus on our core connectivity strengths as a result, we've established a more sustainable financial structure that better positions us for the current environment.

We also have enough flexibility to invest in our business, while meeting our financial obligations in the third quarter to $3 8 billion in free cash flow. We delivered was largely in line with our expectations and given the expected timing of our capital investments we feel good about our line of sight to achieving our free cash flow target.

In the $14 billion range for the year.

We are very comfortable with our cash levels after paying our dividend commitment and this should only increase in future years, as we expect cash conversion to improve from here or.

Our results today have only further solidified our confidence that we will exit 2022 stronger than we entered the year in fact, we continue to expect.

And higher free cash flows in 2023.

We also plan to continue to use excess cash after dividends to reduce debt with the goal of reaching a net debt to adjusted EBITDA range of two five times as we typically do we'll provide 2023 guidance when we share our fourth quarter results.

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.

Of course as a reminder, if you have a question today. Please press one then zero on your telephone keypad.

Our first question today comes from the line of Phil Cusick with J P. Morgan. Please go ahead.

Hi, guys. Thank you.

Short and Sweet I love it.

I guess first Pascal the free cash flow bridge to $14 billion just.

To reiterate.

Help us think about.

That as we go into the fourth quarter, you need at least $6 billion and you said capex. It sounds like it's coming down Thats a good part of it.

And then as we think about next year for what you can give us how should we think about things like taxes pension as.

As well as.

The industry overall, and I know you don't want to update it but given how much. The world has changed is that $20 billion free cash flow guide even relevant anymore. Thanks very much.

Hey, Phil.

I appreciate the question good morning.

Maybe let's start.

With regard to the $14 billion. This year the simple way to think about it we delivered $3 8 billion this quarter.

And that is when we spent $6 8 billion in cash and capital.

Next quarter, we reiterated our guidance for the full year 2000, 4 billion. So next quarter that would suggest around $4 5 billion.

And so you do the simple math that gets you exactly where you need to get to for the full year and as a general matter as well the fourth quarter.

Back half of the year.

Always convert at a higher rate than the first half.

So no great line of sight.

In terms of next year, you mentioned the macros that is the very reason why we are not providing updated guidance right now and we're going to stick to our.

Communicated last quarter Matt.

We'll update you at year end, when we report our fourth quarter results with that said as you heard in my prepared remarks.

We expect EBITDA and cash to grow next free cash flow to grow next year.

Just look at this past quarter, we grew cash from continuing ops.

Nearly 10%, so really strong growth organic growth from the business and this is exactly what we anticipated coming into the year. What are the factors that are going to drive improved earnings and cash next year.

Mobility, our mobility business is performing much better than we expected coming into the year our subscriber.

Subscriber basis.

Bigger than we anticipated and RP trends are better.

To fiber.

Fiber is performing really well and.

The mix shift that we're seeing to fiber comes with higher profit margins.

So that's also.

Expected consumer wireline is expect to grow next year.

We should see some moderation in the overall business wireline trends because of the cost efforts that we are.

We are undertaking and then you layer on top of that things like transformation savings more broadly.

Starting the quarter with bottom line as our investments begin to peak.

We get to dissipate over time so.

And lower interest is another factor to keep in mind as we delever.

All that is going to be partially offset by.

Higher cash taxes.

Magnitude I'd say, it's consistent with what we've previously guided and then.

Slightly less.

Phoebe.

Distributions and.

Overall, we feel really good about the trajectory of that business and when you look at an annual dividend commitment.

$8 billion.

Free cash flow.

The model is working exactly as we anticipated.

Yes.

Thanks Pascal.

Okay.

Thanks, very much Phil if we can move on to the next question. Our next question comes from the line of Brett Feldman with Goldman Sachs. Please go ahead, yes.

Thank you for taking the question and it really just sort of two here on fiber. The first is it's great to see it the fiber net adds continue to gain momentum you now have a larger fiber broadband subscriber base and the non fiber, but you haven't quite turned the corner sustainably yet on net positive broadband growth.

Hoping you can comment on how you see the path unfolding. There do you just need a bigger fiber footprint to get there.

And the follow up on that question is there was a report yesterday.

Considering the potential fiber JV I'm sure you're somewhat limited on what you can say so the higher level question would be your existing fiber build has been completely funded out of your cash flow from operations. So if you were looking to do something incremental including with a partner what kind of boxes would you have to check because this is about speed or breath or potentially something else. Thank you.

Hi, Brett.

Sure.

Question.

Certainly a bigger fiber footprint.

Allows us to improve our relative net add performance in broadband.

I think the short answer to your question is for the next several quarters will be in this dance around what I would call at least on the subscriber accounts something close to near zero.

You ought to understand as Pascal just indicated to our yields on fiber customers are of course, much better than our copper customers combination of <unk> churn characteristics and frankly, the operating performance profile, which I know you've observed that there is still room for.

For our margin expansion in the consumer wireline business.

We should be looking at that relative to others in the industry and I think that's an accurate observation over time as we continue to scale that business. It will continue to improve.

Profitability in it but.

We still have several quarters of <unk>.

Looking through the dynamic of.

Getting the legacy dynamics out of the business.

Focusing on the new infrastructure in the growth and.

That's the journey, we're committed to and I think youre seeing that it's got strong economic promises.

Move through that and continue to increase the size of the fiber base.

I don't know that I could add a whole lot to you.

Your question about.

What we might think about in terms of doing other fiber builds that are out of our operating territory first of all I'm not I'm.

Im not committing knowledge or comment specifically on some of the speculation that's shown up in the media.

I think I have shared most recently when I was in Arizona, and we were doing the work in Mesa.

We're evaluating it under many of the same.

Criterion circumstances that we look at within our existing operating footprint number one can we go in and be the first fiber provider and an area to do we believe it's a market where the brand is going to perform and we will get the rate and pace of penetration that we need to make an economic return on it.

Three.

We build because of the dynamics around the particular municipality or area cost effectively and quickly with a relatively low overhead around that and get.

What I would call an operating scale in that geography that warrants the fixed cost infrastructure startup.

And then finally do we think that there is some interplay in terms of having the asset and improving value and our wireless business as we operate in the area as well and it varies into our distribution.

<unk>.

To the extent that we found opportunities like that that had as competitive returns is building in our region. I think the management team would have to evaluate those types of things and think about how it moves forward on them.

I'd tell you as I've indicated as well.

There'll be some federal subsidy moneys coming in in places and we should use that same set of criteria and that same model. As we think about are there opportunities for us to impair our capital with possibly public.

Public capital to open up opportunities that we might not have pursued otherwise.

Okay. Thank you.

And thanks very much.

Alright. Our next go ahead from the line of Simon Flannery with Morgan Stanley . Please go ahead. Thank you very much John you opened your comments mentioning the world faced a period of uncertainty you have been looking at that for a little while it would be great. If you could John on Pascal update us on what Youre seeing real time.

On the business side in terms of cutting back budgets et cetera, and then how that may evolve over the next few quarters as they deal with some.

Some of the stresses from inflation demand and then on the consumer side, obviously, you had called out the DSO issue last quarter just here.

The free cash flow reiterate it this quarter. So perhaps you could update us on payment trends on bad debts, and how we should think about churn here as youre sort of pricing increases sort of mature going forward. Thanks.

Sure Simon why don't I start and then Pascal is welcome to add any color.

Appropriately here.

Look on the business side.

One is I would tell you I think the overriding dynamic and business is actually somewhat disconnected from the economy and that is we're in a.

Secular change to cloud.

We're in a secular change to SDN.

And.

We've talked about that and I've talked about it and Thats one of the reasons, we were repositioning the business segment.

It's one of the reasons why us making sure that we are very.

Careful in how we deploy owned and operated infrastructure that we can handle business workloads on it is so important to us.

When we think about that dynamic we actually play very well into an efficiency story for most established and large businesses and it is a little bit of a painful transition, but over time, we'll get through it and there'll be upside back in our core connectivity business on owned and operated infrastructure.

And Thats simply the private networks that we had previously put out that we're highly managed and highly architected are now moving to SDN based or technologies that are less managed but more bandwidth intensive and we want to play into the uplift on putting more bandwidth.

Intensive infrastructure out there and selling those connections on owned and operated infrastructure, but the enterprise gets efficiency benefit out of SDN because those less managed networks are not as costly to them on an aggregate basis and so I don't I don't think the move from an economic perspective.

If there are budgets that are strapped is necessarily going to impact that transition if it did anything it might slow it down a bit if it slowed it down it would probably frankly be somewhat beneficial to us because margin structures on existing architectures are a little bit more attractive than on new infrastructure.

But if ultimately people view it as an efficiency move and they want to run their businesses more efficiently I think those trends are manifested in what <unk> seen over the last.

Several years in the business and I don't know that they will necessarily adjust as a result of that.

In the small business side, certainly small business formation can be hit during a down economic cycle and I would expect that in the business segment that might be something that we ultimately see occur if there is a more moderate economic.

Economic growth environment.

Once again, unfortunately for us we're under indexed in the small business segment.

We're working to change that and we are demonstrating progress in that regard, but by embedded base of subscribers in that area for what we do and advanced networking.

Is not as strong in the fixed market as I might like it to be so I don't know that will be overly impacted by that we could see some softness in the wireless space or if in fact the economy ultimately.

<unk> did have a little bit harder sledding moving forward that might moderate some wireless growth but.

Look we've been getting more than our fair share in that segment a lot of it's been driven out of first net I don't expect that that trend necessarily debate right now even in a down economic cycle relative to some of your other questions on other economic characteristics and how it impacts the business we've seen no change.

And DSO relative to last quarter.

We are back to pre pandemic levels.

Characterize that for you last quarter, there hasnt been any additional slip.

We I think accurately reflected to you in our guidance what the impact was going to be for the year last quarter, that's still tracking consistently with what we articulated to you.

We're seeing bad debt start to return back to pre pandemic levels.

Certainly we will have to watch that as the economy sours further it tends to correlate to what occurs in the economy, but I see nothing right now that would suggest we're out of pattern on anything we certainly haven't done anything to change credit standards, and our approaches and practices to managing credit quality.

<unk> seen how we performed in the past in that regard, but we have a high quality base that allows us to kind of manage through those dynamics.

Reasonably well if the economy goes one way or the other.

I'd characterized earlier today in some of my public comments churns up a bit it's not out of line with what we expected when we did the pricing changes.

We were able to execute the pricing change in a way that we feel very comfortable with most importantly, the vast majority of our customers are talking to us, they're making adjustments to their plans moving them into higher value.

Lanzet, while having higher <unk> on them returned more value to the customer that allows them to be stickier and longer lives customer.

We think that over the long haul is great on the.

The margin there has been some churn moving out that we expected it's no greater than what we expected. It still makes the pricing changes accretive overall and you certainly have seen that manifested in the numbers and the operations that have come forward.

Great. Thank you John .

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

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

Okay, great. Thanks, guys.

You guys had some real momentum in wireless in terms of subs Aqua and now even margins.

Give us a sense for what kind of visibility you have.

Those three metrics.

To head in the right direction, and then as a follow up.

With the broadband fiber expansion and potentially the off balance sheet JV is there any change in the view on fixed wireless.

Hey.

Both Verizon and T mobile, having a lot of success in selling that product is just your view on that as we head into 2023.

So John I think our visibility is really good I mean, we run our subscription based business and as you know those customer relationships tend to be pretty sticky.

<unk> ships.

We have every ability to understand.

How we are bringing a customer and today and what profitability level theyre coming and we understand the base now the base is performing I think we have.

Reasonable ways to look at some of the dynamics have changed around things like roaming and have visibility toward those impacts and how theyre going to work through.

Just heard my commentary was Simon on some of the bigger drivers of profitability in the subscription business around churn.

How we think about the dynamics associated with that.

So when I look at our ability to kind of understand why we're getting the operating momentum we communicated to you at the beginning of the year that you should expect a back half story on this and you are seeing in the back half story and now we're in the middle of the fourth quarter right now.

We're obviously aware of what our numbers are right now.

I would say we have confidence that we're going to be able to deliver.

Those continued leverage dynamics that we've talked about so.

I feel pretty good about our visibility on that subscription base that we built a quality subscription based and brought in quality customers that are now starting to give us that profitability lift.

As well as well.

We have visibility into our cost structure and all the work that we've done around that and as I've said since the beginning of the year that we would start to see some of that moved to the bottom line.

As we stabilized our promotional position in the market, which I think you've seen us do.

And we are still maintaining market momentum with that and so I feel really good about it.

I don't know that anything has changed in fixed wireless as I said.

<unk> believe that it has a place in our portfolio.

That place is not broad scale deployment in every operating territory and geography that we operate in.

The way I would characterize it I'd, rather take a million new fiber customers. A year, then 1 million new fixed wireless customers a quarter.

The value equation of those million fiber customers is a far superior value equation for the long haul for our shareholders.

And as a result of that we're focused on ensuring that we can continue to grow our fiber footprint and bring on those high value sustainable durable relationships.

Where we're able to have the network infrastructure that matches consumer consumption dynamics now and into the future fixed wireless.

This will be that answer.

A small number of geographies and applications and homes it will not be to our entire nationwide base and so we're investing shareholder money at the front end right now just to drive topline growth that I don't think is sustainable over a 345 year period is not the best use.

And my management team's time and the best use of our scarce capital. The best use of it is to put it against putting and durable infrastructure continuing to bring out a high value wireless customers build our wireless network to be really effective in the next set of applications that are growing.

To be necessary to bring the promise of five <unk> to life as we start to see the dynamics of autonomy and vehicles emerge some of the medical monitoring capabilities private <unk> that starts to work into the enterprise space.

We want our wireless network to be ready to service those workloads and do it in a pristine fashion because we think those revenues will come back with the kind of margin characteristics that we've typically operated the wireless business that and so I feel really comfortable with our balance about that and we will use fixed wireless.

As we move into next year, where it's appropriate to use it but it will not be broad scale.

Great. Thanks, John .

Basketball is missing anything from your perspective there no.

Thanks, very much John and we can move to the next question.

And our 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 I guess, a couple if I could.

I guess the first question Pascale could you talk a little bit about how.

The interest rate environment is affecting the income statement I guess, specifically with respect to probably two items. One is the fixed versus floating and the other would be how the net impact on the pensions.

Is being affected in terms of.

Discount rate for the <unk>.

And then obviously the impact on returns of the portfolio.

The second piece I would ask would be.

On the wireless business.

The dish wholesale arrangement.

It is expected to be kind of a big contributor or a tailwind as we go into the year could you talk about how if at all Thats affected this year's performance to date and how we might expect that to evolve. Thanks.

Okay.

In.

<unk>.

First the interest rate environment.

One of the things that we did over the last.

Two to three years is to really re <unk>.

Rock, our maturity towers and.

Took advantage of historically low interest rates, we were seeing coming out of the pandemic as result.

Right now we have eight eight.

<unk>.

Tower.

We see that.

Pending that are yielding around 4% on average and 95% of it.

And if you look at our maturities over the next several years.

Free cash flows after dividend could largely handle those.

In the instance that.

There are slightly higher towers, we can always roll on a short term basis, but what we've done is we've reconstructed.

The way we are managing capital such that we can really continue.

Renew to Delever over the next several years without any meaningful need to go out to market to raise cap raise debt so that.

First right in terms of pension mark to market.

In terms of pension.

Big picture from a cash standpoint for the foreseeable future.

Let's talk the next decade is probably no need to fund the pension plan now with that said there is.

The discount rate coming down we've had some.

Going up we've had some big gains that we normalize out of our earnings on a.

Going through next year, I would expect higher pension expense because of.

The fact that now we have we're going to be discounting at higher interest rates.

But all in all those are noncash pieces.

When we think about the long term.

Profile up operating this company.

Most important to us.

There is no need to go out upfront perpetual.

Future.

And in terms of the <unk>, it's not a meaningful contributor this year, we would anticipate as we look out the next several years it should it should ramp up and we feel really good about the overall arrangement with this.

Thanks, so much thanks, Greg Thanks, very much operator.

Operator, if we can move to the next question.

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

Thanks, just a taking a little bit more to wireless.

And patients.

It was flagged that business wireless service revenue grew 8% year over year and I think in total was around 6%. So curious if you could unpack a bit more of the difference in trends that you're seeing between the two.

Massage of wireless in the consumer side of wireless.

And then you guys were talking about the next stages of five G any opportunities.

I was reading the press release that you are flagging the success of Iot and connected device volumes.

And curious if you could unpack that a little bit more in terms of.

I think the automotive industry was one place you referenced in the release on success, where you're seeing success in those verticals and are you seeing any kind of inflection in <unk>.

Medium term, where <unk> Iot opportunity.

Become more expansive for AT&T any industry.

Sure Mike Let me see if I can get your first question I think I understand what Youre looking for if I don't quite hit. This then feel free to follow up with me, but.

Look there is no two businesses or like is the first thing I'd tell you.

So as you look at kind of how you would characterize the relative profitability of our business subscribers coming on a lot depends on which segment youre looking at.

I would tell you generally speaking.

Our highest <unk> dynamics tend to occur in the consumer market.

When you kind of look at what we're able to do in family plans structures and what occurs there are growth in business still highly profitable growth.

But under some con strikes like what we are able to do with first net.

Approaches.

As you would expect people who buy at larger volume tend to get better rates and so you see that ultimately flow through where maybe your <unk> dynamics around business.

Are going to be a little bit less than what they might be in a consumer segment, where people aren't able to buy at that kind of volume.

Now having said that you are looking at our overall ARPA trends and youre seeing them improve.

And start to accrete to grow and Thats.

Yes.

<unk> is the fact that while we are doing very well and the business segment, taking share we're still growing <unk> in aggregate.

Despite that those differences.

And the average <unk> and what's occurring.

Were still managing to grow that <unk> dynamic overall.

That's a healthy place for us to be right now and as you've seen our margin structure relatively stable as we go through this this quarter and Thats whats helping of course on some of the cash yields.

On the Iot side look our mainstay of profitability in Iot comes in vehicles that really hasnt changed.

I don't expect in the near term over the course of what I would call the guidance and planning cycle that thats going to demonstrably change moving forward I think there's a good opportunity for us to find the next level of growth in automotive and I think we given our strong position in that market today are well positioned to continue.

<unk> to work in that regard and I think when you when you think about each vehicle out there and the intensity of communication thats going to occur there is an opportunity for growth in that space to build on.

That's one of the most attractive areas that we'll continue to push and do I think that over time that in the spaces of manufacturing in medical devices that Theres also an iot opportunity to develop that as we get beyond what I would call the planning and guidance cycle that we gave you.

I do but I don't think those are going to be the kind of thing that as we characterize an update for you for 2023 youre going to see those factor in any meaningful way.

Business to business revenues that you look at and say that they are pattern changes overall, hopefully thats responsive to your questions. Mike If you want to refine the first one feel free to follow up here.

Thanks, its very helpful and I was just thinking Steven on the top line service revenue side with business service revenue growth faster than the overall and then implicit.

Consumer.

Is that something that you would expect to continue.

It's.

It's just going to be a bigger contributor to the wireless business going forward.

I do expect that's going to be the case, because as we've shared with you.

We have a number of dynamics going on in our distribution strategies.

That have driven that and this is.

We keep saying I'm not sure is fully being processed that.

Our stance in the market and how we're offering in the market is not just driven by a promotional device stance. This is partly driven by we have managed to shift our distribution strategy and our approach into the market and we're doing better in these segments.

These are not sales that are necessarily being driven by people walking into stores taken an upgrade on a device.

That's why our overall profitability dynamics are shifting in the way they have been and we've been able to give you some visibility to how thats occurring and when were successfully taking share in the public sector undertakings like first net and when there is affinity dynamics.

<unk> to work into that into households, the first responders.

And when we're more effective at tuning our distribution in the mid part of the market for business and where we've historically done you are going to see faster growth for us in the business segment and I think the results speak for themselves of what we're able to bring in.

Relative to the balance of the industry on that.

Thanks.

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

And our next question comes from the line of <unk> <unk> with Barclays. Please go ahead.

Sure.

Yes.

A couple of equity I mean first on the fiber side.

We've seen penetration growth.

No and then obviously the absolute number keeps growing and accelerating every quarter sequentially, but then when we look at it in terms of penetration rate.

I think it's not a little bit worse than what you were able to achieve last either so it would be good to understand.

What are the puts and takes data and how we should expect that.

As we go forward.

And then I guess from appropriated question has been non fiber decline data is also accelerating and so yes.

How much of the growth that you're seeing in fiber is on account of transference from maybe.

The non corporate site to the fiber side.

And lastly, just back.

Gatlinburg plenty begin preclinical data for next year could you give us a sense of what kind of.

Macro variables are being assumed.

For that guidance in terms of.

Potential recession.

Click environment in general Thanks.

So let me take the first part of your question and then ill.

Pascal do some clean up here.

So.

First of all what you should expect is that over the lifecycle of the build and I think we've been pretty clear on giving you insights into this.

Let's call it the first 30% of penetration goes.

Relatively quickly in the next 20% takes a little bit longer and so it would be natural.

But as we build.

But when you kind of get yourself to a 30% penetration rate youre going to see that curve.

<unk> to slow down a bit and thats to be expected.

The biggest changes occurred in penetration is how quickly we're getting to the 20% level.

Versus historic numbers and as we shared with you previously we've kind of doubled our pace the penetration of the front end of that curve and I'd also share with you that if you look at a typical return characteristic cash flow analysis of the investment of fiber there are effectively.

Three big things that drive that return dynamic and how effective the returns are.

One of which is rate of penetration.

And when we did the original assumptions on kind of our fiber business case, we had a much more ratable.

And deliberate ramp into that first 30% of subscribers and the business case and now what we managed to do is we manage effectively take a year off the cycle to get to the 20% Mark that has a huge impact on accelerating cash flow.

As to the front end of the business case, and it has a meaningful impact on the characterization of returns even if you don't increase the ultimate assumption on what the terminal penetration is.

And so I would tell you we've already kind of had success in that regard we characterize that for you, but we've not made any assumptions that once you hit that 30% level that the back end is going to go any faster and so I think youre going to see a degree of penetration slowdown as we kind of hit that.

30% and that's to be expected, it's been historic and that.

Doesn't mean, it's a bad thing it just takes a little bit longer to kind of get to what I would call as the market norm.

And kind of stability of how we expect shares to be allocated between the various players in the market.

So hopefully that gives you a little bit of sense on that.

We don't publicly disclose.

The transfer rates and kind of what's going on there.

But.

<unk> got enough public information that we shared with you.

I think you pretty well can we conclude that if we're turning in the kind of numbers we're turning in.

There's got to be a meaningful percentage of that total fiber increased number that's coming from competitors in order to deliver the number and we watch it we track it closely I think both are good right because what we know that any customer we moved from legacy or <unk>.

<unk> infrastructure or to fiber becomes a new established long term customer with us they're not going anywhere once we get them on fiber, but most importantly, we don't turn in the kind of numbers. We communicated to you this quarter unless we're doing something thats moving share in the market and we all know where that share.

It has to come from it's coming from in almost all cases, the embedded cable provider.

And cannot.

Our free cash flow.

Earlier, we're not updating our guidance for 2020.

But.

What I did say.

Over three quarters of the way through this year and based upon our view of.

The macros and all the potential risks, we expect this business to grow.

<unk> and free cash next year and for all the regions.

Articulated earlier on and in terms of just the broader macro look.

We're not immune to them, but these businesses are generally more resilient.

Even in an economic stress situations. So overall I mean, we will give you an update next year.

Okay. Thank you.

Thanks, very much con.

Operator move to the next question.

Of course, our next question comes from the line of Frank will then with Raymond James. Please go ahead.

Great. Thank you very much with your success with wireless.

Just wanted to be clear how are you thinking about the promotional activity going forward.

Any need to back off some of that promotional activity you are clearly seeing good strong margin improvement without that.

And then I had a follow up question on the fiber JV.

Not wanting to comment on the story, but conceptually would you be open to some outside investment to possibly reach some of those areas in your territory that arent necessarily economical with your own capital going forward. Thanks.

Frank Thanks for asking a quarterly question on whats sustainable it was sustainable for another quarter and Thats been two and a half years now.

Let you know next quarter.

Two years, two and three quarter years, so I feel really comfortable with where we are I think youre seeing the the strategy play out.

I look at where the market sits today and I'll reiterate what I said earlier in the call.

We're not the one out there at $1000 for new iphones right now.

We are a different place than I believe both of our primary competitors.

And I also characterize for you.

Need to understand a lot of our growth is not coming from what we have is offers that were communicated in the market.

Mike's question is a really important question, but looking at the consumer business mix.

When we think about how we're spending our promotional dollars.

I characterized for you on the Goldman conference that there is a lot of other aspects of promotion.

Advertising gets done how heavy you have to be to communicate your message if youre doing a more promotional stance.

What you have to do in your channels to Incent people to sell and change things.

The formula in the mix, we have is a very competitive formula in mix right now across consumer and business across our mix of promotional strategies, our distribution partners and one should not just simply say because of the lead offer that's being communicated and mass advertising is X.

Ask whether or not thats sustainable that question is our customer acquisition cost sustainable Youre seeing the profitability improvement you are seeing the <unk> improvement and I think that's a pretty sustainable equation I am not going to comment on our fiber JV structure I will make an observation Frank it's my duty.

To always keep our mind open to new ideas.

It's my responsibility and running the business. So that there is an opportunity for us to do something that's in our wheelhouse. That's in the strength of the capabilities that we have as a company and its core and foundational to our brand to try to ensure that we seize those opportunities to move forward on them.

Certainly have a past practice.

Our wireless business was built with partners I think you should understand look back and we.

We've done that effectively in the past and things that we've done and we've done it in a responsible way for shareholders and thats been a means for us to think differently about how footprint expansion can be done.

We certainly use that kind of an approach before we understand how the approach works I think about it and aspects to all kinds of elements of our business and I've got to keep an open mind to those things moving forward.

Thank you very much very helpful. Thanks.

Operator, we have time for one last question.

And that question comes from the line of Walter Paycheck with light shed. Please go ahead.

Thanks.

John .

When I look at postpaid, which is probably the primary focus for the.

Company.

You increased revenue or its accelerated from the past eight quarters. So I guess when I look at the first part of that you've kind of referenced that in the last question we were talking about.

Our wellness.

Talking about the handset promotions that you saw very good subscriber growth and a sustained and now when we look at the past year. It's been in part on price increases to some of the legacy plants. So now you've got this whatever 66% growth in postpaid.

If you just sustain that going forward that are probably beat consensus.

You, probably don't need the Spanish, but when you look at 'twenty three.

Is it going to be a component of more price increases where.

What do you think subscribers are going to help.

And my second question, which is related.

As part of the ARPA increase for others was funneling and.

Netflix or HBO.

HBO Max that you've cut.

And I think in June 1st for new customers, maybe thats been helping your profitability on our now but.

Is is there an opportunity to repackage some of these streaming services into.

Youre offers in order to get ARPA, even higher.

So well.

I appreciate the question first of all.

I think it's important.

You look at the disclosures on what we've given you for the quarter.

As you know Theres always some one time things that pop into a given quarter that that drive the numbers I think your overall characterization is accurate, which is we're improving the yields of the revenue growth to what falls to the bottom line on EBITDA I'm not going to suggest that.

Simply because we're going to get 6% revenue growth that we should expect that we're going to immediately get to 6% yields but you've seen those yields improving each quarter. We have a lot of confidence that that's going to continue to occur and it's consistent with the guidance that we've given.

Moving through the balance of this year and I think we have really good visibility for that improvement to happen and there is a lot of factors that move into that one of which is managing the cost structure more effectively in 'twenty three.

Look I don't know exactly what the environment is going to be and I'm not going to announce anything today in the market.

We will announce any changes we make in the market when it's time to change it.

But when I look at the reality of the inflationary environment and understanding.

And this kind of a rapid inflation environment do you need to manage the revenue side of the equation as well as your managed cost side of the equation. The answer to that is yes, I think thats, what a responsible management team does.

Exactly what level, we choose to pull the artifact of the environment, we find ourselves in but I can assure you. The team has sat down and as we've looked at planning and as we prepare to give you guidance for the year. We will ensure that we have the right options and levers available to us to adjust to that.

And as I said, we've got to work both sides of that equation.

I'm not going to tell you today that our pre announce a set of tactics or strategies around that especially on things that are relative to how we price in the market.

On the content side.

I don't think we've gotten any benefit Walt from from content relative to the industry, we still have a lot of customers.

Get content bundled into their services and we still view that as an important aspect of how we compete in the market and as I think I shared last quarter I would expect going forward that we will have opportunities.

To incorporate content offerings in different ways into our portfolio, we still view our relationship with <unk>.

Warner Brothers Discovery and HBO Max is being unimportant wanted it's been.

Valuable and effective for us, but there's also others that could be worthwhile and beneficial to us.

We're adjusting our strategies as we move into 'twenty, three I think youll see some things adjust and change as we do that.

I think I'd say stay tuned I think youre going to see content and sillery services continue to be part of the wireless bundle in the industry moving forward I think we will play in a prudent fashion and our overall promotional dynamic as I said earlier, managing effectively as part of that overall cost structure.

And it will allow us to do a number of flexible things now that we don't necessarily have a captive content engine so to speak under the umbrella of AT&T.

Thanks very much for the question.

And thank you everyone for your participation and interest in AT&T with that we'll conclude the call and look forward to connecting again Costar fourth quarter results.

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

Yes.