Q4 2024 AT&T Inc Earnings Call
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Speaker Change: Good morning, and welcome to AT&T Sports Quarter 2024 Earnings Call. At this time, all participants are in listen-only mode. Should you need assistance during the call, please press star then zero, and an operator will assist you offline. Following the presentation, the call will be open for questions.
Speaker Change: If you would like to ask a question, please press star then 1 and you will be placed in the question queue.
Speaker Change: If you are in the question queue and would like to withdraw your question, you can do so by pressing stars and two. As a reminder, this conference is being recorded. I would now like to turn the conference call over to your host, Brett Feldman, Senior Vice President, Finance and Investor Relations. Please go ahead.
Speaker Change: Thank you and good morning. Welcome to our fourth quarter call. I'm Brett Feldman, Head of Investor Relations for AT&T.
Speaker Change: Joining me on the call today are John Stankey, our CEO, and Pascal Desroches, our CFO.
Speaker Change: 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.
Pascal Desroches: With that, I'll turn the call over to John Stankey. John?
Thanks Brett
Pascal Desroches: I appreciate you joining us. I hope you'll find there aren't going to be any surprises on today's call. We finish 2024 strong, like we said we would at our Analyst and Investor Day in December.
Pascal Desroches: We achieved full year results that are in line or better than all the consolidated financial guidance we provided at the beginning of the year.
Pascal Desroches: Before I cover our accomplishments, I'd like to extend my heartfelt sympathies to everyone in Southern California.
Pascal Desroches: are thoughts and prayers with all those people whose lives, homes, and families have been deeply impacted by the most destructive wildfires in modern U.S. history.
in these moments.
Pascal Desroches: The importance of connection becomes increasingly apparent and I'd like to thank our teams
Pascal Desroches: for their commitment to keeping customers, communities, and first responders connected.
Pascal Desroches: in the face of this historic devastation. Now, turning to our 2024 performance, our team delivered another solid year as they again drove durable 5G and fiber subscriber growth.
Pascal Desroches: In mobility, our consistent go-to-market strategy continues to resonate as more customers are choosing and staying with AT&T. Last year, we had about 1.7 million postpaid phone net additions with service revenue growth of 3.5%.
Pascal Desroches: We also expect to lead the industry in post-paid phone churn for the 14th time in the last 16 quarters.
Pascal Desroches: and to lead the industry on an annual basis for the fourth straight year.
This is an impressive winning run in wireless.
Pascal Desroches: And as you've heard me say before, where we have fiber, we win as well.
Pascal Desroches: It's clear that fiber is the best broadband alternative technology available. This was validated by UQA just last week, when they named AT&T Fiber America's fastest internet with the most reliable speeds.
Pascal Desroches: Following another strong quarter for both AT&T Fiber and AT&T Internet Air, we've now achieved six consecutive quarters of positive broadband net ads.
Pascal Desroches: Once again, we demonstrated our ability to grow in a healthy and sustainable manner by adding valuable subscribers while simultaneously simplifying experiences and processes for our customers and employees.
Pascal Desroches: You see the results of these efforts and the margin expansion and free cash flow growth we delivered in 2024, as we outlined at our Analysts and Investors Day.
We expect these trends will continue.
Pascal Desroches: Our investment in 5G and fiber is fueling this sustained growth. This is why we're so focused on building a durable franchise for the long term.
Pascal Desroches: Our deliberate and balanced approach to capital allocation is putting us on a strong foundation to deliver attractive returns for years to come.
Pascal Desroches: With about $22 billion in capital investment last year, we again invested at the top of the industry as we continue to focus on building the largest, highest capacity, lowest marginal cost, converged broadband network in the country.
Pascal Desroches: Investing to build a truly differentiated network will provide long-term benefits to AT&T and the many customers, businesses, and communities we serve.
Pascal Desroches: If the new Trump administration is successful in extending expiring tax incentives this year, we feel there's ample opportunity for even more investment in U.S. communications infrastructure.
Thank you for your time.
Ultimately, we did what we said we would last year.
Pascal Desroches: As a result, we exited 2024 in a stronger, competitive position.
We still have a few things to accomplish.
Pascal Desroches: In 2025, we'll focus on executing against the priorities we laid out at our Analysts and Investor Day.
This starts with our customers.
Pascal Desroches: We plan to grow 5G and fiber subscribers by offering an elevated customer experience with a compelling opportunity to enjoy both of these connectivity services from one provider.
Pascal Desroches: In December, we established a new $3 billion plus run rate cost savings target that runs through the end of 2027.
Pascal Desroches: In 2025, we'll make progress on this goal by further integrating AI throughout our operations.
Pascal Desroches: We also expect to realize cost savings as we evolve our technology stacks.
Pascal Desroches: Last month we received FCC approval to begin the process to stop selling, transition, and discontinue legacy voice services in a small number of wire centers utilizing our AT&T phone advanced service as a replacement.
Pascal Desroches: This was an important first step to establish a template that supports a deliberate and planned transition to a more capable and modern communications infrastructure.
Pascal Desroches: Within the next few weeks, we will make detailed filings with the FCC to stop selling legacy products and about 1,300 wire centers.
Pascal Desroches: which is about a quarter of the wire centers across our footprint.
that stimulate investment and modernization of the U.S. communications infrastructure.
Pascal Desroches: on the investment front. We anticipate capital investment in the 22 billion dollar range again this year because we invest in modernizing our wireless network.
expanding where we're able to offer fiber.
Pascal Desroches: We also expect to achieve our target of net debt to adjusted EBITDA in the two and a half times range in the first half of this year.
Pascal Desroches: This keeps us on pace to commence common stock repurchases using our initial board-approved tranche of approximately $10 billion during the second half of 2025.
Pascal Desroches: This is part of a broader $40 billion plus shareholder return plan that we expect to deliver over the next three years, which includes more than $20 billion in total dividend payments and an overall capacity for about $20 billion in share repurchases.
Pascal Desroches: Under this plan, we also have an additional $10 billion in incremental financial flexibility to pursue strategic opportunities, improve our balance sheet, or deliver further capital returns to shareholders.
Now
Pascal Desroches: Before I wrap, I'd like to finish where I started, with the customer.
Pascal Desroches: briefly share how the AT&T guarantee builds on the vision we shared with you in December
Pascal Desroches: Over the past several years, we've pivoted the AT&T brand by using our deep knowledge and insights to orient our services around putting our customers and what they want first.
Pascal Desroches: This has led to improvements in how customers feel about AT&T, as evidenced by our broadband customer satisfaction leadership, our improving wireless net promoter scores, and our overall continued low churn.
Pascal Desroches: After over a year of research and preparation, we are taking the important step to establish a platform to differentiate our brand in the marketplace with the AT&T Guarantee.
Pascal Desroches: AT&T is the first and only telecommunications company to offer a guarantee for both its wireless and fiber network.
Pascal Desroches: AT&T Guarantee is a bold promise to our customers that we will deliver connectivity that they can depend on, deals they want, and the prompt, friendly service they deserve.
or we'll make things right if we fall short.
Pascal Desroches: With the AT&T Guarantee, customers have peace of mind that the company stands behind our products and services.
Pascal Desroches: in a way that no one else in our industry is doing.
Pascal Desroches: Our guarantee is a truly converged, full company effort. It spans across both wireless and fiber, covering both consumers and small businesses.
Pascal Desroches: And with Enterprise customers, we remain committed to providing high quality service in our contractual agreements as we always have.
Pascal Desroches: We are able to offer this unique promise to our customers because we own and operate scaled 5G and fiber networks where we control the network architecture, operations, and end-to-end customer experience. This allows us to provide a proactive and compelling customer guarantee that's tough to beat.
Pascal Desroches: in an internal operating posture that focuses all of AT&T's employees on getting it right for our customers.
Pascal Desroches: We feel confident that our customers will repay us with loyalty and we can attract new customers as well.
Pascal Desroches: So, in summary, we have a clear strategy in place to advance the plan we shared in our Analyst and Investor Day. We have the right people, capabilities, and differentiated assets to achieve our goals in 2025 and beyond. With that, I'll turn it over to Pascal. Pascal?
Pascal Desroches: Thank you, John, and good morning, everyone. Let's start by reviewing our fourth quarter financial summary on slide 8.
Pascal Desroches: Overall, we're really pleased with how our team closed out the year as we continue to grow subscribers profitably.
Pascal Desroches: Fourth quarter revenues were up nearly 1%, largely driven by wireless service and equipment revenues, as well as broadband revenues.
This was partly offset by a decline in business wireline.
Pascal Desroches: Adjusted EBITDA for the quarter was up 2.2% as growth, primarily in mobility and consumer wireline, were partially offset by declines in business wireline.
Pascal Desroches: Adjusted EPS was 54 cents in the quarter in line with the prior year despite four cents of below the line net headwinds that we outlined at the beginning of the year.
Pascal Desroches: Fourth quarter free cash flow was $4.8 billion, which included about $1.1 billion in pre-tax DirecTV distributions.
Pascal Desroches: Fourth quarter cash from operating activities came in at $11.9 billion, up about $500 million year-over-year.
Pascal Desroches: Beginning with the fourth quarter, all cash distributions from DirecTV are now reported within cash from operating activities.
Pascal Desroches: However, as a reminder, starting with our first quarter of 2025 results, we will exclude all cast received from DirecTV from reported free cast flow.
Pascal Desroches: Fourth quarter capital expenditures were $6.8 billion with capital investment of $7.1 billion. We delivered a strong financial performance during the quarter while absorbing strong impacts that were slightly higher than the estimate we provided on our third quarter call.
Pascal Desroches: Now, let's take a look at the results we delivered against our 2024 financial guidance on slide 9.
Pascal Desroches: For the full year, we achieved all our consolidated financial guidance.
Pascal Desroches: We expect the mobility service revenue growth in the 3% range and achieve growth in the 3.5% range primarily by growing profitable customer relationships.
Pascal Desroches: In Consumer Wireline, we met our target of 7% plus growth in broadband revenues driven by fiber revenue growth of nearly 18%.
Consolidated
Pascal Desroches: grew 3.1% for the full year compared to our expectation of growth in the 3% range.
Pascal Desroches: Adjusted EPS for the full year came in at $2.26, which is slightly better than the high end of the $2.20 to $2.25 range we provided at our Analyst and Investor Day.
Pascal Desroches: As we shared previously, in 2025, we plan to report adjusted EPS excluding DirecTV.
Pascal Desroches: When excluding approximately 31 cents related to equity in net income of DirecTV, full year adjusted EPS in 2024 was $1.95.
Pascal Desroches: Capital investment for the full year was approximately $22 billion, consistent with our guidance at the high end of the $21 to $22 billion range.
Pascal Desroches: On free cash flow, we delivered slightly better than the midpoint of our guidance in the $17 to $18 billion range, with full year free cash flow coming in at $17.6 billion.
Pascal Desroches: In 2025, we also plan to report free cash flow excluding DirecTV.
for comparison.
Pascal Desroches: 2024 free cash flow was $15.3 billion excluding approximately $2.3 billion of after-tax cash distributions from DirecTV.
Pascal Desroches: Now, let's look at our mobility operating results on slide 10.
Pascal Desroches: Our mobility business continues to deliver strong results, growing both revenues and EBITDA for the seventh consecutive year.
Pascal Desroches: We posted 482,000 post-paid phone net ads in the quarter as we continue to successfully add high-value subscribers.
Pascal Desroches: Mobility revenues were up 3.3 percent for the quarter with service revenues also up 3.3 percent.
Pascal Desroches: Fourth quarter mobility EBITDA was up about 500 million or by 6.1% driven by growth in service revenues.
Pascal Desroches: Similar to recent quarters, about 100% of the year-over-year growth in our mobility service revenues flow through to EBITDA.
Pascal Desroches: This is the result of sustained low churn in our focus on driving operating efficiencies.
Thank you.
Pascal Desroches: For the full year, mobility EBITDA grew 6.3%. This is consistent with our guidance for growth in the high end of the middle single-digit range.
Pascal Desroches: Mobility Postpaid Phone ARPU was $56.72 in the fourth quarter, up nearly 1% year-over-year. ARPU growth continues to be largely driven by our targeted pricing actions and from plan mix.
Pascal Desroches: Post-paid phone churn for the quarter was 0.85%, up one basis point versus the prior year, while the upgrade rate declined 10 basis points to 4.6%.
Pascal Desroches: Customers reaching the end of their device promotions return to a more normalized level on a seasonal basis in the fourth quarter, and we expect this to continue during 2025. In prepaid, our phone churn was less than 3%, with cricket phone churns substantially lower.
Pascal Desroches: Similar to last year, our 2025 guidance anticipates a healthy wireless market with further normalization of net ads and overall activity levels.
Pascal Desroches: We're confident that our mobility business will deliver solid performance again in 2025, and we continue to expect full-year growth in service revenues in the higher end of the 2% to 3% range and EBITDA in the higher end of the 3% to 4% range.
Pascal Desroches: Now, let's move to Consumer Wireline results, which are on slide 11. Our Consumer Wireline business again delivered strong performance with 307,000 AT&T FiberNet ads, our highest ever during the fourth quarter.
Pascal Desroches: This solid subscriber growth reflects durable demand for AT&T Fiber as a result of its superior experience, as well as the increased pace at which we've been expanding customer locations served by our Fiber network.
Pascal Desroches: We also believe we benefited from some pent-up demand following a one-month work stoppage in the Southeast during the third quarter.
Pascal Desroches: AT&T Internet Air continues to perform well in the marketplace. We added 158,000 AT&T Internet Air consumer subscribers in the quarter and totaled more than half a million net ads for the full year.
Pascal Desroches: Our combined success with AT&T Fiber and AT&T Internet Air continues to more than offset declines in our legacy copper subscriber base, which helped us achieve 123,000 total broadband net ads in the quarter.
Fiber ARPU was $71.71.
Pascal Desroches: up $1.35 sequentially and 4.7% year-over-year. The improved trend in fiber ARPU growth in 4Q was driven by pricing actions and favorable plan mix.
Pascal Desroches: Fourth quarter broadband revenues grew 7.8%, driven by fiber revenue growth of 17.8%.
Pascal Desroches: In 2025, we expect fiber revenue growth in the mid-teens, which is consistent with the multi-year guidance we provided at our Analysts and Investors Day.
Pascal Desroches: Consumer wireline EBITDA grew 9.8% for the quarter and 10% for the full year, which exceeded our guides for full year growth in the mid to high single digit range.
Pascal Desroches: This was driven by growth in high-margin fiber revenues and by our ongoing transition away from providing service over our legacy copper network.
Pascal Desroches: We expect these dynamics to continue in 2025 and to drive consumer wireline EBITDA growth in the high single to low double-digit range.
Pascal Desroches: And while our fiber investment is delivering strong returns on a standalone basis, it's also benefiting our mobility business as we add more Converge customers.
Pascal Desroches: Our AT&T Fiber penetration is 40% today, with 4 out of every 10 AT&T Fiber households also choosing AT&T as their wireless provider.
Pascal Desroches: Both these metrics improved by about 100 basis points versus the prior year, reflecting strong demand for our fiber and 5G services together.
Pascal Desroches: As we discussed at our Analyst and Investor Day, over the long term, we expect to grow our fiber penetration and our penetration of converged services within our fiber footprint.
Now, let's turn to Business Wireline on slide 12.
Pascal Desroches: In the quarter, business wireline revenues declined 10% and EBITDA was down 22%, primarily due to continued industry-wide secular declines in legacy services.
Pascal Desroches: For the full year, business wireline EBITDA declined 18%. This is in line with the latest guidance we provided for declines in the high teens range.
Pascal Desroches: For full year 2025, we expect business wireline EBITDA to decline in the mid-teens range.
Pascal Desroches: In the fourth quarter, our business solutions wireless service revenues grew three and a half percent, which is faster than our overall growth in mobility service revenues.
Pascal Desroches: FirstNet continues to be a consistent growth category for us, with wireless connections up about 300,000 sequentially, and we ended the year with more than 6.7 million total connections.
Pascal Desroches: Now, let's move to slide 13 for an update on our capital allocation strategy.
Pascal Desroches: In 2024, we were able to strengthen our balance sheet while maintaining industry-leading capital investment.
Pascal Desroches: For the full year, we reduced net debt by $8.8 billion, and during the fourth quarter we reduced net debt by $5.7 billion sequentially.
Pascal Desroches: Fourth quarter net debt included a 2.4 billion dollar non-cash FX benefit related to our foreign denominated debt. However, there was no net balance sheet impact as there was an offsetting FX loss related to associated hedges.
Pascal Desroches: Another item that contributed to the reduction of net debt in the fourth quarter was the completion of a distribution of about 1.5 billion in cash from previously restricted assets.
Pascal Desroches: This is reflected in cash from investing and therefore did not impact our reported free cash flow.
Pascal Desroches: As a result of our adjusted EBITDA growth and strong cash generation, we ended 2024 with net debt to adjusted EBITDA below 2.7 times. Additionally, we lowered vendor and direct supplier financing, which more than offset
Securitization Facilities for a net reduction of $400 million year-over-year.
Pascal Desroches: Over the past two years, we've reduced our vendor financing balance by about $4.7 billion.
Pascal Desroches: Our efforts to reduce vendor and direct supplier financing have helped us to lower our interest expense and to improve the quality and readability of our cash flows.
Pascal Desroches: Given these efforts, we feel good about our combined vendor and direct supplier financing levels.
Pascal Desroches: and do not expect to materially reduce them on a year-over-year basis in 2025. We continue to expect to close the sale of our 70% state and direct TV to TPG in the middle of this year.
Pascal Desroches: Since signing this agreement, we have received $1.7 billion in pre-tax cash distributions from DIRECTV and expect to receive an additional $5.9 billion in after-tax cash payments related to this transaction through 2029.
Pascal Desroches: This includes $5.4 billion that we continue to expect this year. The strength of our operating trends
Pascal Desroches: Growth in our free cash flow and improvement in our balance sheet have positioned us to increase our capital returns to shareholders.
Pascal Desroches: As discussed at our Analyst and Investor Day, we expect to maintain our dividend per share and to begin share buybacks in the second half of 2025 once we're in the two and a half times range for net debt to adjusted EBITDA.
Pascal Desroches: Our operating momentum and capital allocation framework positions AT&T to drive shareholder value through a combination of capital appreciation and capital returns in 2025 and beyond.
Now, let's cover our 2025 Financial Guides.
Pascal Desroches: Our outlook for the year is unchanged from the guidance we shared at our Analyst and Investor Day. But I'd like to highlight a few key drivers of our guidance for adjusting EPS and free cash flow in order to help you with your modeling.
Pascal Desroches: As mentioned earlier, beginning in the first quarter, we plan to report adjusted EPS and free cash flow excluding Direct TV due to the pending 2025 disposition of our equity investment.
Pascal Desroches: On this basis, our guidance anticipates growth in both of these metrics this year, driven primarily by our outlook for growth in consolidated adjusted EBITDA of 3% or better.
Pascal Desroches: Our Adjusted EPS Guides for 2025 of $1.97 to $2.07 also assumes depreciation and amortization expense in 2025 to be slightly higher than 2024.
from Continued Investment in our 5G and fiber networks.
Pascal Desroches: Lower interest expense from lower debt balances and an effective tax rate around 23 percent.
Pascal Desroches: Our planned share repurchases starting later this year are not expected to materially benefit RHS CPS in 2025.
Pascal Desroches: Looking a little further ahead, we continue to expect adjust CPS to grow at a double-digit CAGR from 2027 as outlined at our analysts and investor day.
Pascal Desroches: This is driven by our outlook for annual adjusted EBITDA growth of 3% or better, as well as accumulating benefits of reducing our share count through planned share repurchases.
Pascal Desroches: It also assumes lower depreciation expense beyond 2025 as we complete our wireless network modernization and take legacy assets out of service.
Pascal Desroches: Are guides for $16 billion plus of free cash flow this year assumes lower cash interest from lower debt balances?
Pascal Desroches: the absence of network termination fee payments in 2025 and lower working capital impacts in 2025 compared to 2024.
Pascal Desroches: Collectively, these items, as well as our anticipated adjusted EBITDA growth, are expected to more than offset an increase in cash taxes.
Pascal Desroches: Excluding Direct TV, we expect 2025 cash taxes to be $3.3 billion, which is up about $1.5 billion from 2024 on a comparable basis.
Pascal Desroches: This expectation is based on current tax law, including the continued phase-out of bonus depreciation. We also expect that our free cash flow will continue to have a more readable profile over the course of the year. As a reminder,
Pascal Desroches: We typically see seasonally lower free cash flow in 1Q, primarily driven by the timing of device payments and annual incentive compensation payout.
Pascal Desroches: Also, keep in mind that DirecTV contributed $500 million to last year's first quarter freecast flow.
Pascal Desroches: We're excited about our outlook for the year and beyond. We're reiterating all the long-term financial and operational guides we shared at our Analyst and Investor Day in December.
Speaker Change: Brett, that's our presentation. We're now ready for the Q&A. Thank you, Pascal. Operator, we're ready to take the first question.
Speaker Change: Thank you. We will now begin the question-and-answer session. To ask a question, press star then 1.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star 102.
Speaker Change: Today's first question comes from John Hublick with UBS. Please go ahead.
John Hublick: Great. Thanks, guys. John, maybe a couple of quick regulatory questions for you. First of all, on the regulatory filing about the legacy products,
John Hublick: Are there any direct cost savings that would come with this that you could potentially see in 2025 if that's successful?
John Hublick: And I think this is probably the first step in terms of heading towards the decommissioning of that copper infrastructure. How would you expect the sort of steps to proceed if you're successful with that filing? So that's number one.
John Hublick: And then number two on tax reform, one, you know, just what's your view on the chances of getting that through? And you mentioned that you could go a little faster with some of the CapEx. Would that be a 25 issue or 26? And what are some of the areas you think that you could do more spending and accelerate the plan? Thanks.
Speaker Change: Hi John, good morning. So the legacy filings, first of all, what you should understand is as we laid out our new cost savings objectives for you over the next three years, as we discussed in the analyst aid, as we gave you that detail, you can see that we are expecting that we're going to make progress.
Speaker Change: in taking those costs out of the business, and that's a key foundational element.
Speaker Change: to those estimates. So what you would expect here in this filing is we've kind of factored all those into the guidance we've given you and the timing of those things.
Speaker Change: how long it takes us to recognize that, but these are...
Speaker Change: You know, so these are not things like you file and 90 days later you're starting to see a dramatic shift or a step function shift in cost. These are what gets us to our objectives by 29 and ultimately reshaping the footprint and the cost structure of the business.
How those steps proceed
As I said in my comments,
Speaker Change: We expect that when we do that, the commission is going to say, what do I do with 1,300 wire centers?
Speaker Change: and we're going to work collaboratively with them to build a process to move through that.
as quickly and expeditiously as possible.
My expectations are, from the dialogue that's occurring right now,
Speaker Change: The new administration is interested in finding approaches to scale these.
Speaker Change: more rapidly and have an appropriate way to clear them through faster because they believe if the right policies are in place, it will in fact stimulate investment in the right kind of going forward technologies. And we intend to embrace that and work with them and figure out how we take 1,300.
Speaker Change: successfully through the commission and then move through another trunch as we move through that. So that's all part of the process and it's kind of how we expected this.
Speaker Change: back, you know, two years ago when we started moving down this path and putting this framework in place and building the technologies to enable it. This is kind of what we expected would be the case.
you know, a Washington that has one party in control.
Speaker Change: can figure out how to set priorities for themselves, my indications would be.
Speaker Change: that, from an economic growth perspective, that the Republicans believe this is a key
Speaker Change: driver of what will get the economy moving in the right direction. I would certainly say from my little part of the economy, those policies would drive accelerated and stimulated investment, as they did
Speaker Change: the first time we were in place. I've used this comparison, you know, we were
Speaker Change: peaking at about $24 billion of investment a couple years ago.
Speaker Change: It's not an accident our tax bill is up about the same amount that we're down in capital investment right now. I don't expect we'd ever get back to $24 billion at this juncture given how far along we are in our reinvestment strategies, but do I think...
Speaker Change: that the first place I would go if I had a little bit of latitude might be to accelerate some of the fiber build. The answer to that is, yeah, I probably would look at tweaking that, and some of that might go into investment and completing the fiber plan earlier. Some of it may be returned to shareholders.
Speaker Change: We can't turn on a dime to answer your question when you think about what occurs with a fiber bill as I shared with you at the analyst conference.
Speaker Change: If you want to think about increments of a million a year, so if we're building 3 million right now and we wanted to move to 4 million, that's probably a 12-month best case, 18-month worst case.
Speaker Change: scenario to ramp to that level and you know when you start thinking about how you gracefully do these things
Speaker Change: Increments of a million are kind of the graceful way to go about doing it where you're not whip-sawing vendor communities, supply chains, doing things that are inappropriate.
Speaker Change: So, you know, I think about that within the course of a year, can you scale yourself up to get to another million, that's a decision that, you know, we'd have to make after we saw some tangibility that the tax cuts are in fact going to go into place.
Speaker Change: Thanks for the question, John. We'll go to the next one.
Speaker Change: Thank you. And our next question today comes from David Barden at Bank of America. Please go ahead.
Hey guys, thanks so much for taking the questions.
Speaker Change: I guess my first one for you, John, just returning to a topic that we discussed at the Analysts' Day, which is this notion of home games and away games and the benefits that fiber brings to the mobile business. I'm noticing in the fourth quarter that the gains in mobile net ads among fiber customers
Speaker Change: was equal to the total net ads for the quarter and about probably 22-23% of growth ads. Is that something, you know, is there some information value in examining how those pieces fit together?
Speaker Change: and and how do we think about maybe as we decommission the copper plant especially future real estate deals contributing to this cash flow picture. Thank you.
Speaker Change: Hi, Dave. I don't know that I would over-rotate on the information value if I understand your question correctly.
Speaker Change: You know, I think, you know, typically, when you look at what our strategies are for how we actually penetrate within the base,
There isn't necessarily perfectly a timing to.
Speaker Change: What I would call the net ad dynamics that occur in broadband, whether or not we're successful at penetrating
Speaker Change: There is some activity we get on installation which is helpful to us.
Speaker Change: But when you start thinking about what we want to do to drive up that penetration number, the base of unaddressed individuals is much larger than the base of new customers going in. And so we have to do well in that unaddressed base in order to get net ads in it. There's different strategies associated with it.
Pascal Desroches: Pascal, do you want to address the RAIN dynamic and the fact that it doesn't run through cash flow? Yeah, so Dave, the RAIN deal is, we're accounting for it as a financing transaction. It's not going to run through
Pascal Desroches: cash from operations or free cash flow, it will be running through.
Pascal Desroches: Our financing section of the balance sheet. You zoom out, Dave. When I think about what are the drivers of free cash flow in 2025, it starts with our expected EBITDA growth.
We also, as we highlighted at Investor Day,
In 2024, there was a...
Pascal Desroches: call it about half a billion dollars of headwind associated with paying out a termination fees associated with our O-RAN modernization effort.
Additionally, the other tailwind you should expect is
Pascal Desroches: You're going to see some benefit from interest and working capital. We have, if you saw the way we ended the year, our interest expense was down, and I would expect that to continue into 2020.
Pascal Desroches: into 2025, and I wouldn't expect working capital to be a major factor one way or the other.
And so really those are the dynamics driving it.
All right. Helpful. Thank you guys both.
Speaker Change: All right, we'll go to the next question, please. Absolutely, and our next question today comes from Michael Rollins at Citi. Please go ahead.
Michael Rollins: Thanks and good morning. You use the same or similar language around
Michael Rollins: the Healthy Wireless Market and a Further Normalization of NetAd and Activity Levels. I'm curious if you could just put...
Speaker Change: Some additional context around that, how that may look, you know, similar or different than last year in terms of characteristics.
Michael Rollins: and how AT&T is looking at the mix between volume growth and R2 opportunity within the 25 guidance.
Speaker Change: And just one other quick item, you know, in the trending schedule you added a much larger number of resale subs. I think it was up 13.5% quarter-on-quarter. And just curious, you know, what drove that performance?
Michael Rollins: And does reseller become a more significant component of mobility service revenue growth during 2025? Thanks.
Speaker Change: Hi Mike, good to hear from you. So I would tell you it's the same or similar as to what we said last year.
That's why the similar language, we expect further normalization.
Speaker Change: I don't think we're seeing a whole lot different. As I said before, how we think about the customers that we want to attack, that are long-term, durable, sustainable customers.
Speaker Change: versus what gets counted in the bucket in aggregate. They don't all necessarily represent that number. But, you know, we've seen a bit of a moderation going on and we expect there's going to be a little bit of a moderation going on this coming year that we work through. As with previous years,
Speaker Change: We're going to do everything we can to do both. We're going to have some volume improvement as we gain customers, and we're also going to manage the base like we effectively manage the base.
Speaker Change: I'm not going to break out for you what represents in each of those.
Speaker Change: We never do talk about those things. I don't intend to do that going forward. But you can expect that we know how to manage a subscription business.
Speaker Change: We know how to balance the two out. There's going to be pockets of our base out there where.
Speaker Change: We can move them through a continuum of either getting more value through different plans or finding pockets where maybe we're priced differently to the market, what needs to be, as well as growing subscribers. And we'll do both, and we'll do it effectively.
What you're seeing on the resale side is...
Speaker Change: I think we've been really clear and we've indicated that we were
Speaker Change: provider to DISH and their migration and how they've been handling their
Speaker Change: Customer accounts were a beneficiary, I think, of some of their decisions.
Speaker Change: is to what networks they're putting their customers on and how they're operating that.
That was certainly a...
Speaker Change: Not the only contributor, but a significant contributor to what's occurring in that. And then we've also had some success in some other MVNO reseller accounts that are now starting to generate some volume as well that are contributing to that.
Thanks, Mike.
We're going to go to the next question, operator.
Speaker Change: Absolutely. Our next question comes from Benjamin Swinburne with Morgan Stanley. Please go ahead.
Benjamin Swinburne: Thanks. Good morning. Question on fiber and one on mobility. Pascal, I think you mentioned maybe some pent-up demand benefited the fourth quarter coming off the labor strikes at the end of Q3.
Benjamin Swinburne: to size that for us. And then I'm curious, you guys had really strong fiber ARPU growth in the fourth quarter and the year. We've seen some of your cable competitors.
Benjamin Swinburne: You know get more aggressive with their own converged offers doesn't seem like that's having any impact I'm just wondering if you could talk a little about your confidence
Benjamin Swinburne: in fiber ARPU growth, you know, heading into 25. And then just on mobility, great churn results. Any update on sort of how you're feeling about gross ads and whether that can maybe inflect positive in 25 as Jen and the team kind of put a lot of their initiatives into place? Thanks so much.
Thank you.
Hi, Ben.
Speaker Change: Look, the pent-up demand dynamic, it's not substantial. I just think that there's...
Speaker Change: There clearly was some cut there were some customers after we were out of the market for 30 days in the southeast decided they were going to wait and
Speaker Change: and we were able to work through that effectively and, you know, I think that's a...
Speaker Change: certain amount of what you're expecting or what we saw in the fourth quarter of turning in that 307,000 number I don't see anything in our overall trends that suggest anything different moving forward right now. We've given you an indication There's a variety of things that drive
Speaker Change: kind of what you should expect in volumes in five or in a quarter, one of which is the size of the footprint.
Speaker Change: So, as we move into the first quarter, seasonality adjustments tend to be a little bit slower than, you know, what we see otherwise.
Speaker Change: difference in how we're penetrating the market and what we're doing overall.
Speaker Change: and the ARPU growth, you know, what I would tell you is
Speaker Change: to either move customers up and plan to buy higher speeds or work on pricing adjustments where it makes sense to do that.
Speaker Change: We did get a benefit of a price increase on some portions of our cohort that worked through the fourth quarter that I think you're seeing roll through that, but there's also a dynamic of a higher percentage of the base moving into fiber versus.
Speaker Change: Copper legacy products that usually comes with a step up in our poo that we get improvements on
Speaker Change: And, you know, we're going to continue to actively manage that. But you should understand we're actively managing that underneath an umbrella. We're still lower than cable on an ARPU basis. And that's one of the reasons we do as well as we do.
Speaker Change: and why we don't feel that we need to necessarily discount a better product when we're putting two together is because we are selling currently in the market, you know, kind of underneath Cable's pricing umbrella at a more competitive price. So that still continues to be the case as we move forward.
Speaker Change: what I would expect on, you know, where we are in the
Speaker Change: mobile side is, you know, should our gross ad performance get a little bit better relative to what we want to do on the share side in certain segments?
Pascal Desroches: Yes, but do I expect that, you know, we're going to be looking at outsized numbers given the the overall pool of Growth is getting smaller. No Pascal I don't know if there's anything you want to add to what I shared there. No, look, I think all well said
Great. Thanks so much.
Speaker Change: We'll go to the next question, please. Absolutely. Our next question comes from Peter Cepino at Wolf Research. Please go ahead.
Peter Cepino: Hi, good morning everybody. A question on upgrades and one on immigration. On upgrades, I'm not going to ask you about iPhone innovation. I'm wondering if you could comment on
Peter Cepino: phones in your customer fleet and the postpaid phone business and
Thank you.
Peter Cepino: aging as we get into the middle of the 5G cycle here.
Speaker Change: And then on immigration, if you could comment on the sensitivity of your postpaid phone business to potential major changes in immigration statistics over the next couple of years after the change in the administration. Thank you.
Speaker Change: Hi, Peter. So I would say that I don't see anything in the data that we're looking at that would suggest there's any fundamental shift going on in customers' desires to hold handsets. You know, I'm sure different carriers have different points of view on this.
If you're investing heavier in promotions.
Speaker Change: You may see a shift, you may incent more customers to choose to upgrade, and the richer those promotions get...
Speaker Change: the higher that rate and therefore you walk away and say, well, maybe there's a shift going on. I think we were pretty disciplined in what we chose to do over the course of the quarter and
Speaker Change: You know, if I would tell you when we did forecasts of what percentage of our customers might be coming in for an upgrade.
Speaker Change: We're not seeing anything out of pattern relative to that given how we're performing in the market and what offers we're putting in the market And I'm not expecting to see that change You know any time in the near future the customer will ultimately make that decision and
Speaker Change: Of course, later in this year, we'll end up with some new devices coming into the market.
Speaker Change: whether or not they want to shift that dynamic and move at a higher rate. But right now,
Speaker Change: I didn't see anything that occurred in the fourth quarter that I can't explain.
Speaker Change: from, you know, what were the offers in the market and was it something that somebody wanted to do gift giving on based on what those incentives were as opposed to what I would call a fundamental shift in customers' point of view of their fleet getting more tired, so to speak.
Speaker Change: The fact of the matter is phones perform pretty well. They're more durable. People know how to take care of them more. There's better insurance and upgrade processes in place to keep devices in customers' hands for a longer period of time.
Speaker Change: I don't think those things have fundamentally shifted in the market.
Speaker Change: On immigration, I'd probably say relative to the industry, we're a bit less sensitive to it because, you know, as you've heard me say, we maybe don't play as effectively as I'd like at that part of the market or had, you know, what I would think should be more of our fair share. I guess the good news is.
Speaker Change: If there's a downward trend on it, we'll be less impacted, it doesn't mean that I wouldn't like to be more effective in that space.
Speaker Change: But we just aren't, you know, quite as well distributed in that segment of the market as maybe some other folks are.
Speaker Change: Now, in aggregate, do I think that having more people living in the United States is good for a business like ours?
I think the answer is yes, because...
Speaker Change: We like economic growth in this country. And part of what we all want to see is that the economy continues to grow and services continue to be invested in and
Speaker Change: And I think a key element to that is we have to have the right immigration policies.
Speaker Change: And I'm hopeful that as policy makers kind of go through the next number of months, and they think about what they want to do, they get to a
Speaker Change: an appropriate place that understands that for the U.S. economy to continue to grow, we need smart immigration. We need to do this the right way, and that is in everybody's interest to do that. Hopefully, the wise minds prevail, and that's what takes place, and we'll see what happens.
Speaker Change: Thanks for the questions, Peter. We're going to go to the next question, please.
Speaker Change: Absolutely. And our next question today comes from Jim Schneider at Goldman Sachs. Please go ahead.
Thank you.
Speaker Change: Good morning. Thanks for taking my question. I was wondering if you could maybe expand, John, on your earlier comments around the broadband market and the competitive trends within it. I mean, clearly, some of your competitors in the cable space are getting a little bit more aggressive on pricing. Sounds like you don't see the need to follow that, but I'm just sort of curious whether you expect there to be sort of more opportunities for jump balls or a little bit more kind of competition within the sort of existing
Speaker Change: sort of top-line opportunities, whether that's from a fiber connectivity for AI or otherwise, I think you'd sort of moderate those EBITDA declines sooner rather than later. Thank you.
Speaker Change: Good morning, Jim. I don't see a shift right now in our tactics in the broadband market. I mean, as I've said before, when we have fiber we win, we win because it's a better product.
Speaker Change: The other tailwind, if you want to call it that, that I think we have that I've mentioned and talked about in the analyst day
Speaker Change: is it's a heck of a lot easier to sell into a market.
Speaker Change: where we're 40%, 50% built as opposed to a market where we're just starting to build.
Speaker Change: And we're getting more and more markets where our distribution of fiber and where we are in the build starts to give us scale in a metropolitan area.
Speaker Change: So, we get more effective in that case in the latter stages of our penetration where we can begin to more efficiently buy mass media awareness.
Speaker Change: word-of-mouth starts to show up with customers who do their own promoting on our behalf because they have the product, they talk to their friends.
Speaker Change: So, yeah, I would expect that our competitors are having to do things to adjust because we continue to win.
Speaker Change: But, you know, we're fundamentally winning on the product being better.
Speaker Change: We're not necessarily winning because people are are shopping for a lower price right now And I actually think the lower price shoppers are probably migrating more towards fixed wireless
Speaker Change: and they maybe have less scale demands as we've talked about, our product is the one for the scaled household that requires, you know, great performance and consistent performance and that's
Speaker Change: That's what we're doing very well and I think we know how to play in that space.
Speaker Change: and we'll continue to do that, and ultimately, as general consumption continues to increase year over year, we think Fiber will be waiting there to pick up more and more customers as they need that high performance. So, feel really good about that.
Speaker Change: We gave you an outlook at the Analyst Day as to kind of what we expect in recovery and business, and when we did that, it was as we shared with you,
Speaker Change: driven by an orientation away from our legacy products, you know, good news is we had a lot of share and we did really well in that space. The bad news is, you know, some of those products are in a secular repositioning right now and they're repositioning to fiber and
Speaker Change: High Bandwidth Connectivity Based Products and Services, which we'll also do well in, but dollar for dollar is a little bit of a trade down when you make those transitions.
Speaker Change: And as we forecasted for you what we thought the recovery in that segment would be, it included what our expectations were in being effective.
Speaker Change: in deploying our fiber and ultimately picking up on some of that transition. So do I expect...
Speaker Change: that we can go in and probably be a little more effective in middle-mile infrastructure as AI becomes more critical in places. Yeah, we expect we will be.
Speaker Change: Is that something that we expected when we gave you our forecast moving forward? Yes. Is it stuff we're working on right now that we'll have some success in? Yes.
Speaker Change: Did I see in the fourth quarter probably some of our best fiber growth in business across the board in all segments and what we've historically had? Yes.
Is that expected? Yes. Should it continue? Yes.
Speaker Change: We still have to outrun the legacy base, which that's just a mathematical equation over time that we have to work our way through. So I don't think it's going to change anything that we've shared with you in terms of the direction and performance of the business.
Speaker Change: One other point is on AIA. As it relates to business, we continue to believe it is a great opportunity for us. If you look, we introduced a product,
Speaker Change: middle party last year. And so we think we have plenty of room to run as it relates to AIA for Business. And that's AT&T Internet Air for Business, that's our internal acronym. Yes. All right, we'll take the next question.
Speaker Change: Thank you. And our next question today comes from Sebastiano Petty with JP Morgan. Please go ahead.
Sebastiano Petty: Hi, thank you for taking the question. I guess maybe John, kind of sticking with business, but you know from the wireless side, obviously you broke out the wireless service revenue growth maybe outperformed.
Sebastiano Petty: consolidated mobility growth on the business side. Can you maybe unpack a little bit of what you're seeing in that market, John? Obviously
Sebastiano Petty: against the context of the broader industry and, you know, normalization there at the analyst that you did outline that, you know, AT&T does have a share opportunity given, you know, your mix of customers and across the board in the Fortune 1000 and
Sebastiano Petty: how you see that evolving. But you also, it seems like there's tailwinds in that business as well, whether it be from corporate liable, maybe demand growing. So, it'd be helpful if you could perhaps unpack that and how you're thinking about that evolving over a multi-year basis within AT&T.
Pascal Desroches: Thank you. So, Sebastiano, good morning. I would I would tell you the biggest driver I think of our success in business over time is
how well we do in improving our distribution, our effectiveness.
Pascal Desroches: in the mid and low end of the market. And that's, I think, the biggest driver in that.
Pascal Desroches: We all like the fact that, you know, if there's investment in the country and the economy grows, businesses grow, and they consume more in communication services.
Pascal Desroches: That's a good thing and it's an important thing for our industry and we tend to be highly correlated to that.
but in terms of us doing better as a company.
Pascal Desroches: and where I think the operating leverage is, it's in us getting better in our distribution structure.
Pascal Desroches: Analysts, those don't change in 30 days. These are things that require some work and partnerships.
Pascal Desroches: They require you to work with those partners in ways that you give them the right kind of tools to be more effective and...
Pascal Desroches: prospecting and converting and we're you know we're midstream on doing that and our expectations on RAM
Pascal Desroches: back to what I shared to Jim's question or part of what's into our forecast that we've given you an improvement in the segment and what we're going to ultimately be able to do. So that's how I think about for AT&T.
Pascal Desroches: what we need to do to be more effective in business and where there's opportunity. And it really gets down to how effectively we distribute. And I don't know that there's...
Pascal Desroches: If you want to call that tailwinds, I just think that's hard picking shovel work that we kind of have to do as our business And that's the kind of thing that we do
Speaker Change: All right, thanks for the question, Sebastiano. Operator, we're going to take our last question.
Speaker Change: Absolutely. And our final question today will come from Tim Horan at Oppenheimer. Please go ahead.
Tim Horan: Thanks guys. You've been pretty early in migrating your operations and networks to the cloud and open source. I'm sure you've seen DeepSeq. It's created a much lower cost large language model out there. Can you maybe just give us your thoughts on using cloud and AI to both, you know, improve relationships with customers, improve your product?
Tim Horan: and lowering your overall expenses. And then maybe just the same thing on your infrastructure, just on any updated thoughts, how you can use your infrastructure to support AI. Thank you.
Tim Horan: Good morning, Tim. You know, we've actually, I think this is a place we've already done a lot of work and picked up a lot of benefits in terms of how we operate internally.
Tim Horan: We've, if you kind of look at our cost of service dynamics.
Tim Horan: A lot of that has been driven by AI tool application, and it's not that we're necessarily exclusively replacing individuals with the technology, but we're making them a lot more effective and efficient.
Tim Horan: and how they handle customer needs and then complementing that with customer-supported AI.
Tim Horan: When you look at things like our call volumes, despite the fact that we're growing our customer base, dropping 30% year over year, you know, that's driven by the application of that technology and what we're able to do with it.
Tim Horan: We've used it a lot internally in our operations. We're seeing demonstrative improvements
in our Code Effectiveness.
Tim Horan: And I shared this on a previous call, where we're spending less right now to develop new code internally and getting more. And it's through the application of AI and technology and what we're able to do with generative AI.
Tim Horan: I fully expect, as I mentioned earlier in my comments on CNBC,
Tim Horan: We're very early in this technology cycle right now, and this is a seminal technology cycle. It's going to be every bit as big as, you know, the founding of the Internet when it's all said and done.
Tim Horan: And because we're very early in it, we should expect there's going to be days we wake up like this one when...
Tim Horan: Somebody comes in and says they've figured out a way to get as much benefit out of the model by consuming less power or using less processing capability
Tim Horan: where they've fine-tuned the models to work in a particular domain area more effectively, where they can run locally as opposed to in the cloud, which is going to open up and facilitate new applications and business models. I would expect...
Tim Horan: for a nascent technology like this that we're going to have those moments.
Tim Horan: because necessity is the mother of invention and there's a lot of money, an awful lot of money, and a lot of creative minds working on this, and people are going to come up with better ways to apply it. And we're all going to have to stay on our game to make sure we use it effectively, so none of us are in a...
Tim Horan: a disadvantaged position relative to our competitors on cost structure effectiveness.
Tim Horan: using the data that we have to start doing things that are unique to us, which handling particular customers and segments of the base and those that we don't have as customers and understanding how we price and attack those things.
Tim Horan: and using the unique data sets that we have around our infrastructure, how that lines up to particular customer segments and particular industries to get more effective in the market.
Tim Horan: If I were to say I had a goal for 2025, I would like to, this time next year, be talking about good...
Tim Horan: momentum we've received in business as a result of executing on some of those things moving forward.
Tim Horan: And finally, I just say, you know, we continue to find innovative ways to use it in our business today and maybe I'm not being as effective at
Tim Horan: you know, talking about all the great things we've done to effectively use that, but...
Tim Horan: We're tuning our RF capabilities dynamically in our wireless network today based on traffic flows and customer movement.
Tim Horan: using machine learning capabilities and AI. And those things always help us on the margin, and we're gonna continue to do them moving forward.
Tim Horan: Appreciate the question, Tim. Let me go ahead, and if I could...
Tim Horan: in January of the year, and when you kind of look at what we delivered, we did exactly what we said we were going to do, if not a little bit more.
Tim Horan: And I think what we have hopefully demonstrated to you over the course of 24 and the previous years, our execution is getting very consistent.
Tim Horan: and that's not a surprise as we refocus the business and we put our energy toward being a great communications company. We're on that learning curve and we're getting more consistent and better at what we do and we still have opportunities to improve upon the progress we've made.
Tim Horan: This is going to be an important year for us as we hit the midpoint of this year and we have an opportunity to recalibrate on our capital allocation.
Tim Horan: And that's been the deliver plan to do that. We look forward to that moment.
Tim Horan: And we think we're in a great position to continue to invest in this business and drive the same level of consistency and improvement that you've seen over the last couple of years. So thank you very much for your interest in us.
Tim Horan: and I hope everybody has a good rest of the year. Operator, you can go ahead and end the call.