Q2 2025 AT&T Inc Earnings Call
Good morning everyone and welcome to AT&T's second quarter 2025 earnings call.
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Speaker Change: I would now like to turn the floor over to your host. Brett Feldman, senior vice president finance and investor relations.
Speaker Change: Please go ahead.
Speaker Change: Thank you and good morning. Welcome to our second quarter call. I'm Brett Feldman head of investor relations for AT&T joining me on the call today, are John Stankey, our chairman, and CEO, and Pascal de row 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 additional information as well as our earnings materials are available on our investor relations website with that. I will turn the call over to John. Stankey John. Thanks, Brett. I appreciate everyone joining us this morning.
Speaker Change: 5 years ago, we laid out a goal of becoming the best conductivity provider in America to accomplish this. We set out a clear strategy built around putting the customer first and building the best network experience.
Speaker Change: We continue to make steady progress and we're seeing the accumulating benefits from remaining consistent in our beliefs and investing in the most advanced and cost efficient Technologies while providing customers with the services and experiences. They want.
Halfway through the year, we've delivered growth and service revenues, adjusted ibida and free cash flow.
Speaker Change: And we're positioned to deliver on our full year. Consolidated Financial guidance for 2025.
Speaker Change: Pascal will cover the details of our second quarter results and updated Outlook, including the expected impacts of recent tax legislation, in just a moment.
Speaker Change: So I'll use my time to discuss how we put considerable effort into building a business. That's well positioned to win across different operating environments.
Speaker Change: Thanks to our leading investments in 5G and fiber.
Speaker Change: Before I do that, I'd like to acknowledge the recent Texas floods.
Our heart goes out to all the families and communities affected by this devastating tragedy in our home state.
Speaker Change: I'd like to thank all of our employees who have stepped up and worked tirelessly to support the many First Responders and government agencies with firstnet.
Speaker Change: As Public Safety is partner.
Speaker Change: Our support and obligations, go beyond ensuring the continuity and availability of their purpose-built Network.
Speaker Change: To include meeting the special and dynamic needs of these vital Public Safety resources in a manner unique to our industry.
Speaker Change: This is a role, the commands, the highest attention and resources from our company.
Speaker Change: And 1 that we're proud to serve.
Speaker Change: now shifting back to the state of our business, our second quarter results, highlight consistent Trends across our operations
Speaker Change: In Mobility, we added over 400,000 post-paid phone customers, driving service Revenue growth of 3 and a half percent.
Speaker Change: We also added 243,000 fiber subscribers in the second quarter. In addition to 203,000 internet are net additions.
Speaker Change: This represents nearly 450,000, new subscribers to our most advanced Broadband Services, driving further acceleration in the pace at which we're growing our base of home internet customers.
Speaker Change: In fact, we nearly tripled our quarterly total Broadband net adds in only 1 year.
Speaker Change: Customers continue to choose AT&T because of the Simplicity of our offers, the quality of our services and increasingly because they want to be served by 1 connecting provider.
Speaker Change: Our convergence Trend accelerated in the second quarter driven by growth in new customer relationships that subscribe to both our fiber and 5G services.
Speaker Change: As we discussed in the past.
Speaker Change: Our Mobility share is higher in areas where we offer fiber.
Speaker Change: We're also seeing High rates of converge service adoption. Among our internet are customer base as well as lower churn and improved lifetime values compared to Standalone services.
Speaker Change: Internet error.
Speaker Change: Our customers preferences for being served by 1 Connect provider is a key reason. We launched the AT&T guarantee earlier this year.
Speaker Change: Our guarantee is a promise to our customers that we will provide them with the connectivity they depend on.
Speaker Change: The deals they want.
Speaker Change: And the service they deserve guaranteed.
Speaker Change: Or will make it right.
Speaker Change: We Make This Promise because we know our customers and increasingly rely on AT&T, as a trusted provider for all their connectivity needs,
Speaker Change: The early data points indicate that this promise is resonating with our customers. For example, since launching the AT&T guarantee, in January, we've seen improved net promoter scores. Among our wireless and fiber customers following a network event.
Speaker Change: It's clear that we're winning with customers and our performance, through the first half of the Year highlights, the returns. We're achieving.
Speaker Change: As we accelerate our fiber deployment and complete a wireless network modernization.
Speaker Change: These initiatives are supported by pro-investment Provisions. In the 1, big beautiful, bill act.
Speaker Change: Thanks to the policies in this legislation, we intend to invest more rapidly in Next Generation Networks.
This includes plans to invest a portion of these savings into our Network primarily by accelerating our fiber deployment to a pace of 4 million new locations per year. A run rate we expect to achieve by the end of 2026.
This will support good pain. Middle class jobs. All right, here in the US.
Speaker Change: As a result of our stepped up investment, we now expect that by the end of 2030, we'll reach approximately 50 million customer locations in region, in more than 60 million. Fiber locations, when including the Lumen Mass markets. Fiber assets. We've agreed to acquire, our gigap power joint venture and agreements with other commercial Open Access providers.
Speaker Change: This would double our fiber reach for more than 30 million total locations. A milestone. We reached ahead of schedule during the second quarter,
Speaker Change: This bill also creates a pipeline of mid-band spectrum that will help meet soaring consumer demand and keep the US technologically competitive with other countries paired with the tax Provisions in the bill. This legislation pays the way for the stated goals, laid out by FCC. Chairman Brendan Carr, to unleash high-speed infrastructure, builds and restore America's Global lead and Wireless.
Speaker Change: Technology through smart policy.
Speaker Change: The sustained growth in our customer base and free cash flow paired with. Our strong balance sheet, positions us with ample Financial flexibility to make opportunistic growth. Enhancing investments in fiber and spectrum that result from these policies. All while delivering on the capital returns, we outlined in our analyst and investor Day last year.
Speaker Change: In addition to investing a portion of these cash tax savings into our Network, we intend to contribute 1.5 billion to our Pension Plan by the end of next year.
Speaker Change: This coupled with the job creation associated with our stepped up investments in worldclass US Communications infrastructure. Demonstrates. Why the 1 big beautiful, bill act is great policy for American workers
Speaker Change: We're making progress retiring. Our inefficient Legacy copper infrastructure. I'm pleased to report that we filed with the FCC to discontinue service across approximately 10% of our wire centers in 17 States.
Speaker Change: This is a key step towards our Target of discontinuing service across the large majority of our copper footprint by the end of 2029.
Speaker Change: We feel great about the steps. We're taking to be the best connectivity provider in America and how this industry is positioned to evolve over the next decade.
Speaker Change: investment and policy Tailwinds are as strong as I can remember, since maybe the Telecommunications Act of 1996,
We're significantly expanding what we're able to offer Next Generation 5G and fiber connectivity Services allowing us to provide exceptional, customer experience in our more efficient to run and maintain.
Speaker Change: We expect the result to be faster, growth higher operating leverage and lower Capital intensity. As we complete the large majority of these Network Investments and transformation initiatives over the remainder of this decade.
Speaker Change: This is why I strongly believe. AT&T's. Best days are in front of us.
Pascal: I'll now turn it over to Pascal.
Pascal: Thank you, John. And good morning everyone.
Pascal: At a Consolidated level total revenues and adjusted Eva. Do each group 3 and a half percent year-over-year during the second quarter.
Pascal: Adjusted EPS was 54 cents in the quarter, which was up approximately 6% from 51 Cent the prior year.
Second quarter free, cash flow was 4.4 billion which was up from 4 billion. The prior year capital investment came in at 5.1 billion which was up modestly year-over-year.
Pascal: We expect third quarter capital investment in the 5 to 5 and a half billion dollar range with free cash flow in the 4 and a half to 5 billion ratings during the second quarter. We repurchased the approximately 1 billion dollars of stock and we have brought back about $300 million so far this quarter towards the end of my comments. I will provide an update on the expected impact of recent tax legislation on our full year and long-term Financial Outlook and capital. Allocation
Pascal: Turning next to our business unit results.
Pascal: Starting with Mobility where I want to spend a moment, sharing our perspective on the operating environment and wireless and why we believe our differentiated strategy has enabled us to perform well across Market Cycles.
Pascal: Over the course of the Year activity has picked up across the sector and our Outlook assumes the operating environment remains similar during the second half of the year.
Pascal: Against this backdrop, our Mobility business performed, very well in the second quarter.
Pascal: On the top line, we grew Mobility service, Revenue 3, and a half percent with ibido growth of 3.2% year-over-year.
Pascal: We delivered 401,000 post-paid phone. Net adds in the second quarter, this subscriber growth was ahead of our own expectations driven by post-paid phone gross. Adds that increase more than 20% versus last year.
Pascal: I'd also like to remind you that our post-paid phone, net ads, do not reflect Prepaid. Customer migrations
Pascal: these are new high-value paying customer relationships which are fueling our strong growth in Mobility service revenues.
Pascal: Additionally, our Mobility. Subscriber growth is increasingly fueled by customers taking both our wireless and Broadband Services. We continue to see a high adoption of our lead offers with our most valuable cohort of customers, which are converted subscribers.
Pascal: Post-paid phone. Turned up 0.87% was up 17% of our base, reaching the end of device financing periods as well as the increased activity in the marketplace.
Pascal: Based on this operating environment, we're planning for post-paid phone chart to follow seasonal patterns, in the back half of the year which typically sees more switching during new device, launches and the holiday period.
While the cost of acquiring and retaining subscribers has increased our success at adding high-value customer relationships points to the attractive returns. We're driving through our offers as a result of the tailwind and our Mobility business. We are increasing our full year guidance for Mobility service, Revenue growth to 3% or better from our previous outlook for growth in the high end of the 2 to 3% range.
Pascal: We expect this will result in higher growth related spending in the near term. And we now expect that Mobility ebi growth will be approximately 3% this year versus our initial outlook for growth in the high-end of the 3 to 4% range.
Pascal: As a reminder, our third quarter Mobility results. Last year, included a 90 million non-cash benefit to service revenue and even our related to certain administrative fees.
Pascal: It's also worth noting that higher Mobility equipment, costs related to higher volumes and spending on the launch of AT&T guarantee where the primary drivers of higher cash operating expenses in our communication segment, during the first half of the year in the aggregate. All other cash operating expenses across mobility and wiring business units, declined year-over-year. This was the result of our cost initiatives and we expect this trend to continue during the second half of the year.
Pascal: The long term.
Pascal: Also improved cost, Trends are among the reasons. We are increasing our full year, ibida guides for both waterline business units. I'll discuss why in a few moments. But the key point is that our cost initiatives and Wireline, outperformance are helping offset higher near-term, growth related investment in Mobility.
Pascal: Accordingly, we continue to expect Consolidated adjusted, ibidi, growth of 3% or better.
Pascal: Consumer waterline reported another quarter of strong financial performance.
Pascal: Total revenue, grew 5.8% year-over-year driven by approximately 19% growth. In fiber Revenue. We added 243,000 fiber customers in the second quarter up slightly versus last year as a reminder. The second quarter is typically our lowest quarter for subscriber growth and we expect higher fiber, net adds in the third quarter.
Pascal: The pace at which our fiber customers are adopting our Mobility Services accelerated during the quarter.
Pascal: We ended 2q with a fiber and 5G convergence rate of 40.9%. This represents a 70 basis point improvement from the first quarter and 140 basis point Improvement versus a year ago.
A success driving Broadband growth and Adoption of converts offers is not limited to our Fiber, customer base during the second quarter. We also saw acceleration in our Internet airnet ads which exceeded 200,000 for the first time ever.
Pascal: As a result, we exited the second quarter with over a million consumer internet are subscribers.
Pascal: Once driver of our ramp in AT&T internet are customers has been our wireless network monitorization efforts which have materially expanded, the coverage of our mid-band spectrum, and therefore, the regions where we can offer the service.
Pascal: Our Broadband strategy is and will remain fiber first. However we are increasingly able to offer internet are today in areas where we intend to offer, fiber in the future, this positions us to leverage Internet ads to create a funnel of broadband customers that we can migrate to fiber over time. As we expand fiber to serve areas where these customers live.
Based on the expanded availability and strong demand. We expect a higher level of Internet are net adds in the second half of the year as compared to the first half.
Pascal: Consumer waterline, EBA grew 17.8% for the quarter and is up more than 18% through the first half of the Year. This represents a greater than 100% conversion of Revenue growth into ibida growth despite ongoing declines in Legacy revenues.
C driver of this High operating leverage on the efficiencies from scaling, our fiber Network and customer base as well as the traction. We're seeing with cost savings initiatives. Including progress with our Legacy copper Network retirement.
Pascal: It's also important to note that while our Mobility business carries the bulk of the costs. Associated with growing, our converts customer base.
Pascal: Such as the cost of device, offers. The positive impact of higher Broadband revenues is reported within consumer water line,
This is an example of how our stepped up investment in Mobility growth positions us to drive long-term returns not only in our Mobility business, but to our business overall.
Pascal: Based on the momentum, we're seeing in broadband and our improved operating efficiencies. We are increasing our full year. Guidance for Consumer fibre Broadband revenues to growth in the mid to high teams from our previous outlook for growth in the mid teens.
We are also increasing our outlook for Consumer wiring. Ibidi growth to the low to mid teens from our initial outlook for growth in the high single to low double-digit range.
Pascal: Similarly in business W line. We are outperforming our initial Outlook Midway through the year. Thanks to slightly less Legacy W line pressure than expected and solid execution of cost takeout initiatives.
In the quarter business W line. Revenues decline 9.3% year-over-year with business W line, EBA declining, 11.3% business W line operating and support costs were down. Nearly 275 million dollars, year-over-year due to lower force and contractor costs.
Pascal: Things in the third quarter to drive future growth in fiber and advanced connectivity revenues while this will put some incremental sequential pressure on third quarter ibida. We now expect full year business waterline ibida to delene in the low double-digit range versus our initial outlook for a mid teens decline.
Before we take your questions, I want to spend a few moments providing you with an update on Capital allocation, and the impact of recent tax legislation.
Pascal: Overall.
Pascal: We feel really good about the strength and management of our balance sheet based on current operating Trends, in our outlook for the business.
We continue to operate within our leverage Target of net debt to adjust ibida in the 2 and a half. Times range, ending the second quarter with net leverage of 2.64 times, which was essentially unchanged compared to 2.63 times at the end of the first quarter,
Net debt increased slightly by 1.2 billion dollars, sequentially.
A key factor driving. This increase was a 2.8 billion non-cash re measurement of our foreign debt related to the weakening of the US dollar.
As a reminder, we fully hedge, the FX impact on our foreign bonds with the offset reported in other liabilities and other assets.
Pascal: At the start of July, we closed the sale of our full remaining stake in Direct TV to tbg
Pascal: of the original 7.6 billion in cash proceeds we have more than 4 billion dollars remaining and we expect to receive the significant majority in 2025
Pascal: These proceeds will be reported within investing activities in the statement of cash flow and will continue to be excluded from our reported free cash flow.
Pascal: Our approach to Capital Investments remains, largely driven by our fiber deployment and wireless network modernization consistent with the priorities. We outlined at our 2024 analyst and investor day
Pascal: with that said, based on the passage of recent legislation, we'd like to provide a few key updates to how we're thinking about our long-term Outlook, as we see things right now.
Pascal: We expect to realize between 6.5 billion and 8 billion dollars in cash. Tax savings from 2025 through 2027 as a result of the tax Provisions, included in the legislation. As a reminder, the initial guides we provided at our analyst and investor day. Implied, and outlook for cash, taxes of approximately 3 and a half.
Pascal: Half billion dollars in 2025 and approximately 4 and a half billion dollars in both 2026 and 2027.
Pascal: Relative to that guidance. We now expect cash taxes to be lower by 1.5 billion dollars to 2 billion dollars in 2025 and 2.5 billion dollars to 3 billion dollars in both 2026 and 2027.
Pascal: As John noted, we intend to invest a portion of these Savings in our Network primarily by accelerating the pace of our fiber deployment. This process is already underway and is expected to result in about half a billion dollars of additional capital investment in 2025 and about 3 billion of additional capital investment across 2026 and 2027 combined compared to the guides we provided at our analysts and investor day.
Pascal: We also intend to contribute 1.5 billion dollars of these savings into our employee pension plan, by the end of 2026 with more than half of that coming in 2025.
This contribution would Elevate the plans funded status to approximately 95% based on the last reported valuation. Our goal is to fully fund the employee pension plan by the early part of next decade, the remainder of the tax savings will be reflected in our free cash flow in 2025.
Pascal: Both of these savings will be reinvested, but we do see full year free cash flow. Trending slightly ahead of our initial Outlook.
We now expect free cash flow in the low to mid 16 billion range versus our prior guidance of 16 billion. Plus
Pascal: For 2026 and 2027, we expect approximately 1 billion dollars of upside, to the annual free cash flow guidance. We provided at our analysts and investors day.
Supplement or accelerate, our organic growth strategy, additional Capital returns and debt reduction.
Pascal: In the near-term. We intend to accelerate the pace of share repurchases, under our 10 billion dollar authorization and now expect to buy back 4 billion dollars of stock by year end.
So in summary, we're really pleased with the team's performance at the Midway point in the year, as we continue to make progress on becoming the best connectivity provider in America.
Pascal: Brett, that's our presentation. We're now ready for the Q&A.
Thank you. Pascal operator. We are ready to take the first question.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session to ask a question. Please press star. And then 1, if you are using a speaker-phone, we do ask that you please pick up the handset prior to pressing the keys.
Speaker Change: To withdraw your questions. You may press star and 2
Speaker Change: Once again, that is star and then 1 to join the question queue.
Speaker Change: At this time, I will pause to assemble the roster.
Speaker Change: And our first question today comes from
Speaker Change: John hudek from UBS, please go ahead with your question.
John hudek: Great. Thanks. Good morning, guys. Uh, if we could start with the wireless churn, you know, um, you guys called out the, the 17 basis point increase in, in full insurance in the quarter, and, and Pascal. Thanks for the comments about the seasonal patterns. But can you talk about whether you expect to see a similar increase in in the second half of the Year, based on what you're seeing from competitive standpoint and from a cohort, expiration standpoint, um, and then secondly, uh, thanks for the info on the decommissioning and and the the 10% of wire centers. Is there any way to quantify the savings from this initial uh, filing or or talk about the the opportunity for savings? You know as far as that initiative is is concerned. Thanks.
Speaker Change: Hey John uh appreciate the question as as we think about churn. Let's go back to what we said at the beginning of the year, we said that this year, we had a higher percentage of our customers coming off of financing contracts, and we uh, all things being equal expected at a higher level of churn.
Speaker Change: Plus uh continued normalization of the number of net ads.
Speaker Change: On top of that, in the first half of the year, I think it. Uh it's fair to say we probably saw a little bit more impact from those than anticipated. Beginning of the year as well as
Speaker Change: Probably a little bit of.
Pull forward of the man on the consumer side, uh, because of tariffs, all those things together, resulted in the first half that had higher activity.
Speaker Change: Uh, you know, as you look to the second half, I do believe that there was some pull forward of demand. Uh you know we we don't we haven't seen the what the new device offer will bring but for planning purposes, we are assuming that we're going to continue to have a competitive environment and uh our Outlook is underwritten. In that regard, we're hopeful some of the activity uh uh uh does dissipate. But we're planning for a more active environment.
Uh, cost.
Speaker Change: Savings.
Speaker Change: Here's what I would tell you you we're already seeing the benefits of cost savings or associated with our Legacy transformation happening.
Speaker Change: I'm really proud of the team and what you're seeing in our performance. When you take out growth related expenses, uh, promotions and our guarantee, uh, advertising campaign.
Speaker Change: Uh, our expenses are down.
Speaker Change: And they're down because of all the great work that's happening, across the board, uh, in care, in field, tech and importantly, in overall Legacy transformation. And, uh, look, we we met, as you heard my commentary. We expect that to continue to back part of the year and as more and more wines uh, come offline. We're going to have the ability to uh continue to drive costs out. So we feel really good about our performance.
Speaker Change: I think John.
We'll go to the next question. Operator.
Operator: Our next question comes from Peter spino from Wolfe research. Please go ahead with your question.
Peter spino: Is I heard you loud and clear that the expiration of installment periods is playing a big role in in this year's higher activity and and wondering how you think about the other drivers. And then, on Spectrum, I wondered about the budget in your uh, long-term guidance for Acquisitions it. It's possible that Spectrum worth much more than you've allocated for Acquisitions will come to Market in general. And I wondered, if you would in that instance, would you regard the budget for Acquisitions in your long-term guidance as a subject to review or as limiting? Thank you.
Speaker Change: Good morning Peter um what I would tell you on Sharon as we kind of think about what's been going on. I I don't view pricing as being our issue in terms of managing churn
Speaker Change: Um obviously every time we take a pricing action, we're cognizant that there's going to be some dislocation. Um dislocation that we have been historically pretty good at assessing modeling and managing
Speaker Change: Um, we try to do our pricing in a way where we tie prices to Value. So we find places where there's maybe recaptured value that we can price out differently so that the customer feels like it's not just the price increase but they understand, they've gotten something over time or in return for it where they're less likely to go. And I it's not to say that we don't get some churn when we price but we get churn that's been in line with our expectations. I'm not going to sit here and tell you right now.
That what we're seeing in our churn performance is the result of miscalculations in our pricing decisions. Um, that having been said
Speaker Change: We're always mindful when we make a pricing decision of the environment that we're in. And, uh, I'm very mindful right now, the environment. We're in that. We've got segments of the consumer base that are, uh, not in the same position as other segments of the consumer base. And as a result of that, as we think about our strategies and how we manage things, we try to be delivered. And does that mean that I, uh, on the margin? We may make a decision here or there. That's different at this moment in time, given where the economy is and what's going on. Of course, um, I'm not going to tell you what those are because we never, you know, pre discuss or
Speaker Change: Give that kind of information out in the public forum like this but um, I don't view pricing as kind of being our answer to churn issue 1 way or the other. And I think we'd Managed IT pretty effectively over the last.
Speaker Change: Couple of years and we'll continue to do that.
Speaker Change: Um, the Spectrum side.
Speaker Change: I think I'd go back to comments. I've made multiple times, um, that I've shared with you and they usually come up in the context of why is 2 and a half times adjusted, net debt to ibido. The right level for our business. And
I think I've tried to articulate that. There's a lot of reasons why we arrived at that number, as being the right place for us to be including our bias or organic investment in the business versus strategic m&a. Um, that we feel pretty comfortable that we've got great opportunities to reinvest in. The business is, is evidenced by the fact that we accelerated some of our capital investment, the key area award generating, I think great long-term value in the Fiber, space and 2 and a half times gives us an opportunity to go to market and pick up the kind of cash. We need to pick up.
Speaker Change: Um if in fact something that is non-strategic m&a but is uh what I would call Asset acquisition presents itself to us like Lumen would be a great example of I thought, what was a excellent asset acquisition opportunity. That was in front of us and we chose to do that. I would put Spectrum in that category. As I've said multiple times, we're constantly evaluating Spectrum options in the market, I think the Spectrum Market just became really interesting. The fact that there's now an FCC that's back in business, that can auction. And there's a stated pipeline means that, uh, we have a more secure supply of spectrum coming forward in the market, in a more secure Supply Spectrum. Coming forward is a disciplining issue on valuations of spectrum and it gives a lot of choices of what we can do and how we think about this and how we time it out, when there is a pipeline that's declared and it will have
Should take forward from that.
Speaker Change: Thanks Peter. We're going to go next question.
Speaker Change: Our next question comes from Benjamin swinburne. From Morgan Stanley, please go ahead with your question.
Benjamin Swinburne: Thanks, good morning. Um, maybe a bit of a bigger picture question, just on the fiber build and then and then back to Mobility, you know, hit the 30 million fiber Mark. Now talking about 60 million plus, um, you know, by 2030, can you talk about, since since John, you've been there the whole time, you know, the returns, you see in the 30s, the 30 million look back. And there's there's sort of debates on whether you built the best best, uh, parts of the country first. At the same time. I can imagine your, uh, execution on fiber is improving as you. Uh, as you build more expertise, I'd love to hear your thoughts on kind of the returns and penetration profiles. You see, looking ahead versus looking back.
Benjamin Swinburne: And then, um, just on Mobility. You know, how do you guys think about the returns you're generating in this business? I mean, in turn is a huge Focus. It's it's but it's just 1 input into return. So could you talk a little bit about how you feel the quality of your incremental Mobility customers are coming in. Now, when you sort of, put all the pieces together in the business relative to, uh, sort of the churn Focus that that we all have out out in the market. Thanks so much.
Speaker Change: Good morning been. Um, so first of all, not every house is created equal. I'm not going to tell you that the 60 millionth home. We built is as profitable as the first 1 we built. But what you should understand is they are very profitable. They all hit our return rates and, um, as we've talked about more and more is you start thinking about a converge Dynamic? It's not just the cost of building fiber. It's what you can do and putting multiple products in a household. Which over time is that penetration level of converge customer increases? It's only going to improve the economic returns of having built a world-class fixed infrastructure. Um, when we look at building into an area, it is always carried 100% on the foundation of whether or not we can make the money, pay on broadband only. And so the fact that we're able to pick up on wireless is kind of the icing on top of the cake.
Speaker Change: I'm very familiar with a variety of different uh, analysis analyses that have come out.
Speaker Change: Over a period of time that talk about what the costs are to build to. You know, let's call it the 60 to 80% range of the footprint versus the first 60% range of the footprint.
Speaker Change: Um, I think I know my costs and my operation better than people who sit outside the business do and I will tell you what they report in many instances is patently wrong.
Um it's not correct in terms of capturing what our relationships are with vendors, the cost at which we build, um, what we're getting and scaling economics, what we've been able to do to innovate and change things? And yes our cost per unit will go up as we move deeper into the footprint, but it does not go up at a level that uh deteriorates the competitive returns. We need to offer back a, a a fair return to our share owner and the cost of capital that takes us to do those things. And I feel really confident about that and there's no reason for us to continue doing that. If that were the case, there's probably other things we should be doing with the money, like returning it back to the shareholder. If we didn't think we can hit those hurdle rates,
Speaker Change: On our Mobility returns. I I think we've been pretty clear. I mean, the narrative that we gave you at the front end of this was all geared around this. We feel very comfortable with our growth. We feel that we are um we're not going to growth for gross sake. We're going to the right kind of growth. We're going to the kind of growth that first of all, customers are paying us for the lines.
Speaker Change: We're not out there giving away free lines.
Speaker Change: At any point in our history and so we feel good that we're executing on those strategies that when we're investing in that growth, that we are going to get the return. And I'm particularly excited about as we shared earlier in our comments.
Speaker Change: We've done really well at the top end of the market with a premium product like fiber and pairing it with our post-paid. We're now starting to get our groove and understanding where we can put, you know, the what the, the low-end product, which I consider to be fixed Wireless. It's more to the price sensitive segments of the market and the less industrial strength. I think that only gives us another play to do this and do this. Well, as we move forward, and we feel really comfortable about that portfolio and what we can do with it.
Speaker Change: Been what, what other point I think it's really important when you look at our returns, look at the service Revenue in Mobility.
Speaker Change: We're up 3 and a half percent and that doesn't include the benefits of fixed Wireless, uh, which are reported in our consumer segments and it doesn't include the really strong benefits of convergence, which are reported in consumer wiring. So look, this business is performing as well as ever had. And we are incredibly bullish on the future.
Speaker Change: Thank you, we'll take the next question. Operator.
Speaker Change: Our next question, comes from Michael Rollins from City, please, go ahead with your question.
Michael Rollins: Thanks and good morning. Um so 2 topics um Evita and the fiber footprint. So as a follow-up to your comments on the revised ebit outgrowth guidance for Mobility given that the first half is ahead of the full year guide are there additional pressures that you're seeing in the back, half of the Year relative to first half that we all should be mindful of. And can you remind us where Mobility is on the journey to extract additional efficiencies and savings from the cost program? And then just on the fiber footprint, just curious if you have an update on the opportunities to expand the Open Access program to increase, passing beyond the 60 million targets that you outlined on today's call, thanks?
Speaker Change: Hey uh Mike. Uh, I'll handle the first question, uh, in terms of Mobility growth in the first half. Uh, we we're really happy with it.
Michael Rollins: As we set, as I mentioned in my commentary.
Uh, we don't, you know, when you look at the back, half of the Year, we're assuming that you're going to continue to have an active environment.
Michael Rollins: Hopeful that that's uh, not the case. You'll see some Des uh,
Michael Rollins: Dissipation in what's happening in the back, half of the year because there was clearly some pull forward of demand related to, uh, the TA herbs and all the uncertainty around that. With that said, we're planning for a more active second half, which is, uh, in line with seasonal pattern.
Michael Rollins: Keep in mind that, uh, last year in Q3, we had a 1-time non-cash item that we called out. That is also going to make, uh, comparisons in the back half, particularly challenging. But other than those
Michael Rollins: 2 cautions, we feel really good about the performance of mobility and uh and our ability to perform. So we're just being cautious because we don't know what environment we're going to be operating under.
Michael Rollins: Good morning, Mike. Um, your question on the fiber footprint there, there are places where we can pick up some more Open Access opportunity. I, I probably maybe take the Liberty to broaden your question a little bit to think about,
Michael Rollins: We've we've now given you a roadmap.
Michael Rollins: Between now and 2030 as to how we're going to be far above 60 million homes?
Michael Rollins: Um and what I'll call our own to operate in controlled footprint. All things that we have visibility to right now and existing relationships and trench with.
Michael Rollins: Through 2030 that we have now.
Michael Rollins: Since came in 5 years ago and started to talk about this and everybody said, well what do you do with, you know, 20 million homes, what do you do with 30 million homes?
Michael Rollins: Um, we have a path outline for you is, we are going to be a scaled player on the best technology in the United States.
Michael Rollins: Um, I think there's others that are going to really struggle in this market, because as I've been very clear, I think we're in a converge Market space. I think we're going to see over time, uh, combination of national players that need assets to do both fixed and mobile together, and that's going to result in customer expectations. And to be successful, you're going to need to be able to do both.
Michael Rollins: And if you're you know kind of a island based over Builder or you're an Open Access provider that has a small footprint. That's not uh hospitable environment necessarily to be in when scale costs are important and distributions important and I expect in some cases, some of these over Builders are not entirely well capitalized that you can see their business plans are a bit stressed.
Michael Rollins: Um, look.
Michael Rollins: I, I like picking up assets, uh, in a way that we can drive value out of them. I'm not going to go out and overpay, uh, to buy stuff that that somebody wants to sell at a massive premium, and they haven't figured out how to operate and unlock the value in the business. Um, but to the extent that there's an opportunity that fits in, with our existing footprint, where we can continue to
Michael Rollins: To enjoy our economies of scale and our, our footprint, and our operations footprint, where we, we don't get fragmented, we don't get spread too thin. Um, that's how I think about playing patiently, over the Long Haul to take, what I've already secured, which is a preferred footprint in the United States and maybe add a little bit to it over time.
Michael Rollins: Alright, thanks. Mike.
Speaker Change: We'll take our next question, operator.
Speaker Change: Our next question comes from Sebastiano Petty from JP Morgan. Please go ahead with your question.
Speaker Change: Hi. Thank you for taking the question. Um, just wanted to follow up on consumer, wire line, uh, subscriber expectations for the back half of the year. I think pasquali said that. Um, you expect higher internet are ads, um, which is not surprising given the momentum. But typically, you would also see higher fiber, net additions in the second half relative to the first half or a typical seasonality over the last several years with dictate that that would be the case. Any reason to think that that would not necessarily um occur this this year. And within that context, perhaps,
Speaker Change: Are you seeing any change in the level of competitiveness, uh, from the cable guys? As they, perhaps maybe lean in a little bit more on bundling a little bit more on convergence? Thank you very much.
Good morning Sebastiano. Um, I I don't expect seasonality to be different this year. I mean, we're not planning on it being different this year. So I would expect because of that seasonality that you reference.
Speaker Change: You'll probably see historically.
Speaker Change: Our net, add numbers on Fiverr, adjusted that seasonality and moved through it.
Speaker Change: I think the other thing that I would just kind of counsel on, we tried to give you a little bit of a sense of if we're going to build 4 million homes, a year and instead of 3 million, we've kind of given you a ramp rate.
Speaker Change: Into that that you can. Now, think about that, doesn't all come online at the same time, we ramped into it through 2026 and we ultimately reach about a 4 million home per year build rate, by the time we exit 2026
Speaker Change: You should expect. Is that inventory Step Up occurs? Is that build starts to escalate? That will certainly help.
Speaker Change: But I'd also like to point you back to something else.
When you think about the mix of our fibernet ads today versus the mix of our fibernet ads 3 years ago, there's a surprisingly small. I'm not surprisingly, I guess you'd say there is a predictable.
Speaker Change: Smaller amount of migrations going on between our existing customers, onto the fiber infrastructure from copper, because we've worked through a lot of that.
Speaker Change: And we're maintaining these net, add numbers and we're increasing the share. Take that is effectively coming from cable and we've been doing just fine. Um, I'm very pleased with our growth rates of what we've been able to do, given our inventory. And as you see, we continue to March up, our penetration, um we're you know north of 40 40 now as we've been territori it for you and we continue to March up that
Speaker Change: Very patient to work our way through the next 10% in an economical fashion. And I'm not seeing anything right now. Uh, that's going on in the market, that restricts us from being able to get our fair share every quarter and I feel really good about how the teams operating around that.
Speaker Change: All right, thanks for the question. We'll go to the next 1 operator.
Our next question comes from Brian kraff from Deutsche Bank. Please go ahead with your question.
Brian Kraff: Oh thank you. Uh good morning. Um I want to ask to if I could, I guess first. Um just how do you think this more elevated mobile churn and gross ad environment across the industry impacts, your ability to expand Mobility margins in 2026 and Beyond. You know, do you continue to see that continued margin expansion opportunity or should we think about that the healthy margins? You have today is being more stable as opposed to increasing and then I just wanted to check in separately on what you're seeing from a macro perspective. Um, you know, anything to call out that you're seeing consumers or businesses, any potential impact from federal government, uh, cuts that might be coming. It could impact business, W line or Mobility? Thank you.
Speaker Change: Hey Brian. Let me start.
Brian Kraff: uh,
Brian Kraff: when you look at our Mobility business, uh, a big part of what you're seeing is higher growth related spending in the first half of the year.
Brian Kraff: But it's coming with high quality revenues as John alluded to earlier. Uh, we grew service revenues, 3 and a half percent in the second quarter. We are, well, we raised guidance on service revenues for the year because we feel really good about that trajectory, as, you know, uh, growth related spend will be lumpy, uh, depending upon market conditions,
Brian Kraff: Excluding broker related spends. There is we expect the operating leverage to really be uh good in that business and we would expect margins to uh to continue to perform. Well, it's really a in any given quarter. It's going to be a function of the level of growth related to spend
Brian Kraff: Brian good morning. Um, so on the macro perspective, let me start with this. Let me reinforce what I offered in my opening comments.
Um, I I can't remember who said it earlier, I guess, Ben was making a comment about how long I've been around here in insulting me. But, um,
Brian Kraff: You know, I've been around the industry a bit. I don't know that I've ever seen.
Brian Kraff: from a
Brian Kraff: Pro-investment policy perspective that's out there right now, in terms of incentives to invest organically in your business.
Brian Kraff: A telecom policy perspective that's been laid out under this Administration and where we see the FCC going all the way from incentives to get out of old infrastructure and invest in new to Spectrum pipelines that are in place to desires to remove restrictions on, uh, useless regulations that drive costs in the business. That the market takes care of, now, that we don't need to have around, because we're no longer in common carrier models. I've not seen a situation where those Tailwinds were all aligned. And as strong as they are at any time in my career, as they are right now and I, I'm surprised they don't see more commentary on that than those of you that watched the industry. I would even say.
The alignment of those policy things that are going on right now in the direction that's occurring and the lack of friction in getting some changes done is even more significant than when the Telecom Act of 96 was passed.
Brian Kraff: And so I I view that as a very good thing for this industry, especially at the time and there's a seminal change coming in the way workloads and traffic are generated um, like Ai. And the need to be able to manage traffic across the fabric of fixed, and wireless networks for the purposes of securing performance into the cloud to be able to secure those packets in a Consolidated way where you can manage those workloads for customers in both places. I think that macro Dynamic is really, really good for our industry. And I feel good about it, where we stand right now being part of it as a result of that. And that's 1 of the things that gives me confidence to redirect some of the benefits. We've gotten from the Reform Act back into the business. I might not have felt that way 4 years ago with what was on the horizon and and I do at this juncture. Now, the second thing I would offer there are other policy things that are going on, that are impacting some aspects of the macro environment. Um, in particular, I'll say probably
Evaluate their spending patterns of what they're doing and uh those numbers you're seeing a little bit and some of the softness and a couple of the areas that we we've highlighted for you and they're showing in our numbers. Um, but we also told you at the beginning of the year we expected some of that to happen and that we we felt like we could manage through that and still meet um our guidance to you. And in fact uh immigration is another 1, you know, if you look at what's gone on in the postpaid, the prepaid Market, this quarter, um I do believe some of that follows through to immigration and some of the Dynamics that are occurring there. Again, we told you that there was going to be an impact. We told you it was manageable given our exposure to, that particular piece of the market. And I think we're demonstrating that we're kind of working our way through it. Um, the piece remains out there that I'm, you know, continue to watch and want to understand is we're an animal, you know, a small animal and a larger economy and um, what ultimately happens in the larger economy is certainly going to be important to
Brian Kraff: To us. Um, I would really like to see some of the uncertainty around tariffs start to dissipate and, you know, that's a piece that's still a bit unknown to everybody in business. As I, I speak to my peers um you know, I I'm not going to pontificate or handicapped that as to how that works out any different, any differently than people who are far more expert in it than I am. Uh but clearly getting some of that uncertainty out is like taking a a macro environment that is really moving in the right.
Brian Kraff: right direction, right now and that's like putting a little bit of jet fuel on it, if you can get that 1 off the table,
Speaker Change: All right, thanks for the question. Thanks, you both.
Speaker Change: Uh, operator, we're gonna take our last question.
Speaker Change: Our last question comes from Canon. Been keshwar from Barkley, please go ahead with your question.
Thank you. Um, the gun when you think about the the scaling, both the fiber business, as well as 6 Wireless. Um, going forward when you talk a little bit about how these fit together, I mean are they mutually exclusive in terms of uh segments the way you're thinking about it or that's fixed Wireless provides uh you know funding mechanisms to reduce your Sac for fiber. I mean as both of these scale
Speaker Change: How do they fit uh, versus each other would be great to get your thoughts on that.
Speaker Change: Morning, can I, um, I I guess you could say mutually exclusive or actually complimentary is the way I would describe them. I, I think Fiverr is
Speaker Change: You know, the scaled long-term solution at the top end of the market. But look, there is a, there is a price sensitive segment and there is a less usage intensive segment.
Speaker Change: And fixed Wireless is a viable alternative to do that and given the Dynamics of how spectrum is bought and how capacity is allocated in the network, it's it'd be great if we never had to buy spectrum and end up with phow capacity, but based on how licenses are done and the Dynamics around those things. And based on how Cher plays out in certain parts of the country, where we've been telling you, where we build fiber, we have great share position. Um, some places where we don't build fiber, we have lower share, therefore, we have more follow capacity in the network to possibly deploy because of the way we've had to buy licenses in in instances. And so I view them as highly complimentary. You know, primary goal and objective is to put fiber where we can get the kind of workloads that justify that investment that offer the returns I addressed earlier. And we've given you a point of view of what that footprint is right now, between now and 2030 very transparent about that. You're very clear where we're going.
Speaker Change: Going to build those things.
On the flip side, any place where we're not doing that? Why shouldn't we think about if we have phallo capacity and opportunity in our wireless business that we can deploy to converge a customer and we can attack the segments, where the product is best suited. And it's not for everybody, but there are as I've said many times, there are many businesses where fixed Wireless is the best solution for them. There are people living in studio apartments that are a Consultants that are a home to
Speaker Change: 2 and 3 nights a week that fixed Wireless may be a really good solution for them. Um, there are folks that can afford to buy some capacity but they can't buy all the capacity but they want something that's uh more reliable and higher performing Dynamic at a lower price.
Speaker Change: A little bit more aggressively and know where we're going to be in 3 years to then upsell somebody to an even better solution. So maybe they're mutually exclusive because you don't want to be selling both in the same area, but you I consider them complimentary because you want to use them to attack different parts of the market or use it to supplement. What is ultimately the long-term scaled solution which is fixed infrastructure with fiber and I think it's why the story of organic investment is so strong. And so important right now, we went at the top with fiber because it's a better product and we take share and we can play at the bottom with a price sensitive offer that uh hitting people at the top and the bottom is just a really good place to be and it feels really nice compared to where we were say 10 years ago.
Speaker Change: Thanks for the question, can I?
Folks, thank you very much for your time this morning. I appreciate it. I think, as you can see, we laid out a direction for our business 5 years ago, is to how we felt like we needed to invest in infrastructure to secure the highest percentage of share of spend in this industry and do it better than anybody else. And I believe you're seeing the data points. Now, establish themselves in our performance, the demonstrate the approach we're using in the organic investment in our infrastructure. And networks is paying off and how that is ultimately coming to pass. And I believe, when you look from a policy perspective and how our competitors are reacting to the market.
Speaker Change: It validates the direction we've been heading. And uh I think uh I'm really proud of the team of what they've been able to do to demonstrate the results in that regard and move our business forward, as Pascal said earlier. Um, we feel really good about the progress we made, but we know we're not quite all heading on 8 cylinders yet.
Speaker Change: And as a result of that feel really energized around what we can do to make the business, even better and deliver strong results as we move forward. Thanks for your time this morning.
Speaker Change: Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining, you may now disconnect your lines.