Release Date: April 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: Good to hear the reiteration of the 2.5 leverage target for early next year. It would be great if you could just go through how you're thinking about the various capital allocation alternatives, buybacks, dividend growth, deleveraging, the 10 million to 15 million fiber adds, BEAD investments. Any other considerations?
A: John T. Stankey, CEO of AT&T, emphasized a deliberate process that the Board is undergoing to evaluate capital allocation, considering factors like interest rates and dividend yield relative to equity value. He highlighted the importance of maintaining a strong financial position and treating shareholders well. Stankey also mentioned that the company is in a good position regarding its debt and capital on the balance sheet, suggesting no immediate need to alter the current trajectory. Regarding the outage, he acknowledged the issue and the company's response, noting that it did not significantly impact customer metrics or business operations.
Q: First, sort of a follow-up to Simon's question, on the data breach, that's a sort of a second quarter issue, but just want to make sure to see if there's any impact that you saw early in the quarter from the data breach.
A: John T. Stankey, CEO of AT&T, addressed the data breach, indicating that it did not significantly impact the business or customer sentiment. He noted that the company is taking the issue seriously and is investigating the root causes of the breach from 2019. Stankey reassured that the company is actively managing the situation and does not foresee it affecting AT&T's operations in 2024.
Q: A question about the Mobility side. Obviously, the consolidated or segment results were really good. In looking at the EBIT growth, it's similar to the rate of service revenue growth in a quarter when gross adds and churn were lower, a great thing, less cost. And I'm just wondering why -- what else is happening in the cost structure so that EBITDA wouldn't outgrow service revenue in a quarter like this?
A: Pascal Desroches, CFO of AT&T, explained that the EBIT figures include the impact of accelerated depreciation due to the Ericsson Open RAN deal, which is affecting the comparison between EBIT and service revenue growth. He expressed satisfaction with the overall expense management and cost profile, which is reflected in the EBITDA margin expansion in the Mobility business.
Q: John, can you talk about how you're balancing the marketing and sales budget today between customer acquisition and retention and how that's driving AT&T's performance relative to your competitors? One of the concerns we often hear from investors is that while churn has been great, gross adds have been down for several quarters. But I suspect this is at least partly a function of the strategy. So if you could shed some light there, that would be great.
A: John T. Stankey, CEO of AT&T, confirmed that the strategy to focus more on retention than aggressive customer acquisition is intentional. He emphasized the importance of acquiring high-value subscribers rather than pursuing volume growth that does not contribute significantly to profitability. Stankey highlighted that AT&T's approach is to ensure sustainable growth by maintaining a balanced strategy that prioritizes profitable customer segments.
Q: I guess, first, a follow-up question if I could. John, thank you for your comments about kind of having digested the impact of the outage. But the postpaid phone ARPU was obviously down about a little over 1% in the quarter. And I'm assuming at least some, if not all, of that had to do with the credit and the GAAP accounting for that. And so I was wondering if we could get maybe, Pascal, a jumping-off point from where ARPU really is if we normalize for that credit.
A: Pascal Desroches, CFO of AT&T, addressed the question about postpaid phone ARPU, noting that the sequential trend was influenced by the credit issued during the outage as well as seasonal variations in international roaming. He reassured that the company is on track to achieve modest ARPU growth for the year, indicating confidence in the underlying strength of AT&T's pricing and customer value proposition.
Q: John, I just want to get your kind of refreshed views on the fixed wireless market. If you look at Verizon, they've added 1 percentage point of overall wireless growth using fixed wireless. T-Mobile has added, I think, 160 basis points. We're seeing advertisements for, I guess, I think what you call free air or something like that. What do you think in terms of the growth opportunity here? And if you were able to get some additional spectrum or maybe even with your existing spectrum, as you've seen the usage from some of your early learnings, can this be as broad of an opportunity for you as it's been for Verizon and T-Mobile?
A: John T. Stankey, CEO of AT&T, shared his views on the fixed wireless market, stating that AT&T does not plan to promote fixed wireless as aggressively as Verizon and T-Mobile have done. He expressed skepticism about the sustainability of offering high-bandwidth services at low prices over wireless networks. Stankey emphasized AT&T's strategy to focus on fiber investments, which he believes offer better long-term returns and flexibility. However, he acknowledged that fixed wireless has a role in AT&T's portfolio, particularly in business applications and specific consumer segments where it can provide immediate benefits or serve as a transitional solution.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
