AT&T Stock

Good morning, and welcome to AT&T's Third Quarter 2026 Earnings Call. [Operator Instructions] And as a reminder, this conference is being recorded.

I would now like to turn the conference call over to our host, Brett Feldman, Treasurer and Head of Investor Relations. Please go ahead.

Thank you, and good morning. Welcome to our third quarter call. I'm Brett Feldman, Treasurer and Head of Investor Relations for AT&T. Joining me on the call today are John Stankey, our Chairman and CEO; and Pascal Desroches, our CFO. We're also joined today by our Deputy CFO, Jennifer Biry.

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 the Investor Relations website.

With that, I'll turn things over to John.

Thanks, Brett, and good morning, everyone. I appreciate you joining us today. We continued the momentum we established in the first half of the year, delivering another strong quarter that reflects durable growth from our investment-led strategy.

During the quarter, we added over 1 million advanced connectivity subscribers from fiber, fixed wireless and postpaid phone, our best quarter in more than 4 years and our second consecutive quarter with more than 1 million net adds across these services. These are high-quality customer relationships and we continue to see growth in accounts that select AT&T for both their wireless and Internet connectivity.

Our improved gains in subscribers and converged accounts are driving strong financial results. In the third quarter, we achieved 3.8% year-over-year growth in consolidated service revenue, our best performance in more than 4 years. It was also our second consecutive quarter with adjusted EBITDA growth above 5% and adjusted EPS growth above 20%.

Our strong operating and financial performance reflects balanced growth across our portfolio of 5G and fiber services in both the consumer and business sectors. We're achieving these results through consistent execution against our core priorities, which are growing converged customer relationships, operating with greater efficiency and investing for durable growth and attractive returns.

At the end of the third quarter, nearly 43% of our Advanced Home Internet customers also had a postpaid wireless account with AT&T. We added approximately 350,000 customer relationships to our base of converged accounts in the third quarter, which is a faster pace of sequential growth than we achieved in the second quarter. This includes momentum in territories we acquired from Lumen, where converged penetration has increased by 250 basis points since we closed the transaction in early February.

Our fiber reach has never been greater. Our spectrum position has never been stronger. And we're reaching into this large underpenetrated opportunity with new plans and pricing strategies designed to bring more converged customers onto our network.

As we expand our fiber reach, we're using tiered introductory pricing to build penetration and anchor the home early across a wide range of customer cohorts that we can grow our business with over time, by attaching wireless and other high-value services and features. With fiber, this is a differentiated and effective go-to-market strategy that we're able to execute efficiently as a result of our local operating scale and owners' economics across 5G and fiber.

We're also removing friction for consumers by constructing plans built around simplicity, transparent value and convergence by investing in digital experiences that allow customers to do business with us the way they want to, and by offering peace of mind through America's Best Guarantee. By continuing to put our service and customer experience at the forefront of our customer value proposition and shunning uneconomical device offers, we are well positioned to drive durable converged relationships.

We saw improved traction with business accounts in the quarter and achieved our second consecutive quarter of year-over-year growth in business Advanced Connectivity service revenues. Our performance reflects improved sales execution across direct, indirect and digital channels, greater penetration of fiber and fixed wireless, and better positioning with business customers that need reliable, secure and high-capacity converged connectivity across multiple locations.

Our broad and deep fiber network also has us well positioned to be a leader in AI-grade connectivity. Over 90% of mapped U.S. data centers are within 10 miles of our fiber and over 80% are within 1 mile. This is one of the reasons why the nation's leading hyperscalers are working with AT&T to support their rapidly-growing high-capacity connectivity needs. This includes AWS, who is using AT&T to connect their locations with high-capacity fiber. We're also working with Microsoft to support its high capacity needs as AI growth drives demand. These moves are simply foundational to drive sustainable value by layering high-margin services and network intelligence on top of that fiber to connect growing AI workloads across the entire ecosystem, including business endpoints, metro aggregation and managed multi-vendor cloud ingress and egress.

I've said this before, but it's worth repeating. The strength of our performance comes from the structural advantages we've established after years of consistent and targeted investment. In the dense urban and suburban areas where we deploy both fiber and 5G infrastructure at scale, we believe that our competitors cannot and will not match our operating proficiency, network performance or exceptional converged value proposition. By the end of this decade, we expect to operate the most advanced and technologically open communications network in the U.S. built on a foundation of dense interconnected metro fiber and a nationwide wireless network, that I should mention already functions at scale indoors and out. This asset base puts us in a leading position to serve converged consumer and business customers today and well into the future as AI becomes a key driver of their connectivity needs and requires ever-improving high-performance networking.

Over the past few weeks, we've announced several agreements that further advance our goal of being the leading provider of advanced connectivity in the U.S. This includes the launch of our joint venture to help close coverage gaps by making satellite-enabled connectivity easier to deliver where traditional service is limited. We announced an agreement with Global Infrastructure Partners, a part of BlackRock, and CPP Investments to form a JV that includes GigaPower and the fiber assets we acquired from Lumen, in order to accelerate fiber deployment outside of our traditional operating territories.

We also reached a multiyear agreement with Corning to supply the fiber we need to support our goal of reaching 60 million plus fiber locations by the end of this decade. We signed an agreement to sell our wireless business in Mexico. Combined with our industry-leading capital investment and recent acquisitions of spectrum from EchoStar and fiber from Lumen, these agreements sharpen our U.S. investment focus, strengthen our convergence strategy and position AT&T to have the leading share in advanced connectivity service revenue by the end of the decade.

On the cost and simplicity side, we continue to make significant progress in our work to exit less efficient copper-based legacy services. We're putting our customers at the center of this transition and we're working with them to upgrade to newer, more reliable services like Phone Advanced, Fiber and Internet Air. Our progress here is picking up momentum. We now have more than 100 wire centers with no customers supported by legacy services. This is an industry-first at scale, and we're on track to reach our target of discontinuing copper-based services in 50% of our wire centers outside of California by the end of 2027 and substantially all of them by the end of 2029.

We still have a lot of work to do here, but we've put ourselves on a path to remove significant cost and complexity as we remove outdated technologies from service. As we accelerate this work, we believe we have a meaningful medium-term opportunity to monetize the copper embedded in our legacy network.

As I close, I think many of you are aware that this will be Pascal's final quarterly report. I know he'll tell you that his tenure has been a relaxing walk in the park and that nearly 6 years has raced by, but it's fair to say much has been expected of him over this period. It's also fair to say he delivered on those expectations. I could not have asked for a better partner and leader to support the transformation of AT&T's business model. His story is an inspiring story of solid values, quiet determination, respect and care for others, and a daily focus to solve problems on behalf of shareholders and the company. I know I speak for the broader team at AT&T when I say we'll miss his daily presence, but we'll be forever grateful for his leadership and outsized contributions.

And now for the final time, Pascal, over to you.

Thank you, John, and good morning, everyone. At a consolidated level, total revenues in the third quarter was up 5.3% year-over-year, with service revenues growing 3.8%. Adjusted EBITDA grew 5.4% year-over-year and we achieved an adjusted EBITDA margin of 38.7%. This is our highest third quarter consolidated adjusted EBITDA margin since we refocused our business on Advanced Connectivity at the beginning of this decade. And we achieved this record despite 12% growth in equipment revenue, which is dilutive to margins. This highlights the continued improvement in our underlying operating leverage as we grow our base of converged customers and achieve efficiencies from our transformation initiatives.

For the full year, we continue to expect consolidated service revenues to grow in the low single-digit range and now expect consolidated adjusted EBITDA to grow in the upper portion of the 3% to 4% range. During the fourth quarter, we expect our adjusted EBITDA growth will be impacted by higher marketing and other customer acquisition costs compared to last year, driven by an extended device launch cycle and our expanded fiber go-to-market opportunity, as well as unfavorable vendor dispute settlements of approximately $100 million that will primarily impact our legacy segment.

Adjusted EPS of $0.65 was up 20% from $0.54 in the third quarter of 2025, driven primarily by growth in adjusted EBITDA and lower depreciation expense. Our third quarter results reflect 2 notable adjustments, including a $2.6 billion noncash impairment charge related to our agreement to sell AT&T Mexico and a roughly $800 million employee separation charge that will impact cash primarily in 2027. For the full year, we now expect adjusted EPS in the $2.40 range, compared to our prior outlook of $2.25 to $2.35, primarily because of lower depreciation expense related to held-for-sale accounting for AT&T Mexico.

Capital investment was $5.6 billion in the third quarter, up roughly $300 million year-over-year. Consistent with our outlook, free cash flow was approximately $5 billion, essentially stable compared to the third quarter of 2025. For the fourth quarter, we expect free cash flow of approximately $6 billion, compared to $4.2 billion in the fourth quarter of last year. This primarily reflects an outlook for higher cash from operations compared to last year when our fourth quarter results were impacted by discrete items, including a large contribution to our pension and legal settlements. For the full year, we continue to expect $18 billion plus of free cash flow, with $23 billion to $24 billion of capital investment.

We now expect cash taxes in the $750 million range for the year, compared to our prior outlook of $1 billion to $1.5 billion, as we continue to benefit from the provisions in last year's One Big Beautiful Bill Act. Compared to our initial outlook, this is offset by higher cash interest payments, which primarily reflects higher gross debt and interest rates as well as increased investments in working capital driven primarily by higher upfront spending on devices and other customer acquisition costs as we drive higher levels of customer additions across our Advanced Connectivity services.

In our earnings release, we reiterated our long-term outlook for consolidated growth in service revenues, adjusted EBITDA, adjusted EPS as well as our outlook for free cash flow through 2028. As a reminder, our long-term outlook is presented on a continuing operations basis and excludes our Mexico wireless business beginning in 2027.

As we continue to extend our industry-leading scale in fiber, we are becoming more effective in how we plan, build, install and calibrate the pace of our network deployment. We believe this positions us to reach 60 million plus locations with fiber by the end of the decade with annual capital investment that is roughly $1 billion lower than we previously planned. For 2027 and 2028, this represents annual capital investment in the $22 billion to $23 billion range.

Based on the attractive opportunity we see to grow fiber and converge customers as we expand our fiber reach, we expect to reallocate this capital into the business, primarily through working capital in support of customer acquisition investments as well as higher interest payment. We will provide more color on the drivers that support our outlook for $19 billion plus of free cash flow in 2027 as part of our fourth quarter earnings report early next year.

Our consolidated growth continues to be driven by momentum within our Advanced Connectivity segment. Advanced Connectivity service revenues grew 6.1% year-over-year with EBITDA increasing 7.3%. Wireless service revenues grew 5% year-over-year, driven primarily by growth in our subscriber base and a 4% growth in postpaid phone ARPU. This reflects great execution of our wireless pricing strategy, including the impact of our new and refreshed rate plans, as well as our consistent approach to managing back book pricing across the base. We remain focused on adding the right customers on the right plans with the right offers. This approach resulted in 379,000 postpaid phone net adds during a competitive third quarter, with stable year-over-year postpaid phone churn of 0.92% and strong margin contribution.

Advanced Home Internet service revenues grew more than 23% year-over-year in the third quarter, driven by the increase in our customer base. We achieved 696,000 Advanced Home Internet net adds in the third quarter, including 416,000 AT&T Fiber net adds and 280,000 Internet Air net adds. This was a record quarter for combined net adds across these services, driven by the significant increase in our fiber reach, our deeper mid-band spectrum position, positive seasonal dynamics and strong uptake of our introductory pricing. During the fourth quarter, we expect that our Advanced Home net adds will moderate as we typically see lower demand in this category during the holiday season.

Fiber ARPU declined 4% year-over-year in the third quarter. This reflects a range of factors, including traction with our introductory pricing, our growing base of converged accounts that earn discounts, and growth in lower-ARPU fiber customers on the Quantum brand in territories we acquired from Lumen.

In the near term, we expect fiber ARPU will continue to be impacted by these dynamics, including during the fourth quarter when we anticipate a similar year-over-year decline compared to our third quarter results. But as we've discussed before, our goal is to optimize growth in total Advanced Connectivity service revenue and EBITDA, not specific operating metrics. And we believe that our third quarter results highlight how we are improving overall margins while driving balanced and profitable growth across our portfolio. This includes another quarter of improved momentum in Business Advanced Connectivity service revenues, which grew 2.5% year-over-year with Fiber and Advanced Connectivity service revenues growing nearly 9%.

We achieved solid growth across wireless, fiber and fixed wireless, which is now consistently offsetting structural pressures on transitional services such as VPN and wholesale. We exited the third quarter with great operating momentum and we continue to expect full year Advanced Connectivity service revenue growth of 5% plus and EBITDA growth of 6% plus.

In our legacy segment, service revenues declined approximately 25% year-over-year, consistent with our expectation for continued 20% plus declines as we power down copper-based services and migrate customers to more advanced and reliable technologies. Legacy EBITDA declined about 27%, and we continue to make progress taking cost out of the business as we ramp the retirement of legacy wire centers. As I noted earlier, our fourth quarter results will be impacted by unfavorable vendor dispute settlements that will be primarily reported within the legacy segment. Copper retirement remains an integral part of our overall cost transformation, and we remain on pace to achieve our target of $4 billion in annual consolidated cost savings by the end of 2028.

We ended the third quarter with net debt to adjusted EBITDA of 3.13x, up from 2.68x in the second quarter, which reflects our $23 billion purchase of spectrum licenses from EchoStar at the end of July. The transaction materially deepened our low and mid-band spectrum holdings and puts us in a great position to execute our strategy. We continue to expect net debt to adjusted EBITDA to return to a level consistent with our target in the 2.5x range during 2029. This will be achieved through growth in adjusted EBITDA and debt repayment using excess cash flow and proceeds in 2027 from closing our fiber JV and the planned sale of our Mexico wireless business.

We returned $4.8 billion to shareholders during the third quarter, including $2.8 billion of share repurchases. Through the end of the third quarter, we repurchased over $7 billion of stock this year, and we continue to target approximately $10 billion of share repurchases in 2026.

Before I move on to the Q&A, I want to take a moment to thank everyone on the call. Over the years, your thoughtful questions and candid perspective have sharpened my thinking and made every conversation more valuable. I'm grateful for your engagement. I'm really proud of the work we have done here over the past 5-plus years. And as a shareholder, I'm very pleased that Jennifer will be stepping into the CFO role after the new year.

Brett, we're now ready for the Q&A.

Thank you, Pascal. Operator, we are ready to take the first question.

[Operator Instructions] The first question today comes from John Hodulik with UBS.

Great. And before we begin, I just want to say congrats to Pascal on the retirement. It's been great working with you. And welcome to Jennifer.

Maybe for John, if we could start first with the fiber strategy. Could you talk a little bit about your sort of goals for -- in terms of penetration rates? You have been talking about a 40% penetration rate. And now I think you have aspirations to get to 50%. Just based on what you're seeing in the market and from competition and fixed wireless penetration, is 50% still sort of the expectation? And could it go higher? And maybe what are you seeing in the Lumen markets?

And then as a follow-up, John, to your commentary about the signal -- the wireless signal radiating internally. Obviously, a lot of questions about the Starlink mobile strategy. Just can you -- any high-level thoughts on the use of LEO constellation to provide mobile service, and maybe what it would take to build out a terrestrial footprint to complement that service and match what you get from AT&T from a mobile standpoint?

John, so our fiber actually -- my fiber goals would be to have 100% penetration, but it may take a little while to get there. I don't think we have to step back and say we have limitations to this over time. We clearly, when we think about how we invest in an area, we do our economics assuming we can get to a terminal penetration rate of 40%. And we don't want to go invest any place where we don't think we can get adequate returns at that level. That's not what our internal objectives are. We believe we can exceed that level.

What I've shared with you before is we have a pretty straightforward process that gets us from 0 to 40% in terms of tactics and timing. The 40% to 50% range is a little bit different. It takes a little bit more time, takes a variety of different tactics, and it comes with persistence and consistency. And frankly, it will lean a lot on us being very successful on more converged customers to get there. And so still fully believe that's achievable. And I would expect that as we go forward, you've heard me say that we have a lot of different plays that we can run. Obviously, in all markets, I'd love to be able to get to that 50% penetration with a direct retail relationship. But I've also shared with you that in this company and in this industry, it is not beyond any expectation that you wouldn't have some wholesale at some point in time.

And we got a lot of capacity on that network. We could literally handle 100% of the customers in an area if they all came to us. So I want to make sure that we're putting all that capacity to use over the long haul. And if we hit a place in particular markets, for example, where we think we've reached our ability to penetrate under our brand, as this matures over time, is it possible that we might open up the network and have others sell on top of it to drive penetration and returns up? I wouldn't rule that out over the long haul. So I think there's more innings to play in this game as we move forward.

The Lumen markets, as you know and we shared when we acquired the asset, were underpenetrated comparatively to what AT&T markets might have been for their same build tenure. And so what we've been doing, as you're aware, is trying to convert all those markets to AT&T branded fiber. We're just about through that process. We have a couple left to go to finish that up. As we convert those markets to the AT&T branded fiber, as we put the business processes in place that we have honed in our other operating regions and apply them to those markets, we're seeing penetration march up.

That penetration is marching up in a manner that's consistent with the business case that we outlined in our goals. I think we shared with you when we did the transaction that we expected the terminal penetration levels of our out-of-region markets to be somewhat lower than the terminal penetration levels of our embedded traditional markets. That again was done to put some conservatism in the business case.

With what I'm seeing right now, maybe that is a little too conservative. We'll see as time marches on. And as I shared in my remarks, the other advantage we're seeing is increasing in the convergence rate, we're up 250 basis points since the March, end of February acquisition. And that is part of the reason you're seeing the strong margin performance in the wireless business as well. So I feel really good about where those are and where we're going to go over the long haul.

In terms of what it takes to build a converged -- scaled converged network, which is what I believe everybody is marching into here and what some of the new entrants are talking about needing to do, it takes a lot. I may be not the best person to reference on that. I might -- next time you bump into Charlie, you should talk to him and ask him what it took and how many years and complications that come up in doing those types of things. It's not something that gets done overnight.

I wouldn't over-rotate on what I would call 1 carrier of low-band spectrum. Let's put this in perspective. In our scaled network, we run, depending on the metro, somewhere between 6 to 8 carriers of low-band spectrum. In addition, that spectrum is not just housed on macro antenna sites. It exists on every indoor building system and high-rises in hospitals and stadiums. I've shared with you that you can go into a metropolitan area like Chicago and look at the traffic on the network, and somewhere between 40% to 45% of the traffic on any given day is traffic that's originated from inside of a building. And as a result of that, how you perform indoors, of course, is extremely important. And we shouldn't think about those as being nominal loads. They're significant loads even with robust WiFi networks that are out there.

So I think it takes a lot of years and a huge level of investment to get to the kind of performance levels that customers have become accustomed to in scaled networks that are running on the infrastructure that most of the incumbent providers have today. So I think there's going to be continued advances. We're certainly excited about the continued advances in LEO technology and how it might help us at the edges of our network and preventing folks from walking off the network, how it might help us in places where we have less density and maybe we can lower our cost structure, rather than putting less-used macro sites in place, serving those differently.

But we've got the scale where the scale matters. 98% of the traffic is where we've already built and where we already have capabilities, and customers have become accustomed to a level of service that is pretty high. And rightfully so, they pay us a lot for what they get from us and they should expect it to work.

So that's my point of view on it. I feel really good about where we're at. I feel really good that we're going to have the best converged set of assets out there, both with fiber and our robust wireless network to meet those expectations moving forward, especially in the upstream.

The next question comes from Michael Rollins with Citi.

I also want to send my congratulations to Pascal on your upcoming retirement, and a welcome to Jennifer. Two questions, if I could. So first, if you drill down further on the broadband ARPU, and can you share what you're seeing in terms of the performance of broadband ARPUs and revenue in your more established mature fiber markets relative to the expansion markets? And do you see broadband returning to some degree of annual pricing power, whether it's through the speed, [ share ] mix, future upsells or just simply changes in retail pricing over time?

And then secondly, John, you referred to some of the AI opportunities earlier for AT&T. And just curious, what are the signals that you're currently seeing in the network from enterprises, hyperscalers and consumers in terms of early uptake of data traffic and consumption and how customers may be engaging with you differently in terms of how they're looking to invest in connectivity with AT&T?

Michael, so the way I think about broadband ARPU is what we want is a portfolio of customers that basically buy from us at all discrete price points. And I think you've heard us talk about the fact that we've been somewhat underpenetrated in maybe more of the value segments. That's true both in our wireless business as well as our fixed business. And I see no reason that, especially when you're building a network that has the kind of capacity that a fiber network has, that we shouldn't think about we want to play in every segment. We just want to play in those segments at the right price point.

And I think in our, what I would call our more mature markets, if you went in and looked at them, what you would see is a very nice distribution of folks that are at higher price points because we went and marketed largely as premium, and it was premium. And we're now coming back and doing the cleanup on convergence to pick up additional households and, in some cases, we're going in with different price points and a different performing product. We want to make sure that the price point is matched to the performance of the particular product, think rate and speed. And we think that getting that consolidated account in makes sense. And as a result of that, you get some deterioration in average ARPUs.

And I don't want to focus on that exclusively. What we want to focus on is the fact that you're seeing great service revenue growth in our business. You're seeing great customer account growth. You're seeing a margin equation that is fantastic, in my view, based on the kind of growth we're going through. And when I have that kind of equation showing up, that's how I want the team to move forward and how we should think about these things.

And in terms of your point -- your question on what happens in the future, I think what happens in the future is what's happened in the past. That is, you have those relationships and they're good and customers like the product and they stay with you, and we have every reason to believe that a converged customer that's sitting on fiber is going to be a sticky and high lifetime value customer. We shared that with you. They're going to naturally, based on their needs and capabilities that they desire, they'll probably buy up over time.

And so just because we bring somebody in at a more value-oriented price point early on and we can offer at a price point that matches fixed wireless a better performing product, I think the future is bright. Because at some point, that household is going to take advantage of the things that you just referenced, like more capabilities around AI or they have more children or whatever it might be that cause them to say "I need to tick up to a higher speed tier," and we'll be able to do that without breaking a sweat because the network is there and can easily do that on a software adjustment, and we don't have to add incremental capacity in the infrastructure to do that. So I expect there's going to be good stability in that ARPU over time.

In the enterprise segment...

Well, Mike, one other point I'd remind you is as recent as last December, we had a pretty meaningful price increase that impacted much of our fiber base. So consistent with John's response, we have a history of being able to manage the base of pricing across both products.

In the enterprise segment, on AI, what we're seeing right now is what I would call there's just increased workloads that are going on, mostly into the cloud, that people need capacity for to deal with. What the discussions are moving to is a reality that most people are in a hybrid environment where they're running traffic over both their fixed and mobile infrastructure, they're running traffic across multiple cloud layers. And what they need to be able to do is to ensure that certain applications that have higher requirements or performance are consistently managed across both those networks and across multiple cloud fabrics.

And so the discussions right now of the next application are how do we basically tag and mark performance level packets to ensure that particular applications that run in both environments can maintain a high level of service, that's consistent with what the performance is if it's an AI-based driven application or capability. Oftentimes, those have more stringent requirements on latency, round-trip performance. If you're doing inference, you need quicker response times. And people want that performance. And they're doing more of it, so they just need more share capacity. And that's part of what's driving the lift.

What I expect, based on other conversations that are going on is we, in fact, will start to see more applications pop up that are even more demanding. And when you start thinking about what happens in the robotics space, what happens as more autonomy increases at the warehouse levels, those things are going to drive another layer of requirements and performance. And when that happens, I believe there'll be probably another investment level that will be required. It will be managed networks that will be necessary given the performance requirements that are essential to allowing that to happen. And once you have that foundational infrastructure, that what I would call fiber-fed infrastructure that has the ability to track packets across both fixed and mobile and deliver a high-quality service, I think you're going to be in really good shape.

I just might add for clarity, the reference I made to some of the work that we're doing with the hyperscalers, where that fits into this picture is, as you know, we've invested heavily at the edge and endpoints both in our wireless business and our fixed business. We have a fantastic metro-to-metro infrastructure, as you might imagine, based on the nature of our network and how we operate. What we want to make sure is that our backbone in and out of those metros that hit those cloud fabrics, we have absolute visibility on how we do that ingress and egress.

And so by involving ourselves with the hyperscalers that are driving most of the workloads in that space, that makes sure that we have the right expressways or on-ramps in and out of their clouds, so that is our metro and our endpoint networks that we've built and invested in so heavily can have that end-to-end visibility and end-to-end performance. And we want to do enough work in the long haul, and then the data center -- the data center space, and partner in the right ways where we ensure we have that right infrastructure in place and we're at the right points of presence to be able to offer that back to customers.

The next question comes from David Barden with New Street Research.

Pascal, it's been a pleasure. And welcome to Jennifer as well. So I guess, John, I agree with you, I think that the idea that SpaceX and Elon are going to invest a tremendous amount of resources to take a business that's very well functioning and tear it down is probably the wrong way to think about the ambitions in mobile, which is to kind of create new connectivity opportunities in AI and robotics and cars and all these things. And so I think that maybe the market is getting that wrong.

But I do think that there is this question about their ability to address the broadband industry, maybe at the value end of the market where fixed wireless access has been so successful and how that presence might alter your thought process around fixed wireless access, its growth opportunity, its role in nurturing how you build and bridge to the fiber business. If you could kind of elaborate a little bit on that, that would be great.

And then Pascal, just quickly, we threw the word working capital around quite a bit in the prepared remarks. It feels like the intention has been to reduce subsidies on handsets as a method of growing the wireless business. But as we reduce CapEx in fiber through efficiencies, we're reinvesting it in a combination of working capital interest expense. Could you elaborate a little bit on how this working capital investment is allocated to building the business?

So Dave, I would tell you this, that the most durable customer combination in our industry is a fiber-fed broadband customer with a great wireless service on top of it, bar none. It's going to be the most sustainable, longest lifetime value. In my view, when I talk about service revenue share leadership in the industry, the math and calculation on the footprint that we're building for fiber and how we think about expansion and our partnerships is all driven on a foundation of how do we get enough footprint enough converged services in a way that, that puts us in a share leadership position for consolidated service revenues moving forward. And over the long haul, whoever steps into my chair after me, that's, in my view, kind of the race you're running for, and those are going to be the most durable customers, whether they're consumers or businesses moving forward.

We have, as we always have in this industry, those transition times of technology. It's not to say that there wasn't money made off of digital subscriber lines and ADSL and other capabilities. But they are transient and they run their course if they're not the most sustainable technology. And to your point, I think fixed wireless access, as I've said, we'll have certain customer bases and applications that are going to make it a sustainable technology, but there are going to be other ways that it's used and are being used today that ultimately will be outstripped by investment in other and newer technologies.

As I've said, I think there's some -- I think LEO constellations are fantastic for delivering bandwidth to rural areas. And they may well be the most efficient and effective way to get bandwidth into less densely populated areas moving forward. Where there's a motivation to invest in fiber, it's going to be really hard for people to beat the consolidated value proposition of fiber and wireless, especially as the technology matures or the service capabilities around it mature to allow less friction for our customer, offer more effectiveness with it and make those products work even better together.

So I think over time, your point is correct that there's going to probably be some kind of a peak and then a downward trajectory of fixed wireless as those technologies and the better technologies settle into places. But that's not inconsistent with the set of expectations that we've been building in this company and that we've used to drive our guidance to you over the long haul. And it's not inconsistent with what I've articulated as this company's goal to be the service revenue leader in the industry as we exit this decade.

Dave, you are correct in saying that the level of promotions remains the same. And the customer ultimately is going to bear the cost of higher device prices. With that said, there is a timing element. So generally, we pay for the devices within a relatively short term. So think about phones, tablets, gateways, we pay upfront and we collect over time, typically the life of the customer. Therefore, we are investing upfront and recovering it over time. So that is the working capital drain that I described in my script.

Also impacting cash is the disposition of our Mexico asset. And as I mentioned in my comments, higher cash interest, principally related to rates.

The next question comes from Sean Diffley with Morgan Stanley.

Congrats to Pascal on an awesome career. Two, if I may. The first on agentic and the second on CapEx and free cash flow outlook. So John, just an overarching question on how you're thinking about potential rise of AI agents like Muse impacting the connectivity sector or not. Do you see this as a deflationary force in the industry and a catalyst for switching? And then talk about the risk and opportunity that you see for AT&T specifically.

And then on CapEx, I think it came down by about $1 billion. For '27 and '28, you kept the free cash flow guide, the same. I think you talked about improved efficiency on some of the fiber builds. I think the Mexico sale might be in there. But anything else we should be thinking about on the CapEx and free cash flow swings?

Sean, so look, I think there's a lot that still is unpacked on what is technology in general, agentic search, agents, et cetera, going to do to everybody's funnel management. And I don't pretend to know exactly how that's going to play out. I will tell you, we're spending a lot of effort and time on it and there's many things we've been doing over the last several months and quarters to fine-tune our strategies on how we make sure we stay relevant.

I would tell you as different as it's going to be, what I'm encouraged by is we seem to be doing just fine in making the adjustments we need to make because there's been quite a bit of change already and how consumers are searching and looking for information and what they're doing around it. And I think we're probably in the early innings of that, but we're aware of it. We're adjusting to it.

I think at the end of the day, what's really important is you have good products and those good products have the right reputation and the right value in the market. And then ultimately, you will be successful as you move forward. And when you're operating in a position where you're putting technology out that's the lowest marginal cost technology that performs better, I think that puts us in a really good position to make sure we stay in that conversation moving forward.

Specifically to your question about Muse and some of the other chatter that's going on right now, what I would tell you is, philosophically, we believe the customer gets to make choices on what they do with their service. That's always been our point of view. We also believe customers need to dictate their path forward on things. Customers have been pretty clear with us over the past number of years about account security, account management, account control. Before agents ever showed up, there's all kinds of scenarios that go on today in real life that cause people to have to be really specific on who the decision-making authority is on their account. We run family plans and have many, many people on them. We've got people whose life circumstances change where there's a responsible party and there's maybe a separation or marital discord that changes things.

The notion of an account having an owner and a responsible party is not a new issue. As long as that responsible party is authorized and allowed to go out and make a transaction and can confirm that in the way that we would normally confirm those things, such as validating their identity and ensuring they're authorizing it, they should be able to do to their account whatever they want. If it's their agent that decides something needs to change, and they've authorized an agent to do transactions on their account, and we can authorize that transaction in the same way we would normally confirm such as when there's a SIM swap or a major change on an account today, we use things like 2-factor authentication to ensure that it's valid and confirmed, those same principles and practices will be in place moving forward with agents.

But the important thing is that the customer will control. They'll say whether or not their account is authorized to be managed by an agent. And then if there is a large transaction that takes place, there will need to be a validation and authentication of that to ensure that we're not doing something that encourages fraud or is inconsistent with what the account owner would want to do.

Over the long haul, my point of view, just like today, is we want to make sure the customers feel like they're getting value for what they're buying. We want to make sure they're rightsized to what they need in their products and services. We do that as a normal course of business when people come into our stores and talk about what their needs are or when they're working with us online and our algorithmic approach, I think agents are probably going to be another way for people to do that and be able to get insight as to what works for them. And I think over the long haul, with good products out there, treat people well, it will be fine for our business and we'll have accretion of new customers who find us who wouldn't have found us other ways. And we'll have some customers who choose to be a little bit more efficient how they buy from us.

Pascal, do you want to touch on the cash flow issue?

Sure thing. On CapEx, here's the way to think about it, Sean. Overall, CapEx, we said, is going to be down about $1 billion. $300 million to $400 million of that is going to be Mexico wireless CapEx. The balance is from the efficiencies I described in my comments.

Think about this, we've been doing this for a very long time. And with that comes the advantage of scale and improve ability to get it done faster and cheaper. We have long-term contracts with partners we've been doing business for a very long time. All those things are allowing us to do -- to build a little bit more efficiently and effectively.

In terms of overall cash flow, the pieces to think about are the absence of Mexico probably costs you $400 million to $500 million annually. And beyond that, with higher device costs upfront that we're paying for and collecting over time, there will be a working capital investment that we have to make. Those are the piece parts along with the interest cost.

The next question comes from Craig Moffett with MoffettNathanson.

You talked about the fiber led strategy. Given the rise in interest rates, you've seen some of the smaller independent fiber builders starting to struggle. Brightspeed issuing a going concern warning and that sort of thing. Is there an opportunity for you to pick up attractively priced assets in a consolidation cycle given the rise in rates and what that does to some of the smaller independents?

Craig, yes, there are some -- I think part of the reason why we're comfortable where we are in our investment levels is one of the trends that you cited, which is, mistakenly, some people went into the space thinking that they could build little pockets of fiber in places and never get to scale in a metropolitan area, and be successful. And the reality is that's very hard to do. And in some cases, there's been maybe more concentrated builds with the business model on legacy services and other things hasn't been aggressively managed to come up with an overall profitable equation. And so we see the same thing.

I think I'd answer it the same way I've answered it in the past, tell me the price and I'll give you the answer to the question. And I think you've seen up to this point in time, I've been willing to go and acquire footprint and do things when I feel like we're getting a price that's an appropriate price. And we think if the infrastructure has been built in a way that's consistent with our standards in our practices that we can operate effectively over the long haul, and the price is right, sure, I'd be interested in picking up more footprint if it holds to my point of view of us getting scale in the right geography. I don't want to just buy a footprint for the sake of buying it. I need to make sure it bridges to other parts of our network where we can have the kind of efficiencies and scale on advertising and the growth in our wireless business and all the things that we think kind of are the magic and the economics around that.

Lumen clearly fit that bill across the footprint that we picked up, in my point of view. If other opportunities were like that, that were priced that way, showed up, sure, I'd look at them, is options and possibilities for us. Right now, I would say, in some cases, maybe there's expectations in that market that aren't consistent with what I just articulated.

Operator, I think we have time for one more question.

The next question comes from Sam McHugh with BNP.

Congrats Pascal, and welcome, Jennifer. On the fiber ARPUs, helpful color on the fourth quarter. The '27 guidance, do you anticipate a similar decline in fiber ARPUs, as we're seeing at the moment?

And then secondly, on the wholesale fiber point, John, I think you raised this maybe a year or so ago first. Obviously, you lose a bit of kind of wholesale -- sorry, cross-sell potential in wireless if you wholesale. Would you look for reciprocal buybacks from others as a precondition of wholesaling fiber?

The way to think about Q4 is, as I said, I expect Q4 to be down year-over-year around the same rate as we saw in Q3. That would imply like moderate -- a sequential moderation. Overall, the guidance that we've given, if you recall, over the 3-year period is to have most of the growth. The vast majority of our growth is going to be driven by customer additions and not ARPU -- not pricing. And that continues to be our expectation. So overall, we continue to expect relatively stable ARPU over this period.

Sam, on your question about wholesale, your question -- and first, you're thinking about it the right way, which is wholesale doesn't mean you have to open it up to all comers. Wholesale could mean that you wholesale it to those that are more strategically positioned to help you in aggregate. And an example of that would be potentially there's a wholesaler who wants to, for example, have an exclusive MVNO relationship with you, or maybe there's [ a paired ] footprint somewhere else outside of existing fiber footprint that we have that we gain access to that we wouldn't have otherwise.

And also, to your point, and as I indicated in my comments, you do this after you think you run all the plays that are your highest value plays at retail. So our goal is to do everything we can to pick up every high-value customer we can to serve at retail. And we're having great success doing that, as you're seeing with the results that we've been sharing with you. And we'll continue to run that play until we hit a place where we think we've topped out.

And I think what's important to understand is you don't have to make these decisions on a national basis. These can be very geographically driven. And I think as, over time, what we know, and I think what the cable industry would show you, is a lot of these decisions and a lot of your approaches to market are low, and they have to be. And really if you look at what we've recently done in reorganizing our business, I don't know how many of you picked up on it, we did a structural change in our consumer space in our go-to-market structure, the whole reason we did it is a realization that we're at a place where not all markets are created equal. There are differences in infrastructure. There are difference in tactics that need to be used in particular geographies of the country. Depending on what your asset base and the tactics you want to move forward, we needed to organize our business, our management teams or incentives in a way that drove that. And I think you're going to make those kind of decisions on a location by location and circumstance by circumstance basis.

All right. Thank you for the question. Operator, that was our last one. You can go ahead and close out the call.

Thank you. The conference has concluded. Thank you for attending today's presentation. You may now disconnect.

Thank you all for attending the last presentation of the 2026 Bank of America Telecom and Media Conference. Really happy to have AT&T helping us wrap up this year and excited to have Pascal and Jen join us here this afternoon. So thank you both for being here.

Thank you for having us.

Thank you.

And I think you might have a safe harbor that you wanted to show, Pascal.

Yes, indeed. Can we pull up the safe harbor. Some of the comments today will be forward-looking and are subject to risks and uncertainties. Please refer to our website for more information.

Great. Thank you, Pascal. So I want to kind of cover a broad range of topics, but I want to start with priorities and momentum in the business. And going back to the second quarter. So big picture in the second quarter, AT&T reported faster growth in service revenue, adjusted EBITDA and adjusted EPS than in the first quarter. And you also reiterated your full year outlook. So I'd love to hear from you, Pascal, what has improved most meaningfully in the underlying business? And what gives you confidence in that momentum carrying through to the second half and even longer-term guidance period?

Yes. Look, I think we are -- I think we reached the tipping point in the second quarter, and we expected that. I mean I'll take you back the last several years, we've been investing against priorities that we have deep convictions against. It is our belief, if you want to be the best connectivity company, you need to have the very best technology. That is, for us, fiber and 5G. We've made enormous investments in both bolstering our spectrum position, modernizing our wireless network and deploying fiber.

Last year, we significantly increased -- enhanced our position by acquiring -- by announcing the acquisition of the Lumen consumer assets and the EchoStar Spectrum. Together, those assets position us for accelerated growth. We said it at the time we did those deals. Those deals have both closed now. And we expect to see an acceleration in broadband revenue growth, both fiber and fixed wireless. When we acquired EchoStar Spectrum, it allowed us to open up more areas with fixed wireless. So the combination of those 2 acquisitions plus our organic build that fiber that we have been at for several years now really has increased the opportunity set for us to drive converged relationships.

Our consumers have told us very clearly, they want to buy from one provider. And if we can provide them the very best services at a compelling price point, where we have owner's economics on both sides, we believe that is a critical advantage. Ironically, in many ways, we are an insurgent in broadband in that for years, our cable peers have enjoyed a virtual monopoly. And we are overbuilding in their areas. We're able to bring a better product at an attractive price point, knowing that we have -- we can trade economics between wireless and fiber. And so it's a great play and a great position to be at, and we think there's a lot of room to run.

As you know, we continue to build out significant fiber locations, both in our legacy -- in our historical footprint plus in the footprint that we acquired from Lumen, and that's going to continue to give us nice runway. So we sit here today, -- we have guided for the next 3 years to grow earnings double digits, EPS double digits. We said this year that we are returning $18 billion back to our owners in the form of dividends and buybacks. Over the next 3 years, we expect to deliver $45 billion back to owners, plus double-digit EPS growth and accelerated EBITDA growth from here. So all in all, I am so incredibly proud of the organization and the position we find ourselves in.

And you touched on convergence earlier, and I want to come back to that in a minute because it's really central to the story and even the evolving debate, right, around telecom versus LEO and that entire thing. But I wanted to focus on maybe wireless and competition for a second because we entered 2026 with expectation for elevated competition, right? I think in part because in 4Q, you did see some carriers out with relatively aggressive promotions, not AT&T, but others. In the second quarter, combined, what, 432,000 postpaid phone net adds, higher ARPU, lower year-over-year postpaid phone churn.

So maybe contrary to some of the expectations that the market had entering the year, I'd love to hear what changed during the quarter? And how much of that performance reflects AT&T specific execution versus moderation industry switching activity, and it's kind of a long question. As you look kind of beneath the headline numbers, what customer behavior has changed? Are they switching less frequently? What's changed in their behavior or their activity?

Let me start, and then I'll have Jen jump in. There were several things we knew was going to accelerate our momentum. Remember, we acquired the Lumen assets in February. That first quarter, we knew we were going to have to invest significantly to ramp up our distribution. So that was a headwind we had called out and we expected that. Two, we only had 2 months of Lumen operations in the second quarter. So mechanically -- in the first quarter, mechanically in the second quarter, we knew having a full quarter would also add to our growth rate.

One, we also had pricing actions planned for the second quarter. And on top of that, we knew as we scaled the Lumen assets as we manage those assets and put more marketing muscle behind it that those assets were going to produce more than they have historically. And all things that we are seeing and we are benefiting from that have really helped the momentum. And all those plays has a lot of room to run on top of a great performance by our business segment, which has also reached the tipping point that for years, we've been saying we're going to achieve service revenue growth. We grew service revenues 1.8% last quarter, and we are guiding to growth for the foreseeable future over the next 3 years, low single digits.

So a lot of things are working well. And as we scale our fiber footprint, as we scale the Lumen acquisition, we have a lot of room to run.

And you touched on execution of AT&T strategy and things that you're actively doing. I'm also curious though if you're seeing the consumers are switching less frequently, holding devices longer, maybe put emphasis on network quality, service, what you're seeing with customer behavior and how that's affecting the metrics that you posted?

Yes, I'll build from where Pascal just was, which is we certainly are seeing behavior that is similar to last year with respect to switching. We are seeing same levels. I'd say the industry is very healthy with respect to competition. It is as competitive out there as it has been. Switching levels, we've said they're on par. I wouldn't say they're higher or they're lower. They have held steady as we've gone through the year.

What we're very proud of is that our thesis is holding across 3 fronts. One, the converged strategy is working. Anchoring the home with converged absolutely gives us the opportunity in areas where we are underpenetrated in fiber, such as the new Lumen assets. We can go build off the home, pick up the fiber and then grow wireless where we have not historically had as strong of wireless share like in the Lumen footprint. That thesis is holding out. We also hold on to our wireless subscribers in fiber areas. So that grows the value of the household.

The second thing that we've done, and we did exceptionally well in the second quarter is the team has executed very, very well and consistently on our pricing. We rolled out new pricing constructs earlier this year. Customers have been very receptive to that. We refreshed our plans, and we've gone out there and listened to customers on their pain points. And where AT&T is uniquely positioned is that we are listening to customers who want choice. Customers don't want to pay for more than what they need. And in our traditional plans of Unlimited Your Way, we are leaning into the mix and match view that we uniquely do. So customers truly can go into their family plans where we have large share and mix and match uniquely to the lines they have. With our build the plan, they can uniquely go in at $15 a line and only add the features they want.

And so we look at that and say we will build to the household only the plans and features they want. And it's been very receptive. You mentioned it. Pascal mentioned it, we grew ARPU. We lowered churn at a time when we added all of those lines, we actually had the highest account growth in the second quarter than we've had in over 3 years with postpaid voice accounts. And so that is demonstrating the value of converge. It's demonstrating our execution on price.

The third thing I would say is that we are absolutely leaning into the value proposition of the guarantee. Customers are saying and showing us with that growth that the guarantee value proposition makes sense. Staying consistent with leaning into choice, staying consistent with showing them that our network assets and the fact that we're willing to back up our network assets and our service with the AT&T Guarantee is building trust. And that shows that customers value that trust, they value choice, they value the price equation that we're giving them. So those things are working, and they're positioning us better as we look forward.

Can I build on that for one second because one of your competitors actually called out expectation for higher churn in third quarter, I think in part because they had made some plan changes, some pricing changes. And I think it speaks to maybe difference in execution and very deliberate choices that are made by AT&T and how you touch the customer and how you make those changes. So can you just walk me through briefly how you think about making those changes, interacting with the customer to make it a lower friction, less churn-inducing event? Because obviously, it's a good way and it's a bad way to do it, and it seems as if you're doing it in a good way.

Right. When we look at our pricing actions with customers, we have 3 pillars that we have stayed very consistent with for the last several years. The first is that if we take a pricing action, we ensure that any pricing action adds value for the customer. That is, first and foremost, what we start with. The second is that we are going to be very transparent with the action so that customers understand what's happening, they know what's happening in advance and what value is being presented to them. And then the third is that we come back to choice. And so we will always present it in a way to the customer that says, here's the value that is coming to you. Here are the choices you have within those plans to either stay with the plan you have at the new price point. Here's what you have available to you that might be at a higher price point to get you better or at the lower.

And what we've been able to do over the last several years as we've executed these pricing plans is learn that customers often stay with the plan they're on, some choose to move up and some choose to move down. And we're able to model that with a lot of confidence and able to build that trust with customers. and we're able to then look at and model the churn that we anticipate. And our business cases for these pricing actions tend to be much more conservative with the churn we would expect. That is we model higher churn to make sure that we're willing on the sensitivities to take the action.

So you can accept the consequence of the action.

Exactly. And then we tend to come in lower than our expectation on churn.

That's great. So Pascal, on choice, right, big choice to make in fourth quarter this year, new iPhones announced yesterday, the long-anticipated foldable iPhone, but I think even the lower-end devices, average MSRP went up like $100, something like that. And that's not inconsequential when you think about profitability, and we've run the math on it, right? I think you and others have said that, look, we are not going to keep on increasing subsidies or the consumer needs to be reeducated, right? So heading into the holiday season, what is your thought process strategy around devices, around device promotion? You can't tell me exactly, but how are you thinking about subsidy, especially with the higher device prices?

I'm going to throw on a friend next to me since she is the one making those decisions. But you made a point that's an important one. We are living within a subsidy budget. Just because the manufacturer has decided to increase prices for a variety of reasons, it doesn't mean that, that changes our subsidy budget. And so we have to figure out how to live within that budget envelope. And the team does a really good job of looking at various things and making sure, on the one hand, we're competitive, but on the other, that we are living within that subsidy budget.

And Jen can take you through some of the considerations.

Yes. I'd love to hear more detail on the subsidy budget and how you construct that.

Absolutely. Well, you're getting a front row seat to our regular meetings here. This is -- look, the customers are going to set their demand for the new devices, and we are there to serve customers first. And then we look at it and say, okay, how do we make sure that the AT&T value proposition of network and the guarantee is first and foremost why a customer would choose to come to us. And then let's make sure you have the portfolio of devices you want to choose from and that we're competitive in the market.

But within that, we're doing it profitably. We're not chasing volume for volume's sake. Our goalpost is to win in service revenue. That is how we measure success. So with higher cost devices, we would anticipate, as with anything else, there could be some suppressed demand. We'll see how customers take us. Where we look at it with offers is that we are going to match and produce our offers relative to the customers' value. And we use -- you'll see high-level marketing messages as many do, high-level marketing messages grab attention, they drive traffic, and then we construct the offers underneath that to ensure that our total cost fits within the envelope. And so you'll see a strong message that's competitive at the highest level will generate traffic and the levers we have below that tend to come from these avenues.

First, we can look at the value of the device that gets traded in. And we can tweak that. The newer the device that's traded in, the higher the value. I mean that's intuitive. The second thing we can do is use rate plans. The service rate plans that customers purchase from can gate the eligibility of the higher tiered offers. So if you're on one of our higher tiered rate plans, you then get a higher trade-in eligibility of your device for the higher-end offer. And then the third thing we have at scale that our competitors don't have is a converged scaled base and the ability then to use these offers to drive scaled converged growth. And so the more value on the household account itself, the more value we're willing to give on the offer because the long-term value of the account grows.

So you're solving for CLV.

Absolutely.

That's what you're solving for, right?

At the end of the day.

That's all right. You're not solving for net adds. You don't have an net add target anyway. So you don't have to worry about hitting that target.

That's right.

We are very deliberate in that regard.

Very deliberate, yes. That's clear. So just on the consumer growth and share gains, you added about 147,000 consumer postpaid wireless accounts in 2Q. From where are those new relationships coming? And does AT&T sustainably gain market share among 1 line, 2 line and even value-oriented households where historically, I think you've actually been underpenetrated in those different segments of the market. So I guess my question is from where are you seeing growth? And is it primarily from historically underpenetrated?

The growth that we are seeing is from our value segment. We've been open about that is where our underpenetrated segment is. It's where our opportunity is. I would say it is still an opportunity. So that is a runway in front of us where we still under-index. But absolutely, the accounts you're referencing and our highest in 3 years, as I mentioned, is where we are seeing the majority of that growth.

What I would tell you is the growth that we look at is in this formula, the right product at the right price and the right offer to the right customer at the right time. And so making sure that we take our converged formula of fiber and Internet Air, our fixed wireless product plus wireless target it at the right price construct and offer construct towards 1- and 2-line accounts versus our very valuable base that has multiline accounts and then mirror that against our pricing constructs of Unlimited Your Way of Build-A-Plan or our new OneConnect plan that we're testing and mirroring those out across the segments such that we get the highest, what we would call LTV, CLV such that we are growing converged households at the end of the day. That is the formula we're solving for. So yes, we're seeing growth here. We also see growth from protecting the base.

Okay. That makes a lot of sense. And you mentioned FWA a few times, both of you have. And I want to go back to second quarter and make sure I understood some comments because I'm an analyst always interpreting things probably incorrectly a lot of times. And I think John Stankey said, I paraphrase here, you'll probably correct me, that you'd be prioritizing fiber in markets, which is not surprising, right, where you have fiber in those markets and maybe less emphasis on FWA in the markets where you have fiber, right?

When you interpret that, I thought maybe that meant less emphasis, less building out of FWA and an even greater focus or acceleration in fiber given this potential competitive threat that we've all been talking about. Am I reading too much into that comment? Or is there some greater emphasis focus on fiber deployment, maybe less emphasis in FWA?

Let me give you our logic, and it's fairly straightforward. Our belief is this, when we invest in fiber and we're successful in deploying it, it is the very best product that drives the best consumer experience. You couple that with, it's our lowest cost to serve. The incremental cost of delivering a bit in fiber is lower than any other technology. So it stands to reason that we would prioritize putting as much traffic as possible where we've invested to build fiber.

And in turn, where we don't have it, we think fixed wireless is a fine solution, especially in those areas where we don't have fiber, we tend to be underpenetrated in wireless. If we can bring a combined offer of fixed wireless plus wireless to get a share of the population that we otherwise would not have a relationship with, it makes all the sense in the world. But we are doing it very deliberately, recognizing that it's long term, it's expensive to support a growing fixed wireless base. We don't ever anticipate having the size of base that some of our peers have.

Do we have a lot of room to still run? Yes, absolutely. But we don't anticipate because we're being very surgical, and we're trying to build a business that we believe is going to be sustainable long term, one with a great cost profile, one that allows us to increase our share of the connectivity budget in each household, but one that we can make a really nice return on. And so it's balancing a lot of things when we're trying to do that.

Okay. And I'm inching towards the questions about convergence because we're kind of getting there in the conversation. But I wanted to talk a little bit about ARPU trends in the quarter because there's a discussion point, I think, at 2Q. And an area of focus was the divergence between the improving ARPU for wireless and then the pressure on fiber ARPU. I know there were a lot of questions on and even after the call on this topic. And historically, investors look at these trends independently, right? But your comments suggest actually economics are becoming more interconnected, especially as convergence grows across your portfolio. So how should investors think about these ARPU trends together, maybe more interconnected going forward? And what would give you confidence that the overall customer relationship becomes more valuable over time?

That was my favorite question.

Is that one your's?

It is. It will, but we'll tag team it, because it really does -- it highlights the value of convergence and it highlights the value or the potential for growth. I think of it this way. First, from a fiber perspective, when we look at this, the ability to anchor the home and come in, as Pascal said earlier, we're an insurgent, we're the disruptor in the broadband space, going after cable that has enjoyed 80% or so market share. And so when we go head-to-head with a better product, we win.

And so if we can go in quickly as the disruptor, anchor homes and we take a little bit of fiber ARPU dilution to do so because those homes come in and we have a higher likelihood to converge, we're going to do it. And the reason that makes sense is a converged household has higher lifetime value. We experience lower churn with those customers, and we are more likely to pull wireless with it, either because we're protecting wireless that's there or we're growing wireless, especially in areas where we've had historically lower wireless share like the Lumen footprint. And so from a fiber perspective, we anchor the home low and we give ourselves an opportunity to grow that value over time, knowing the household value grows.

From a wireless perspective, we're protecting our growing wireless as well and getting converged. For our business, the model makes sense because we have both of those individual ARPU or P&Ls to work from at the household level. We are moving away from thinking about these as individual products because a scaled owner's economics of the networks allows us to say, we'll take a little bit of fiber ARPU dilution over here to grow the total value of the household now and over time. And that's the benefit we have sitting in this seat. And if it's more competitive to do so right now with the fiber dilution, we'll do that. If we need to make other trades, we can do it and still grow total value of the household.

And that makes a lot of sense. I think some investors have accounting around it as well and how that was impacting the ARPU.

The other thing is I think we have shown a history of being effective at pricing up the back book for both wireless and fiber. And look, it's something that we do periodically, but we are in a unique position where we are an insurgent, and we are using the investments that we've made in both fiber and spectrum to really allow us to take share from competitors that have benefited from a virtual monopoly the last several years. So it really is a great position to be in, especially when you have fiber, you have a better product that you can offer to consumers at a more competitive price point.

That was great. I guess, focus even more squarely on convergence for a minute and some of the penetration rates. I guess there are some numbers out here that end of 2Q, I think 42.5% of Internet customers have postpaid wireless and 45% ex Lumen footprint, right? So I mean, obviously, a large portion of your base is now converged. And how far can that penetration ultimately go? And as you think about driving that penetration, what are some of the key operational constraints on moving it higher? And I guess even how do you address those operational constraints.

We have said -- I think our last Investor Day, we said publicly, look, our target is 50%. And I believe that John Stankey has put an even bolder target out there and said, why wouldn't every wireless customer -- every fiber customer have our wireless. And so I would say we've publicly stated 50% as a target. We've been given a stretch goal publicly as well higher than 50%. It will land, I'm sure, somewhere in between. But I've committed to 50%.

And Mike, I think what's important too is we're in a period where the denominator of that ratio is increasing significantly.

That was my question.

Math will vary over time.

Yes. And so even though it may not appear that we're making significant progress, as you are expanding the denominator and you're increasing the percentage at the same time, it implies more and more converged customers coming on board.

Acceleration in the absolute number, right, as you ramp up your fiber builds, right? So there could be some quarter-to-quarter choppiness in that percent number as maybe you add more or less fiber homes passed each quarter, but it should continue to ramp and march higher over time.

Yes. And importantly, we don't talk about it nearly enough. We're over 50% already on fixed wireless. So the play is working, and it's been proven and our customer research supports that's how they want to buy.

And have you seen any differences in the churn rate of converged customers over time as you've grown the converged base? I know you've thrown some statistics out historically about kind of a 50% reduction in churn or have you seen changes in the churn rate as you've expanded that base?

Jen, is that something you comment on? Yes. I don't remember precisely what we have said. So why don't you talk a little bit qualitatively about what you see when we have a converged relationship both in terms of churn and overall value.

Right. What I'll tell you that converged customers do is this. They have stayed consistent in that they do stay longer, whether that is a fiber plus wireless customer or a fixed wireless plus wireless customer, fiber customers being stickier with the wireless because the fiber customer stays in their home longer. The converged customers tend to buy more. Those customers have more wireless lines with us. They tend to have a higher value account from the perspective of the add-ons they have, whether that's on the wireless side or the fiber side. So the total value of the account is higher, both in survivability, but also in the value of the service plans and add-ons.

Okay. And I think you already answered this in part earlier, so I apologize. But you've mentioned a number of times a higher value for converged households. So is it a natural extension of that to think that you really focus your promotional dollars, right, handset promotional dollars on the converged offerings and maybe we just see less promotional dollars towards wireless-only accounts over time. Is that a logical way of thinking about this?

Yes. I think you should absolutely equate our offer spend with the higher value of customer.

Okay. So maybe less directly in kind of the wireless-only marketplace, competing around the holidays and much more focused in areas you do have converged fiber and wireless to attack and lock down that base with a longer-term focus on customer value.

I mean you should expect we flex that on and off depending on buying season and elsewhere. But the general modeling I would do is absolutely highest value customer, highest offer we give. And that we lean into our value proposition of the network service and connectivity is what we offer and moving away from device subsidies as much as we can.

Yes. And that's very consistent with what John and Pascal and team have said for the last several quarters, moving away from device subsidies. So it will be interesting to see this holiday season given the new device introduction I just mentioned and especially the price tag, foldable iPhones being effectively 2x the regular iPhone. I'm curious to see the volumes for this holiday.

I wanted to hop over to the Lumen integration for a moment. Pascal, you had mentioned the Lumen acquisition earlier. And that acquisition does seem to be an important test of the convergence playbook that you both laid out here. And those territories traditionally had much lower fiber penetration than legacy AT&T and obviously, also lower wireless convergence. What have you learned so far? I know it's only been a little while since the deal closed, only so much you can learn. And how quickly can those markets approach the penetration and convergence of legacy AT&T territory?

I'll start and Jen could provide a lot more texture. I think the points embedded in your question are the right points and part of the theory of the case. We acquired about 4.5 million locations, consumer locations from Lumen. They were about 25% penetrated as compared to 40% in our owned and operated. So we view that as a significant opportunity to increase penetration with our distribution, with our brand.

What have we done so far? The first quarter, we were -- we had to ask for 2 months. We had to start to invest to really be in a position to meet the demand that we knew was going to be there. So what does that mean? Lumen is not -- the Lumen team historically hadn't had the level of subscriber demand that we were anticipating. And lo and behold, as we started to market, there was a lot of demand. We had to -- and we're still catching up somewhat to be in a position to service that demand to do the installations to go out and make sure that the consumers get the experience they deserve. And that is still a work in process. We started in Q1, a little bit better in Q2, and we continue to make progress. That's one.

Two, we have what -- in order to put an AT&T brand on that -- on those services, we have to ensure that the customer is going to get the same exact experience as our footprint. So that means the same customer equipment in the home, all things that they didn't have that you have to go off and do. So you can't turn it on a switch. It is -- what I expect there will be gradual improvements over the next several quarters as we get more and more of that in place. And building -- in addition to our retail stores, building feet on the ground, to be in a position to drive further penetration and to service customers the way they want. Jen could probably add a little bit more, but like there's a lot of work to get this right. And I feel the theory of the case, it's early days, but we're really pleased with the reception and the demand for the brand in those territories.

I'd love to hear more details, Jen, specifically what you and your team are doing just to build out the capability, I guess, smooth out things that weren't working the way that AT&T traditionally does them. I'd love to hear more details on that.

Yes, you bet. So we think of it -- I would put it in these work streams. As the network team comes in and does exactly what Pascal is talking about, they have their plans. We had essentially 3 of our own. One is get the brand out there and then get the marketing and awareness going and then also get the distribution in place. And we have that in 2 parallel efforts. There was pent-up demand that we could simply go take existing AT&T assets and apply to the Lumen Quantum Fiber brand and just say, let us just take our distribution assets and see what kind of lift we can get. That's essentially what we've done so far. And so that's the first set of improvements that you're seeing ramp.

And that is taking our retail presence. It's taking our extended third-party sales channels and applying it to the Quantum Fiber brand. And then saying, now let us go reach out with marketing to our existing wireless base and add Quantum Fiber to it. So that's simply applying plays we know how to do at scale, play one.

Work stream 2 or play 2 is then say, as the network team works through their efforts, and we know we can apply the AT&T brand and the AT&T Guarantee to an AT&T Fiber product, then we'll come in and we'll execute a full-scale brand launch, marketing launch of AT&T Fiber plus AT&T wireless into a market. That will take time to scale brand awareness and get the halo lift, but we'll apply our same playbook that we do in all of our other territories that we know works, and we'll be able to get the additional lift from that effort as well. And we'll see the full power of AT&T Fiber at that point. But we're not waiting.

And when do you think we get to that full power point where you're executing the same velocity where you have in legacy AT&T territory?

Several quarters to get the network efforts going at scale. I mean I wouldn't...

So it will be more a back half '27. Is that roughly the way to think about it? I'm not trying to nail you down exact timing, but...

We haven't put a time frame on that. I'm going to let our network partners get through the right.

And Mike, it's also -- it's happening market by market. It's not one big -- so there are markets where we've done that, but it's going to take us a long time to get through the entire footprint that was acquired.

And then let the marketing soak in and move.

Okay. Makes sense. I think I might have time for maybe 1 or 2 more, if I read fast. So I'll try to get to a couple more here. I wanted to maybe just try to close it with the fiber build and rising costs associated with that. So as you accelerate the construction and progress towards your goal of 60 million, I think, plus fiber locations, are you seeing inflation in cost per passing? We've heard a lot about, obviously, labor cost, inflation, equipment cost inflation. Any change in permitting materials? Anything that would be increasing or causing that cost per passing to increase?

We've said this before, and I think it's worth underscoring. There are several things that are involved in terms of the overall profitability of the fiber business. One is the cost to pass. Two, it's the cost to connect. The cost to pass, we have long-term commitments for fiber, and we've had them for a long time. We have a great relationship with our fiber provider. And the costs there are quite reasonable given the broader dynamics. We also have agreements with our contracting partners along with our labor unions that allow us to have great visibility to our overall cost profile.

In terms of cost to connect, as more and more homes are already connected, the second, third and fourth connection can be done via self-service, which reduces our overall cost profile. And then cost to maintain is the third piece of it. This is an incredible technology in that the maintenance profile is so much better than what we see with copper. And the energy that it consumes is significantly less. So we're seeing those benefits. All told, like we're very comfortable we can continue to build at scale and manage within the budget portfolio of capital that we have highlighted to you.

And I would love to see a metric over time. I know maybe you're not going to give it to us, but even the percentage...

My successor will.

Exactly. Even the percentage of fiber gross adds that are first-time connections versus second because that will at least help us on Wall Street, put some math behind the cost per gross add, but just something to think about over time. Pascal, Jen, thank you all so much for coming out today and thank all the investors who showed up.

Thank you very much.

Thank you.

Available at the registration desk. And for those of you, I haven't met, I'm Mike Rollins, I cover communication services and infrastructure for Citi. It's a pleasure to welcome back AT&T and from AT&T, to my far right, Chief Financial Officer; Pascal Desroches, and Melissa Arnoldi next to me here, Executive Vice President and General Manager of AT&T Business. Thank you both for being with us today.

Thank you.

Thank you for having us.

So it's great to see you both. And Pascal, you've had some news of your own. So congrats on your upcoming retirement. And I was thinking back to when we were together a few years ago, and you talked about one of your ambitions was to leave AT&T in a better place than when you took over the role and particularly financially and on the balance sheet. And as the company is in this middle of this multi-year strategy to invest and grow, would love to get your perspective on how you view AT&T's most significant accomplishments and still what's ahead.

Sure. Before I do, I'd be -- my friends in legal would be quite sad if I didn't give you the appropriate Safe Harbor warnings. Some of our statements will be forward-looking and are subject to risks and uncertainties. Refer to our website for more information. So, yes, Mike, I appreciate the question. And you -- I was reflecting upon this a few weeks ago. The situation when John Stankey took over as CEO and I took over as CFO was you had a company that had a telecom business, wireless business that was in a disadvantaged asset position because of its mid-band spectrum position or lack thereof.

You had a predominant DSL plant, broadband plant across the country. You had DIRECTV, which was in secular decline and you had the Time Warner businesses that needed to be repositioned because you had to go direct-to-consumer. And at the same time, you had a balance sheet with well over $150 billion of debt and a dividend -- an annual dividend obligation of $15 billion. So we -- it was very clear, something had to give.

And I'll give John enormous credit for his bold moves off the bat in divesting of both DIRECTV and the Time Warner businesses and resizing the dividend. Those were incredibly important things to do in order to allow us to do the very important work of reinvesting in our businesses. We are firmly of the view in order to be an industry leader, you need the very best assets. We were not going to settle for anything less than that.

In the last 5 years, we have invested over $150 billion to reposition the company. As we sit today, we have the largest fiber broadband network in the country. Our spectrum position is as good as it's ever been. And we did all this while continuing to rightsize our cost base and take down our leverage. And it's taken a long time to get to this point. But what's really exciting is that we're just getting really -- we're just getting started. The company this year has guided that it's going to grow EPS double digits.

We've also said that we're going to return about 100% of our free cash flow to shareholders in the form of dividends and buybacks. And we expect that our growth accelerate -- our earnings growth accelerates from here. And if you take a step back, just look at our Q2 earnings, the businesses we've been investing against, think about the products of wireless, fiber, fixed wireless across both business and consumer.

Those -- the service revenues for those businesses grew over 5% on a massive base and the EBITDA associated with those businesses grew over 8%. By the end of the decade, that's the business that we're going to be left with. So what's really exciting is that we are just getting started. We have a great set of businesses with great asset positions that we're adding to over the next several years. So it's an incredible time to be an AT&T shareholder, and I've been incredibly proud to be part of a team that's accomplished all it did the last several years.

From our side, it's been really nice to watch the performance and the focus. And speaking of improving trends, Melissa, in Advanced Connectivity business, the service revenue achieved a really important inflection in the second quarter results. The first time that I can remember in a while where you reported positive growth that approached nearly 2% year-over-year. So can you walk us through the journey of turning the corner in business? Like what are the big factors and then the durability now of being able to grow business revenue at AT&T?

Yes, it's a great question. Thanks, Mike. If you zoom out for a minute, to your point, second quarter was an inflection point for the business. But this journey started over 2 years ago. And so when we looked at the business, we took a hard look and said, okay, what do we need to do, right, to make sure we get to that inflection point. We determined and could see that our customer needs were changing. Technology needs were changing. And quite frankly, they were changing faster than we were changing. So we took a hard look at the business.

But what was different is we knew we had the assets to compete and to win, right? We've got the converged assets. We have the right product portfolio. We have a strong set of customers and a customer base, and we have employees who are dedicated to making sure that we grow this business. And so once we aligned all those to the interest of the customer, we had to look very clinically at the customer needs and how they want to buy and be serviced by AT&T. It was clear we had a great opportunity that we were missing.

We were not focused in the right areas from a go-to-market distribution perspective. We were heavily focused on direct. And that could be good for the top end of enterprises, but there's a small and medium market out there that we were missing. And so we have now calibrated our distribution, and we have focus on both digital as well as indirect or our reseller channel. So that's key for us to make sure we are hitting on all cylinders across our business. We also realize that sometimes we can be not so easy to do business with.

And so we have to be in a place where we can offer simple bundles where we can meet our customers where they want to be met and part of that goes back to the distribution. But it is durable at this point. And the way I know it's durable is because we can see the momentum across all of our products, whether it's fiber, fixed wireless, 5G, security, our value-added services. And so when you take a step back, the fundamentals are there. The assets are very strong.

We now have the right leadership and the right focus -- and our strategy really hasn't changed. It's a sharper execution on what we know we should be doing. And then again, partnering with the right distribution channel has been able to open up what we need to do to be able to go to market and sell. And then again, we've got to be easier to do business with. So all those things have culminated in the results that you talked about, and we're just getting started.

So within the business growth, that includes wireless, but the strategic wireline service revenue has also been growing significantly. So maybe unpack for us, if you can, like what's happening with those products, the strategy to grow all of that strategic wireline revenue and how that's just evolving in the marketplace? Like what are customers looking for today maybe differently than what they were looking for in the past?

Yes, absolutely. So let's break it down maybe and talk about the specific segments that we serve, right, small, medium, enterprise and public sector. When you think about small and medium businesses, they want to make sure they can transact every day reliably, security-wise. And so we've now developed a product and a bundle that offers simple products, right? And again, it's a way that we go to market through our distribution channel. And we make sure that we're competitive, right? We have all those assets to offer.

We make sure the bundles are in a way that can be transacted whether through digital or whether through another means. We've also -- when you think about small and medium, like every day, obviously, is critical to what they need to do. The way that they interact with us from a customer service perspective is critically important. And you would think, yes, of course, that is. And surely, that's just part and parcel to what you do from a business perspective. I would say we were not as focused on that in years in the past.

We now know it's critically important. We've been able to invest in the capabilities around AI to take out some of that friction. And we see the scores and NPS and how that improves. When you think about enterprise customers, well, no surprise. They're all scaling workloads as it relates to AI demand. In order to support that demand, we know we have to support a different set of product capabilities. And so that's offering our 400-gig service and higher. It's also making sure we have other advanced networking capabilities for them.

They're really concerned about as they scale AI to make sure they're protected from a security perspective. So security, reliability, always on, that's important, right, to them. And then when you think about our public sector government area, here, what we've been looking there is we have -- there's areas we have not invested in where we have opportunity, for example, defense. So that's a key area. And also, we can't forget the mission-critical workloads that are important to support, and that's where FirstNet comes in.

And we're going to continue to invest. We are investing in that product. We have additional capabilities. We've just launched a new product called Product Fusion, which allows interoperability essentially across just about every device and all the major carriers in times of disaster. So, we'll continue to evolve that as well. Then back to your point, if you look at our strategic products today being wireline and wireless, it is 80% of our portfolio today. That's a big difference than it was years ago. And again, we're ahead of that turn, what we told the investors by about a year from what we told them about 1.5 years ago. So strong momentum in the business.

And then you talked about a few parts of that investment. So how should investors think about as you're pivoting to more of these strategic services, the margin? Is this better margin business as well for AT&T even while investing in the experience and capabilities?

Yes. Here's what I'd say. It's important that we create the operating leverage that we need for the business. We do that a couple of different ways. One is by ensuring that the assets that we've already built and we've developed, we need to penetrate those assets, right? So that goes back to understanding the customer, the segments, how they want to buy and making sure we have the assets and that we penetrate them, particularly down market, small and medium.

From a margin perspective, I would say we continue to improve it quarter after quarter. They're healthy where they started. They get healthier, I'd say, every quarter. Again, part of that is looking at our expenses and our cost, right? I mean it's important, particularly with AI. We're very clear-eyed and sober about the capabilities that can bring to our operations. And as you do that, you create operating leverage. And therefore, it drops to the bottom line, and it helps us with cash. And with the support of Pascal and others, we've been able to take some of that investment and reinvest it back into the business from a product perspective, from a network capacity perspective and platforms.

So maybe drilling further into AI, just to continue this point. So -- how is AT&T specifically looking at monetizing the demand for AI within the business segment?

It's a great question. There's probably not one customer conversation I have that does not center on AI. And I think about AI a couple of different ways because I think it's both a productivity element, but also a revenue growth opportunity for us. And so when I think about AI, there are ways that we're -- there's probably 3 ways I would think about it. First, we're looking at our customer segments. How do we deliver predictable outcomes for them. We do that with the use of AI.

Second, I would say there's automation and that AI automation goes back to creating the operating leverage. And third, just as important is around revenue growth. And so when you look at AI demand, we see the demand clearly for higher capacity connectivity, right? So that's the 400 gig plus. We also see the demand with, again, resiliency and security, right? And so those are kind of 3 ways and new product revenue. When you think about AI, right, here's 3 things that we hear from our customers when you think about enterprises, public sector.

First and foremost, they want to understand the visibility, right? So they want to understand where the agents are running, how the agents and the employees interact and how is capacity consumed. Security, they want to make sure as they consume these higher cap circuits and have more agents running within their network that they can scale AI, but with security in mind.

And then the third thing I'd say is control, right? They want to make sure that they've got the insights and so that they have the control and visibility to then look at how performance is occurring on their network and how they can real time make decisions to drive towards the business outcomes. And so when we take a step back, this is a key foundation to the growth of AT&T in the future. We are investing in 400 gig across many of our metros. We're also investing to make sure that as we deliver that capacity, that there's the intelligence on top of the network that gives the CIOs, the CTOs, the CEOs, the visibility they want back to the security, the visibility, and the control.

And so moving up into that platform software piece will be really critically important, I think, for our customers. And with the assets we've talked about investing, look, I take a step back, and I think the investments AT&T has made over the last couple of decades, we are now at a place where it makes sense that we can support the AI era of the future. When you think about our assets, right? We have not only the business endpoints, we have the metro locations and network. We also have a nationwide backbone.

You couple that within the investments we've made with spectrum, there's -- we are there to compete, and we believe that we've got the capabilities, whether you're moving AI workloads between clouds, between data centers, inferencing at the edge, AI models, we've got the network that's built to do that.

I think it's really important to underscore that point. We are ready for future workloads. Many are going to have to make significant investments in order to be able to handle those. And I know I get asked quite a bit by investors, well, can't you get by with less? Yes, we may be able to. But importantly, we don't want to leave anything on the table because we believe that you have to be ready for the workloads that will exist in the future. And having deep fiber across the country is a critical element to that, and we have that. And we're continuing to add to that over time.

So one other flavor that's becoming more popular these days are these billion or multibillion-dollar dark fiber deals for these AI hyperscalers and frontier models. And so is that an opportunity for AT&T similar to what some of your competitors have been announcing?

So I would say from a dark fiber perspective, there's clearly opportunity. For us, it doesn't necessarily have the best margins. But what -- if you just zoom out, take a step back, hyperscalers, we look at them as a -- really a complement to what we serve today. And it is a meaningful growth opportunity with them as well as other AI infrastructure providers. But we believe that the opportunity is much larger than a few large agreements, if you will. When you look at AI, it's going to change every part of the economy.

And while those partnerships are important, and we've done some, when we think about dark fiber, look, we'll do dark fiber if it's in a metro and it's an area where we build today and we've got the capacity. But more importantly, where the margins get interesting is when you then sell on top of the dark fiber, your lit services, right? And then you then sell the capability of network intelligence, right? So we'll continue to lean into dark fiber where it makes sense.

But more importantly, when you look across the ecosystem of AI, right? It really is about connecting the business endpoints with the metro aggregation points with the data centers in the cloud. So we want to look across that vast array of opportunity. And that's where our investments are going to make sure we can serve those workloads in addition to partnering with the hyperscalers as well.

AT&T has been talking a bit more also about fixed wireless for business. So what's that opportunity within your segment?

Fixed wireless. So first of all, I think we all know that fiber is the gold standard, right? That is our premium product, one that nobody could match. So that's something we lean into. But fixed wireless is a great growth opportunity for business. And the way I look -- I like to look at fixed wireless is we offer it when we don't have fiber in the areas or we're not going to build fiber. Most notably, if you look at small businesses, they purchase fixed wireless and mobility. That's a key converged opportunity for us. It's got great growth, and that's in areas where we don't have fiber.

When you look at medium and enterprise businesses, they want connectivity quickly, right? So if there's a capability we can deploy fixed wireless while we complete a build, absolutely, we'll do that. The other opportunity we see with enterprise and public sector, it's another layer of resiliency. It's a backup capability. So when you think about all these access points, what we like to offer to our customers is a converged architecture portfolio, right? And so there's various access points, whether that's fixed wireless, fiber, 5G, et cetera. So it's another component for us to ensure that our customers have reliability, the reliability they need.

So keen on the word converging and convergence, Pascal, how do you measure the benefits from convergence, especially on the consumer side, but of course, this applies to business. And what should investors be looking at within your KPIs to see those benefits?

Yes. Over time, it's our view that we want to maximize the amount that we are securing of the connectivity budget in each home and business and converge -- it's very clear, when we converge customers with both fiber or fixed wireless and wireless, they stay with us longer. They buy higher level of services and they have higher lifetime value. All really good with that should translate into higher service revenue growth. And I often get asked about, okay, why is it that you're willing to concede ARPU on fiber when you have a better product. And our view is this. Right now, we sit in a point where we have a massive footprint of fiber locations that is, in many instances, underpenetrated.

If you can secure a home with your very best product and give the consumer an attractive entry point, that's a consumer that will be with you for a very long time because they will never want another technology solution and you can sell them other services. It's a strategy we have deep conviction around, and it's working very well for us. Over time, you should see us have better churn than our peers.

And look, that's already the case. And our belief is through driving deeper convergence, you're going to see lower churn, which will translate into lower customer acquisition costs and higher service revenues over time. And you look at our results last quarter, it gives you a sense for what we've been building for. And it's an incredibly exciting time. And I think we're going to continue to build the momentum. We have a great team and a great set of assets.

I think what I find at least some of the buy side may be wrestling with, we're wrestling with is this question of this longer-term pricing power. So in your example, where you're using the value proposition to grab that share, grab that penetration, you talked about getting deeper into the value segment to push penetration even higher above 40%, get towards 50% can you get back that pricing power in the long term? So when those markets hit maturity, you still have a P times Q equation to grow service revenues or in the benefit of getting other products bundled in, keeping customers, do you just have to seed price to create that?

I think we've shown a really good discipline of finding ways to raise prices on the back book. And as importantly, the world is not stagnant. You fast forward 5 years from now, the workloads and the demand for connectivity are going to be significantly more than they are today. And the consumer is going to want the most reliable, fastest Internet connection. Fiber is the only one that can provide that.

And if we're delivering more bandwidth, more reliability, I think consumers will become accustomed. Yes, I'm paying for that because that is a higher level of service. They're not going to accept second best when they need to deliver really reliable workloads. And that's the strategic advantage that we have. And we -- given the size of our investment, we think it's important to appeal not only to premium consumers, but to the masses. And I think our strategy is showing that it's working.

In 2Q, there were some back book pricing actions that came through the system in wireless, maybe as an analog for this conversation. What did you see on the churn side? And has that been an issue at all in terms of the churn that's created potentially when pricing changes for a customer?

It -- look, what was encouraging with the way the team executed our pricing actions is -- we were able to increased back book pricing at the same time, you saw a modest reduction in churn. And whenever we take pricing actions, we expect a certain level of churn to come with it. And in fact, things ended up working out a little bit better than we thought. So look, it's something that we've done, and we did it with -- last year, we raised fiber pricing. So it's something we do from time to time, and it's another way to extract more value, but also making sure that we are being really competitive in a market that has really well-capitalized competitors.

And with those actions that you took, is there some potential spillover benefit into the second half of the year that you're going to continue to see on wireless ARPU?

Yes. As I said, I said this on the second quarter earnings call, when I look at our wireless service revenues for the full year, I would expect that we should deliver growth that is higher than what we have guided to. Similarly, I would expect probably a little bit less than on fiber. But on balance, we're still expecting to deliver our overall service revenue guidance for advanced connectivity of 5% plus. And on a business that size, it's incredibly impressive.

Maybe zooming out just to the wireless category more broadly. We're moving into the more promotional periods of the year. We had the new smartphone cycle announced yesterday afternoon. And so what are you seeing competitively in the environment, whether it's promotions, subsidies, and what that means for AT&T?

Ever since I started, there's always a question, wow, it's really competitive in the wireless industry. It's more competitive than it's ever been. Look, it's a competitive business. You have formidable competitors that are well capitalized. We expect it to be competitive. We've been investing with the expectation that we're going to be -- we're going to have to compete against really good competitors. And yes, does it remain competitive? Yes, it does. But we're used to competition.

We believe our combination of wireless and fiber or wireless and fixed wireless will allow us to gain more than our fair share. And we are -- we have a history of doing that. And I think our measure of success is our service revenue growth overall. And with both, I would expect us to continue to be able to grow our service revenues really nicely. Now as it relates to this particular device cycle, look, it's very clear device prices have gone up.

And both John Stankey and I have said this, we live within a certain budget of promotional dollars. And so with device prices going up and a relatively stable promotional budget, the consumer is going to have to end up paying more. And over time, we would expect that to have a suppressive effect on the device demand. But look, no matter what the market conditions are, we believe we have an ability to compete effectively and within the budget envelope we have set for ourselves.

So as you look at the future, and there's this question and risk around LEOs and Starlink potentially becoming a mobile competitor. What is AT&T doing to reduce or insulate yourself from the potential expansion of this industry structure? And of course, I have to ask any interest in offering them an MVNO?

Let me unpack the question in a couple of ways. First, if you look at where we have infrastructure, wireless and broadband infrastructure, the vast majority of it is in urban and suburban areas. We have distribution. We have great technology. We have a great brand. We are accustomed to competing, as I said earlier, with others who are quite formidable in their own right.

And in that regard, if Starlink or anybody else comes in, we believe our combination of products and distribution and brand will allow us to continue to garner our fair share. In terms of what I think is really great about Starlink and other satellite providers is it allows us as a country to provide great connectivity to parts of the country that currently don't have it. And I think it's -- and ideally, over time, what you should expect us to do, and we've announced the formation of a joint venture with Verizon and T-Mobile with the goal of really standardizing the infrastructure that is necessary to capitalize on satellite coverage in remote areas.

Think about if you're out on the water, if you're in a national park, you're up on a plane, the ability to have continuous coverage no matter where you are, is something that we are all committed to solving and the technology will allow us to solve it. But in terms of direct competition, we -- look, we've been competing fairly well. In terms of an MVNO, we've been very clear.

We -- the way we think about MVNOs is they make sense if it allows us to capture an audience we would not otherwise capture. And when I think about satellite, other than in the very remote areas, we are capturing the vast majority of the TAM in the U.S., already, and there is no need to use an MVNO to reach those consumers.

We're going to hit on a couple more topics. We'll hit on cost structure and then capital allocation. So in terms of the cost structure, it seems like your copper retirement program is hitting a tipping point of really moving forward. And I know this has been a long time coming for the industry. And as you have this opportunity to close more and more wire centers, does this change the pace at which you expect cost savings to be realized from this effort? And is there anything else like incremental from the cost side levers that you're able to pull that investors should be mindful of?

Yes. I think it's important to keep in mind. We are -- we just hit a tipping point on copper. By the end of this year, we will no longer have to offer copper in 85% plus of our footprint. That's a big deal and over 30% of our -- we can discontinue in about 30% of our footprint. That -- those percentages will grow over the next several years. What it allows us to do is to retire underutilized infrastructure and infrastructure that is absorbing a lot of power and personnel attention.

Additionally, as you look out, the amount of copper that we have across the country is quite substantial. And over time, as you get out of more and more of our wire centers, the ability to secure that fiber, get it refined and ultimately sell it to the marketplace is something -- it's a huge opportunity for us. But it's going to take us a little bit of time because you have to be able to really take out infrastructure. You have to get customers off of that infrastructure before you can fully realize that. But it's -- as we said, we expect by the end of this decade to be out of that infrastructure. So it's not that far away.

And for capital allocation, how are you thinking about the priorities and the pace of returning capital to shareholders, especially where we could be on the precipice of another significant spectrum auction next year?

One of the good things about the 2 transactions we did last year, whether it is the acquisition of the Lumen consumer fiber footprint or the EchoStar both mid-band and low-band spectrum. It positioned AT&T to really have lots of optionality for the balance of the decade. When we look -- when those opportunities became available, we didn't expect them to be. We thought we'd be participating in a meaningful way in the spectrum auctions.

And fortunately, we were able to negotiate a transaction that was -- that gave us really attractive assets that we're really comfortable with. And now the opportunity in front of us is about executing against those -- executing to monetize those assets. So we are in a very fortunate position of not absolutely having to do anything in the near term.

So just to close this out, anything else you want to leave us with in terms of what you feel is underappreciated about AT&T or the communications category more broadly?

I would just say, if you look at our company, we have guided to this year, 3% to 4% EBITDA growth, accelerating to 5% plus by 2028, double-digit EPS at the same time, returning a substantial amount of our free cash flow to shareholders and our free cash flow -- and we expect our free cash flow to continue to grow over the next several years. So it's a great time to be an AT&T shareholder.

Thank you both for joining us and for a great conversation. Thank you.

Thank you, Mike, for having us.

Thank you.

Great. Good afternoon, everybody. Welcome to the AT&T fireside chat at the Goldman Sachs Communacopia and Technology Conference. My name is Mike Ng, and I cover AT&T and telecom here at Goldman. And I have the wonderful privilege of introducing John Stankey, who is the Chairman and CEO of AT&T. First and foremost, thank you so much for being here, John. It's an absolute pleasure.

Well, thanks for having us in, Mike. And maybe before we jump in and get started, if I can point you to our safe harbor statement and remind you that some of the things we're going to talk about today are forward-looking. They may or may not come to pass. And if you would like more detailed disclosures, there's some really wonderful reading on the AT&T Investor Relations website.

Great. To start things off, let's talk about big picture overall strategy. The company is making -- has been making investments in the asset base, the build engine, the fiber assets, wireless infrastructure, all in an effort to drive sustainable long-term growth. That growth is underpinned by long-term financial guidance, a double-digit EPS CAGR through 2028, including mid- to high single-digit growth in Advanced Connectivity EBITDA. To start, maybe you can just share with us your strategic priorities and how that translates into the long-term financial outcomes?

Sure. The strategic priorities really haven't changed for about 5 years. We've been pretty deliberately investing top of the industry, and we've been doing that largely to drive the growth you alluded to. And our point of view had been that if we put the right assets in play in our industry, that we could grow at a better rate and we could ultimately have a better profitability equation.

And I think you started to see the evidence of that last quarter, where that inflection point started to hit. So the goal here is to make sure that we are a scaled provider in fiber and we lead in deployment of fiber infrastructure over time, strengthen our already strong wireless business and carry it forward. And in fact, you're seeing that happen and the growth is coming.

One, the products together are a superior offering in the market. We're able to take share in places where we weren't able to take share before, plus engage and take the benefit of natural growth in the market that's occurring. This is largely coming on the backs of putting two products together from a convergence perspective. That brings us with higher household revenues. It gives us better margin performance as a consolidated account, it lowers churn, keeps acquisition costs in check.

And that equation is now starting to drive into that guidance that you talked about, which is margins have been stable to improving. You're seeing the service revenue growth. You're seeing the double-digit EPS growth. You're seeing our EBITDA improvement. We're meeting our expectations on gaining share in service revenues in the industry. And we think that formula is good.

And we think it's got some legs because, as you know, we're not done building footprint until the latter part of this decade when we kind of wrap that up. And it takes us 3 to 4 years to penetrate that footprint, and we'll be able to ride that chain all the way up through that time.

Great. And it certainly feels like the market has come to acknowledge that convergence is a very effective strategy, and it's working. And AT&T really has a fiber-led convergence strategy with plans to reach more than 30 million fiber locations by 2030.

Most of your peers talk about convergence through the lens of bundling and customer retention. But AT&T seems to be approaching it a little bit differently, right, with a heavy emphasis on fiber ownership, network integration and scale. So with that said, like why are you leaning so heavily into a fiber-led convergence strategy? What advantages does owning and scaling both the fiber and wireless networks create that some of your peers may have a harder time replicating?

Yes. I think we're in the early innings of convergence and kind of what my expectation will be over the coming years and how we're going to see things play out. I mentioned the near-term benefits just a few moments ago, which is you put an account together on both products and services and you see churn improvement. You see lifetime value accretion that goes on with that customer. You see brand loyalty improve. All those things can happen by just putting two really good products together that ultimately give the customer some value. And I think that's the first couple of innings of the convergence play.

But one of the important parts of it is you're putting really good products together. Fiber and fiber broadband is a superior product. And that is what drives a lot of the surprise and delight that ultimately gives the customer the better brand point of view, makes the entire bundle stickier and allows you to -- over that lifetime value, grow some accretion and benefit.

However, the later innings of conversion are going to start to be more product- and feature-led. I'll give you an example. I expect we'll see satellite services bundled in at some point in time in the very near future. And in order to do that, it's not the easiest task to actually manage the layers of a network between satellite, wireless, fixed broadband, Wi-Fi.

And to do that right, I think that's where you start to do things to say, look, I can give you a very seamless experience from a service perspective as well as an easy experience from an account relationship billing perspective. And when you start to do those things and you're giving somebody always-on connectivity, always working, very consistent, that moves beyond it's just, as people refer to it, a discount. It's not just a discount. It's a product that works better for the customer.

And when we look at things like OneConnect that we've put out there, which is to take away the anxiety from a customer to say, whatever device you want to connect, you got that iPad that's sitting in a drawer that maybe you haven't had on the network, you want your vehicle to have the ability to stream entertainment in the back. All that's available to you on OneConnect in a very straightforward, simple approach.

Those are the things that start to add value. And I think you'll see more and more of that in the, let's call it, the middle innings and the later innings of convergence as we move forward that are going to move well beyond just an affordable price of putting the products and services together.

Great. We've talked about why you've committed to a fiber-led convergence strategy and some of the advantages of owning both fiber and wireless networks. At the same time, you've made a lot of changes in your go-to-market approach, right, through initiatives such as the refreshed Unlimited plans, Build-A-Plan, some of the legacy plan retirements and some targeted pricing actions. How do those initiatives support the convergence opportunity that we just discussed? And what are you looking to achieve with all those things that are out there?

Yes. I would go back to the comment I made earlier where our goal is to lead in service revenues. And when we think about -- especially where we ultimately put fiber infrastructure down, we really don't want to just think about serving the premium end of the market, where we've done very well at AT&T. When you look at our wireless base and you kind of see what happened during the early years of penetration of fiber, premium, high-value accounts have been kind of our mainstay and bread and butter.

Part of what we've been doing to tweak the plans is our goal really is to lead in service revenue growth across the industry. Then we've got to be applicable to all segments, and we have to be pretty effective in doing that. And so when we offered Build-A-Plan, Build-A-Plan came out and kind of went at a place in the value segment that we weren't doing particularly well at. And it's a way for us to get into wireless penetration in an underpenetrated segment.

And then our intent is, okay, what can we add on to that? Certainly, in a fiber footprint, we want to put an affordable broadband solution. Maybe it's not our best-performing gigabit service, but a more value-based product that when you -- once you put that infrastructure out there and your fixed costs are in place, you'll take that value-oriented customer on top of it, and that's accretive to you. And the same thing if you're thinking about using fallow capacity in your wireless network to add a fixed wireless account onto something.

So we're playing a lot more effectively right now in all segments of the market as opposed to just the top end of the market. Last quarter would be a good example of that. We had probably our best new account growth in the company in probably the better part of over 3 years. And it's largely built on the fact that we've been able to now start to move into parts of the market where maybe we didn't have the right offers to them.

And we're pretty comfortable with how the products perform, in particular, how fiber performs. Customers love the product. They see the difference in how it performs. That gives you the opportunity then over time as that relationship grows more and more mature to begin moving somebody up the value continuum, the ARPU continuum to get more products and services into the portfolio of what they might buy from you. And we feel really good about our ability to do that.

Right. So we've talked about some of the product innovation that AT&T is pursuing. Maybe we can spend a minute just talking about competition. Last year, it felt like the entire conversation was about wireless competition increasing to some of the highest levels that we've seen in years.

Today, the conversation seems to be shifting more towards broadband as fiber expansion continues to occur. FWA is growing, cable operators are all pursuing the same customers. And we've also seen some downward pressure on ARPUs, especially on the broadband side. Against this backdrop, how are you thinking about balancing customer value and returns across your portfolio with transitioning away from device subsidies as the underlying cost of some of those devices increase?

I think, first of all, the device subsidy issue maybe sits out on its own in some regards. And what the industry has to do, and certainly, my view at AT&T is, for all kinds of reasons, we tended to bundle all the hard work we did in building infrastructure and services together with the device, and maybe in some respects, hit the value of what the underlying infrastructure is doing. And our job right now is to make sure we do a better job of helping people to understand what the true cost is of the underlying service and then allow them to make informed choices on that.

When we can put two products together that work better together, I feel really comfortable in that equation. So if devices continue to get more expensive and the life cycle of that device extends, then you have opportunities during that life cycle to think about how you bring that customer onto your infrastructure separate from the device and ultimately build a relationship with them. So I think you're going to see more of that occurring.

And those -- that latter inning and segment of the game that I talked about earlier on convergence is a critical part in making that happen. So we want to get connectivity priced appropriately so somebody sees what the true cost of connectivity is and then have the freedom to move with the device when they have it. And we're seeing that happen more and more in the industry right now. I don't think it's the majority of the industry at the moment, but it's getting more prevalent each and every quarter, each and every year. And we want to make sure we catch that.

But in general, look, the way we think about it is what I said earlier. I really want to think about the value of the household, not the value of any discrete product or service. And does it mean that maybe in the near term, I might use on one account to discount the broadband a little bit in order to get value out of a new wireless entrant or flip it in some cases and discount some wireless to get a new entrant in broadband? I'll do whatever I need to do so long as the household is an accretive household, valuable and ultimately stays with us for a period of time. And I think we're getting better at doing that every single quarter.

We're still not at the top of our game. I think we can get even better. But by and large, our investment in growth in this industry and our investment in customer growth has been places where we think we can converge a customer and get that longer-term accretive relationship. If you adjust out the short version of our Lumen assets that we haven't had much time to manage at this point, we're at the 45% convergence rate. That's 5 points in 2 years. That's big. And if we can keep that continuing and moving forward and growing, I like that economic equation, and I'll do that all year long.

And I think we have to understand that depending on where you are in the life cycle of an asset base, fiber that we built 4 years ago that's 40% or 45% penetrated may require a different strategy to get from 45% to 55% or 45% to 50% than that which we're building today. And so when you start to see that mix come into our base, people shouldn't be shocked about that. Because when you look at that and say that makes perfect sense, maybe you want to do something to lead and penetrate and get some momentum and some growth that you will then, over time, grow yourself into on a better margin profile. And I'm perfectly okay with that if we do it smartly and well.

Right. You can be very surgical about how you approach these.

Yes. And it's a different set of plays depending on the market and the asset base you have. So what we do in New York is going to be different than what we do in Dallas.

Right. Very clear. One of the other elements of competition that we haven't talked about was the growing role of satellite connectivity. And that's being discussed as a potential competitor on both the broadband and the wireless side. So I would love for you to just comment on satellite's role within AT&T's long-term strategy.

Yes. Mike, there's a lot of different ways to think about it. The one that everybody seems to want to talk about in the media right now is its role in mobile, but there's certainly roles for satellite beyond just mobile.

But relative to the one that seems to be the center of attention right now is if 98% of use cases are solved by the capable infrastructure that I mentioned earlier that's out there and working today, much of which that infrastructure is built and built over the course of decades. We started putting robust infrastructure in high-rise buildings and stadiums 20 years ago. And that's been a consistent drumbeat and march over that period of time. And it gets it to the kind of capabilities that when somebody goes to a World Cup game and all of their social media posting that they want to do goes off flawlessly so that they can demonstrate that they're out influencing the world in the middle of a game. That doesn't just happen overnight.

And so the notion that you can simply serve mobility from outside is just not how the networks are architected today. And the notion that somehow, really small cells are going to somehow fix that problem, randomly deployed, that's not going to fix that problem. So we've been building this infrastructure to meet these customer expectations. And customers' expectations continue to rise every year as it gets better and better.

And I think, as I said earlier, if we can put two products together, we can make them work in a way that takes anxiety out of a customer's experience, they work well. And I'm pretty confident that once you get a bit on fiber, nothing is ever going to beat it. And that includes the short hop from a device to a cellular antenna that's a lot shorter than a hop from a device to something that's 300 miles above us. The faster you can get that into a fiber infrastructure and the more actively you manage it across both fixed and wireless, the better that customer experience is going to be. And I think we're in an excellent position to win in that regard.

I don't diminish any competitor we're up against. I think there's going to be places where satellite is going to come in and innovate. There are use cases where it will be very well suited. But I think the bulk of use cases today, we address today on the infrastructure. And our job is to go find that 2% that we can address and make sure that we can bring satellite in to make sure that those are addressed.

And that's why we put the JV in place with T-Mobile and Verizon. Our belief is we're all in the same position. We're addressing 98% of the use cases. And what we want to do is make sure that we can get the last 2% in a way that's customer-friendly. And that means all the interfaces for how satellite constellations interact with embedded infrastructure on the ground to do it in a way that it's cost-effective. And by buying in bulk from more than one constellation, we can drive pricing down for the customer. And doing that by incorporating into existing product sets, maybe our more preferred customers are able to get that included in a plan. So they have incentive to buy up as a result of that.

Those are all good things for the customer. It makes it very easy. It's solving the last 2%, not trying to come up with a new way to solve the 98%. That frankly isn't going to be very effective in competing against decades of infrastructure that's been put in place that works incredibly well today and is amazingly scaled.

That's very clear. Moving to business, if I could. Business, Advanced Connectivity service revenue turned positive last quarter. What's driven the business momentum? And how does business fit into your overall growth strategy?

A lot of hard work. It's -- I would acknowledge that maybe our effectiveness and improvement in business has lagged a bit what we've done in the consumer side. However, many of the plays were the same. Some of it is because of other headwinds in the business market segment that aren't prevalent in consumer, some of it being technology-driven that we've had to work against.

But you're now starting to see the same fundamentals of what we've focused on in consumer bearing fruit in business. And as you saw, we're eking out low single-digit growth, but we are back to growth in our forward-looking products in services and business. And it's coming on the fact that we're doing a better job of getting fiber to the right places, where we have fiber, selling into that base of inventory that we have.

Extending our distribution channels. So in addition to using our direct sales operations, which is historically how AT&T has been engineered, bringing in more indirect partners that can begin distributing our products and services in the mid and lower part of the market, where we weren't reaching effectively. Being smarter about how we operate the business and our incentive structures.

I mentioned new account growth earlier. Some of that new account growth contribution is coming from new business logos that we weren't getting before. And so we're now oriented to ensure that we're farming in places where we've got an opportunity to grow new business relationships, not just continuing to grow on many of the strong and long-standing business relationships we've had.

So we've gotten that part and that portion of the equation better. And that's what's contributing to this. We haven't gone to the second act yet, which is making the product better. That's next, which is how do we allow a customer that needs to manage the quality of service across layers of their network, whether it be initiated on a wireless device or on a fixed connection in a business, to have the ability to cross manage those bits, to put the same quality of service on it, to put the same security layer on them, to manage them into the cloud infrastructure with complete visibility, irrespective of what network the transaction started on. That's next. And those things are now about ready to come out.

And when we're able to do that and we're able to actively manage networks, that's an advantage to those that have largely been in the business segment, especially in the mid-market with unmanaged solutions or those that don't have both a wireless and a fixed network to operate those bits on. And that is the next advantage we have to push through the right distribution channels to see that growth in business tick up the next level.

And that's been a muscle for us to build. Candidly, we lived in the business market, very much in the Fortune 300. And for us to be more relevant broadly in the mid-market and the low end of the market, we had to do a little bit of development of capabilities. And we're now starting to show some benefit of that effort.

We're still early in it. We still have more work to do, but that's what gives me the confidence we can continue to grow business moving forward. And hell, that's a big deal to not have it be a drag on the overall financials. It gives me even more confidence in delivering our guidance as we move forward.

Great. John, you've spoken extensively about AI as a future driver of network demand, but you've also talked about how AT&T is deploying AI internally across the business. So I was just wondering if you could take those two points in turn and talk about AI as something that is a demand tool for your company, but also how you're using it internally as well?

Yes. The demand side of it, look, we're getting some upside in markets right now. I think some of the business lift that I talked about earlier is coming from businesses that are having to think differently about how they gain access into the cloud to get the tools, augmentation of bandwidth to do those things and finding use cases that they need support on.

But there's other things we can do. One, data center to data center and data center to metro interconnect is an area we haven't played in very actively for the last decade or so. We're back in that game in spots where it makes sense for us to do that. I don't want it to become the mainstay of our business. Our business should be built on the value of getting traffic to end user customers and having a preferred position to do that. I think that's the sustainable way to build a franchise that drives contribution and margin accretion into a company.

But as this infrastructure is getting built out, there's no reason we shouldn't participate in it. We should participate in places where we have routes that we're having to build for our own traffic. And we should participate it at a level that ensures that when we're having to manage the bits coming from a device or coming from a location, we've got enough places to drop that traffic into any cloud provider's infrastructure that we know we have visibility into it and we can do it with the kind of latency, performance and reliability that the customer expects.

And so we're going to get growth in that and then do those things that I said earlier, which is translate that into a way for the customer to say, if you've got a high-value workload that needs particular performance characteristics, it doesn't matter what you started on, your mobile device or your fixed infrastructure, we can ensure that round trip latency, we can ensure that reliability. We can deliver you into the instances in the cloud that you need to be at over that infrastructure, and we can do it beginning to end. And so that's a good opportunity for us.

Now in the wireless business, it's going to require us to do a little bit more tuning of the wireless network. Upstream is going to become much more important. As you know, in most networks today, they've historically been asymmetrical. Fiber does not have that restriction. Fiber is symmetrical. Wireless networks still have an asymmetrical nature to it.

Having low-band spectrum that has engineered uplink on it, I think, is going to be really critical. And as we already have an advantaged position in low-band spectrum relative to our competitors, the 600 megahertz spectrum we picked up from EchoStar is going to allow us to do even more to ensure that, that low-band position can deliver the kind of performance I alluded to earlier.

And that's going to open up the use cases like autonomy. It's going to open up the use cases like robotics. It's going to allow us to continue to push in video processing upstream that goes into the cloud for analysis. And those applications are being seen very actively right now in the market. And so I think those are all good things for us.

In terms of what we're doing in the company, we've been, I think, pretty effective at managing our operations more effectively. We've put customer journey in the situations where we have what used to be call flows into call centers that are now being assisted through AI, all within the parameters of what we put out there of full disclosure to our customers of how we're doing it. The customer satisfaction is high. The effectiveness of it is high. Our ability to handle a request and terminate it on one try, very high. The cost efficiency we get with that, great.

We're doing the same thing in a lot of our business support areas where we used to have to support complexity of engineering and those things that we're now able to put AI against it. In our software development shops, we've seen really big step-ups in our productivity. That's not necessarily transferring to bottom line savings for less development. We're doing more projects that are adding value into the business, taking costs out elsewhere because we can get more software projects through than we used to be able to get through.

So we've had a lot of good success on the meat and potatoes stuff within our business. We're now starting to apply the technology to more strategic areas, how we look for indicators of churn and ensure we've got customers set on the right plan to avoid churn or raise their satisfaction using both our proprietary data that we have internally and mixing it externally with other data that we have.

What we've been able to do in pricing on a per-location basis and knowing building by building, city by city, what the competitive profile is and where we need to be and giving people who are sellers the tools to put the best price in front of a customer without having to go through long quote cycles and not put a lot of pain and suffering around that process, those have all been really good applications. And now we're learning to fine-tune our execution on these things.

And in some cases, when you do some of the meat and potatoes like managing customer service functions, handling customers better, being more efficient on engineering, you don't need frontier models to do that work. You can do that work on basically last year's version of chips and some pretty good open source models. And we're getting really good at now apportioning our workloads to say what requires us to put the high-end investment in frontier models and really important chips versus what we can do and maybe a little bit more streamlined infrastructure. And we feel pretty good about the returns we're getting as a result of that.

That's fascinating, really. We have about 5 minutes left. I just want to hit a couple more things. Another topic that AT&T has been spending more time on is copper retirement. This last quarter...

It's actually a tough conversation. It's an important [ part ] that people go through.

You described that we've reached a tipping point in terms of the copper retirement. What does it unlock for the business over the next several years? What are the key milestones to watch out for?

Yes. What this unlocks is at the macro side of it is you're going to leave this decade, and what you're going to have is a metropolitan fiber provider with a kickass nationwide wireless network. And that's all it's going to support. And all the other stuff that's been around that we've been hauling around for decades is not there anymore. And the agility that comes into the business, the clarity of purpose, the ability to use that unified infrastructure that I talked about that's converged to bring products out that support those two fabrics of dense, rich fiber with a fantastic wireless network on top of it, it's going to be a great company as a result of that.

So now what we do is we're working all that cost that we shared with you in our Analyst Day 1.5 years ago, $6 billion of legacy costs that are in there that all have to come out. And we've got to shut down central offices. We have to turn off chillers. We need to get rid of all the leases that are associated with those offices that we don't need anymore.

And oh, by the way, there's a bunch of copper out there that probably makes AT&T the fifth largest copper mine in the United States right now. Seriously. And that copper needs to come out and needs to be monetized. And that monetization allows us to pay for the work to shut down all that infrastructure and rip out the mainframes and do all the things we need to do to wind up leaving this decade as a fantastic metropolitan fiber company with a kickass wireless network.

And that's a different AT&T. It's a dramatically different AT&T. And it's a different growth profile and a different agility profile. And that's why that's exciting. And we have the regulatory pathway and approach to get that done now.

Great. We have a couple of minutes left. Maybe I can...

You telling me to shorten my answer?

Two-part question. I guess the first part is, could you just touch a little bit more on some of the strategic investments that you've made recently with the Lumen fiber assets and the spectrum acquisitions? And then bigger picture, what are your key focus areas as we wrap up 2026 and go into next year?

Look, I think what we've done in capital allocation to bring in what I think is really good fiber footprint from Lumen, what we've done to enhance our mid-band and low-band spectrum position from EchoStar are all consistent with everything we've been talking about for the last half hour. And to open up these new markets now that we picked up from Lumen where we've traditionally been underpenetrated in our wireless share, we are now starting to already see the benefit of that.

Not only can we sell fiber and can we sell broadband, and we're demonstrating that we can penetrate that asset better than the previous owner can, but we can attach more wireless to it. And we're seeing gross adds on converged customers, in the short time we've owned it, already up nearly 50%. So that play is going to work, and it's going to drive a lot of value, not just because we can move more broadband, but we can move more wireless with broadband and make our brand more relevant in some markets where it was underperforming from a share perspective. And that's pretty exciting.

And when you think about then parlaying that into places where you can get concentration on fixed wireless, where maybe you haven't been as relevant and you can say, look, I can cluster and get some scale here, those become edge-out opportunities to maybe do more fiber as well that then gives you a bigger and bigger footprint that ultimately allows you to drive scale. And that's built on the back of a better-performing wireless network, as well as having the opportunity to push fixed wireless to do some of that seating. And that's what EchoStar has allowed us to do. So those two have been very complementary, very helpful and very critical in helping with that acceleration that you saw in last quarter's performance that we reported.

And then where do we go over the long haul in the business? We're trying to be good stewards of our capital. Clearly, when we saw where we were with equity valuation, our decision to advance our share buyback was a reflection of that. We think our business is worth more than where the market saw it a few months ago. We're confident in our cash flows that we can do that. We're going to continue to lean into that when we have an opportunity if we think there's an undervalued position in the market.

In the meantime, we use the balance of our cash flow to ensure that we're continuing to invest back into our business to maintain this growth in an effective fashion, maintain the dividend and also do what we can to bring our leverage back down to roughly 2.5x net debt to adjusted EBITDA, and we feel pretty comfortable we can do that as well. And that's the result of good, strong operational performance and operational leverage in the business, and the equation is holding together right now.

John, thank you so much for participating in the conference. It's been a privilege to have you on stage here.

It's always nice to be with you, Mike. Thanks very much.

Thank you, sir. Thank you again.

Good morning, and welcome to AT&T's Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference call over to our host, Brett Feldman, Treasurer and Head of Investor Relations. Please go ahead.

Thank you, and good morning. Welcome to our second quarter call. I'm Brett Feldman, Treasurer and Head of Investor Relations for AT&T. Joining me on the call today are John Stankey, our Chairman and CEO; and Pascal Desroches, our CFO.

Before we begin, I need to call your attention to our safe harbor statement. It says that some of our comments today may be forward-looking. As such, they are subject to risks and uncertainties described in AT&T's SEC filings. Results may differ materially. Additional information as well as our earnings materials are available on the Investor Relations website.

With that, I'll turn things over to John.

Thanks, Brett, and good morning, everyone. I do appreciate you joining us today. Earlier this year, we provided an outlook for accelerated growth and execution of our strategy and that's exactly what we delivered in the second quarter. We gained more than 1 million advanced connectivity subscribers from fiber, fixed wireless and postpaid phones. With all 3 product categories posting higher net additions year-over-year. This was our best ever second quarter for AT&T fiber net adds and a record quarter for combined fiber and fixed wireless net adds. We also continued to grow our base of converged customers.

At the end of the second quarter, 42.5% of our advanced home Internet customers also have a postpaid wireless account with AT&T. And this convergence rate reached 45% when excluding customers within our acquired footprint from Lumen. These are high lifetime value subscribers and our strong customer growth is a key driver of our accelerated financial growth during the second quarter.

At a consolidated level, we reported faster year-over-year growth in service revenue, adjusted EBITDA and adjusted EPS compared to our growth in the first quarter. We also achieved our highest consolidated adjusted EBITDA margin since we refocused our business on advanced connectivity at the beginning of this decade. This was driven by our improved operating leverage as we gain scale in 5G and fiber, reduce legacy costs as we shrink our footprint and through continued implementation of our cost transformation initiatives across the company.

And we're driving growth in our Advanced Connectivity segment across both consumer and business channels. During the second quarter, we achieved year-over-year growth in Advanced Connectivity business service revenues. This reflects our success at repositioning the business around fiber and 5G just as we did in consumer and expanding our reach through a more balanced direct, indirect, and digital distribution model.

The result is growth in converged relationships and new logos, and you're seeing that momentum in our improved financial performance. It's taken a lot of work to get here. We continue to expect Advanced Connectivity business service revenues will grow at a low single-digit CAGR through 2028. The strength of our performance comes from the structural advantages we've established after years of consistent and targeted investment. So it will be our largest year ever for fiber expansion with plans to reach 8 million new locations including over 4 million locations acquired from Lumen.

As I've said in the past, where we have fiber, we win with fiber and wireless. And I expect that as we expand our funnel of new fiber locations will drive strong growth in our converged customer base and financial results. The dense urban and suburban areas where we build fiber at scale, we believe that our competitors cannot and will not match our network performance or our operating scale and proficiency. This includes the AT&T Fiber brand, widely recognized among the best home Internet products in the market, local teams of technicians and in-home experts, capable technical support infrastructure, extensive owned and partner distribution, sophisticated device logistics, and the ability to harness our national advertising and brand campaigns to rapidly drive penetration as we reach new geographies with our fiber and converged services.

Simply put, we believe that we are the best positioned to serve customers the way they want to be from one trusted connectivity provider. When customers consolidate their Internet access with us, we see lower churn, outstanding brand affinity, higher lifetime values, and we carry the vast majority of their Internet traffic over our advanced infrastructure.

And for those limited circumstances, when the AT&T network is not available to one of our converged customers, we expect to be in a position to solve many of these corner cases as we move into 2027. Consistent with our ability to extend our scale and operating proficiency, I'd like to give you a brief update on our progress integrating our recently acquired Lumen footprint into our operations.

We spent the past 6 months standing up operations to support a faster pace of growth and network deployment and customers as we accelerate the branded rollout of AT&T Fiber but we're already utilizing our existing distribution and converged offers to tap into pent-up demand in these underpenetrated areas, which is translating into improved growth.

We're not just adding fiber customers. Our June converged gross adds in these territories were up 45% compared to February. Our convergence playbook is taking hold here just as it has in our traditional footprint, creating a clear runway to deepen customer relationships and accelerate growth in converged accounts as we complete our integration activities and scale the pace of fiber expansion.

While the benefits of our investment-led strategy are evident today and our improved operating momentum, we continue to build a business that is best positioned to meet the future advanced networking demands of AI-driven connectivity. The rise of Agentic AI is fundamentally reshaping network traffic, not just in volume, but in shape, symmetry and criticality.

The proliferation of Agentic and autonomous AI workloads will require networks to sense, decide, and act in near real time. Emerging use cases, including drones, autonomous driving, robotics, and AR glasses, all require ubiquitous high-performing uplink optimized connectivity.

Today, industry research shows AI agents generate up to 450% more total traffic per task than a human performing the same work. Agentic adoption is projected to drive approximately 9x growth in enterprise traffic and approximately 7x growth in consumer traffic by 2035.

Distribution of AI inference to the Edge necessitates, low latency, and high bandwidth connectivity to access end points. This is why we believe fiber-enabled network convergence at the Edge will create a true competitive advantage. Additionally, we're already seeing rapid increases in large-scale data traffic, which demands high-capacity metro and intercity fiber infrastructure.

As AI fundamentally changes how consumers and businesses connect, it will drive a fundamental change in their expectations for connectivity. We believe AT&T is the only provider building and investing in this infrastructure at the scale necessary today to support the demands a decade from now. We are not missing any critical elements necessary to execute our strategy. We have the necessary building blocks in place, the technology, agreements, and the assets for our strategic path forward.

The enabling connectivity of the future is in our hands today. By the end of this decade, we expect to operate the most advanced and technologically open communications network in the U.S. built on a foundation of dense interconnected metro fiber and deep nationwide spectrum. This is exactly the asset base we want as AI begins to shape the next era of connectivity and I wouldn't trade our assets for anyone else's.

While we position for the future of connectivity, our shareholders are benefiting from our growth today. This is supporting our improved capital returns and provides us with the flexibility to further increase our pace of planned share repurchases this year by up to 25% to approximately $10 billion to capture what we see as a disparity between our operating fundamentals and the valuation of our stock.

Momentum also picked up this quarter and our work to exit inefficient copper-based services accelerated by positive actions by the FCC. We appreciate the leadership of FCC Chairman, Carr, and the commission for recognizing the urgency to modernize the nation's communications infrastructure and upgrade customers to more reliable service.

Last month, the FCC gave us permission to discontinue legacy copper voice service and about 60% of our wire centers in California, so we can upgrade our customers to AT&T phone advanced, fiber and wireless.

Looking more broadly in our efforts to discontinue copper network services and operations nationwide, we continue to make great progress on our exit plans. We have approval to discontinue legacy services in over 30% of our wire centers, which will be effective by late 2026. By the end of the year we expect a couple of hundred wire centers to have 0 customers.

This is an important step, providing the path to unlock access to descaling parts of our cost structure and to further streamline our operations. Nearly 2 years ago, we told you we would establish a path to effect an orderly turndown of legacy copper services by the end of the decade. In my view, we've now reached the tipping point, and that goal is firmly in sight.

Finally, before I turn the call over, I'd like to comment on last month's announcement that Pascal has decided to retire at the end of the year. He's been a great partner, and all no doubt have much more to say about his contribution when his work is finished. Until that time, we're executing a deliberate and carefully planned transition and AT&T is fortunate to welcome back Jennifer Biry. There's no doubt that past call is a tough act to follow, but we have the person to do just that in Jennifer, and we'll do so without missing a beat.

She knows many on our team. She understands the business. Her views on how we should run the company or aligned with how Pascal and I see the world. And she returns with a broader and deeper understating the fundamentals of running a software-driven enterprise. This is something that will be very important to AT&T as we move forward. That said, we still have some important things to accomplish between now and year-end, and we all intend to make good use of the time.

With that, Pascal, over to you.

Thank you, John, and good morning, everyone. At a consolidated level, total revenues in the second quarter were up 2.3% year-over-year, driven by service revenue growth of 2.7%. Adjusted EBITDA was up 5.2% year-over-year, and our adjusted EBITDA margin increased 110 basis points to 39.1%.

For the full year, we continue to expect consolidated service revenues to grow in the low single-digit range and consolidated adjusted EBITDA to grow in the 3% to 4% range. Adjusted EPS was $0.65 in the second quarter which is up more than 20% from $0.54 the prior year, driven primarily by growth in adjusted EBITDA and lower depreciation expense.

We continue to expect full year adjusted EPS to be in the range of $2.25 to $2.35. We added over 1 million fiber locations during the second quarter as we accelerated the pace of our deployment. This contributed to higher capital investment of $6.1 billion compared to $5.1 billion a year ago.

Second quarter free cash flow increased by roughly $300 million year-over-year to $4.7 billion, which exceeded the high end of our guidance range of $4 billion to $4.5 billion. For the full year, we continue to expect $18 billion plus of free cash flow and $23 billion to $24 billion of capital investment.

Compared to the second half of last year, where we're ramping up our fiber deployment. We expect our capital investment to be more ratable during the second half of this year. We also expect higher cash flow from operations during the fourth quarter of this year compared to last year when our results were impacted by discrete items, including legal settlements and a large contribution to our pension. As a result, we expect free cash flow will be relatively stable year-over-year in the third quarter with strong year-over-year growth in the fourth quarter.

Our consolidated growth continues to be driven by our Advanced Connectivity segment, which contributes over 90% of our service revenue and nearly all of our adjusted EBITDA. Advanced Connectivity service revenues grew 5.1% year-over-year in the second quarter, accelerating by 150 basis points compared to our growth in the first quarter.

EBITDA for this segment grew even faster increasing 8% year-over-year driven by top line momentum and our continued cost transformation initiatives. The team is really doing a good job here, and we remain on pace to achieve $4 billion in consolidated annual cost savings by the end of 2028.

Wireless service revenues grew 3.3% year-over-year, driven by growth in our customer base, including 432,000 postpaid phone net adds and the uplift from pricing actions that took effect during the second quarter. We are pleased with the execution of our pricing strategy in wireless, including the rollout of new plans and pricing actions during the first half of the year.

Impressively, we grew postpaid phone ARPU year-over-year while reducing postpaid phone churn. Our wireless growth is increasingly driven by new accounts and not simply additional lines of service. During the second quarter, we added 147,000 consumer postpaid wireless accounts, which is our best result in more than 3 years. We believe this is a direct result of our converged go-to-market strategy, which is driving improved growth in new customer accounts that choose AT&T for Wireless and Home Internet.

Advanced Home Internet service revenues grew by more than 27% year-over-year. This was primarily driven by improved fiber net adds as we accelerate our fiber deployment and center our go-to-market strategy around our converged offers as well as our acquisition of fiber assets from Lumen in the first quarter.

Fiber ARPU declined 1.3% compared to a year ago, which primarily reflects a full quarter impact of our transaction with Lumen whose subscribers have lower ARPUs. Excluding customers in the footprint that we acquired from Lumen, Fiber ARPU was approximately flat year-over-year. This reflects our focus on growing converged customer accounts, which enjoy discounted pricing, but typically stay with us longer and increase their spending over time.

We expect our focus on convergence to drive continued strong net additions in Advanced Home Internet and postpaid phone subscribers during the third quarter and continued growth in converged customers. In the near term, this will likely put some pressure on fiber ARPU, but we feel really good about our ability to manage our back book pricing as we grow our base of fiber customers that also subscribe to our wireless services.

As we said before, our goal is not to maximize ARPU of individual products, but instead to maximize total Advanced Connectivity service revenues in order to drive attractive returns on our investments in 5G and fiber, and we are expecting continued strong growth in service revenue.

And as John noted, we are achieving this growth in Advanced Connectivity service revenues across consumer and business operations. Business Advanced Connectivity service revenues grew 1.8% year-over-year in the second quarter, driven by momentum in wireless, fiber and fixed wireless. We have turned the corner and expect the AT&T business to remain a driver of growth in Advanced Connectivity service revenues going forward.

Our Advanced Connectivity segment enters the second half of the year with strong momentum, and we continue to expect full year service revenue growth of 5% plus and EBITDA growth of 6% plus.

In our legacy segment, service revenues declined 26% year-over-year and EBITDA declined about 46% as we accelerate the process of powering down our legacy copper network and migrate customers to more advanced and reliable voice and Internet services.

The retirement of our legacy network is a critical piece of our transformation into a scale provider of Advanced Connectivity. As we complete our network modernization and other transformation initiatives, we expect that by the end of the decade, we will have the best-performing network with a highly competitive cost structure.

We returned $4.1 billion to shareholders during the second quarter, including approximately $2.2 billion of share repurchases. We are on pace to repurchase nearly $1 billion of stock in July. And as John previously shared, we now expect to buy back approximately $10 billion of our shares in 2026. This compares to our prior target of $8 billion of share repurchases this year and represents a pull forward of our planned buybacks through 2028.

Together, our planned share repurchases and expected dividend payments will total approximately $18 billion this year, which is essentially 100% of our outlook for free cash flow.

Our cash flow and liquidity provides us with flexibility to sustain our dividend and accelerate our planned buybacks, while also maintaining our commitment to reduce balance sheet leverage following our planned acquisition of spectrum licenses from EchoStar. We are well positioned to fund the transaction, which we expect to close by the end of July.

We ended the second quarter with net debt to adjusted EBITDA of 2.68x, which was essentially flat with the first quarter. We continue to expect that our net leverage ratio will increase following the close of our transaction with EchoStar to the 3.2x range and then return to a level consistent with our target in the 2.5x range within approximately 3 years following the close of the EchoStar transaction.

I'm really pleased with how we have the company position heading into the back half of the year. We have great operating momentum, a leading position in fiber and converged connectivity and a team that's motivated to win in the marketplace.

Brett, we're now ready for the Q&A.

Operator, we're ready to take the first question.

[Operator Instructions] The first question today comes from Sean Diffley with Morgan Stanley.

I was hoping you could elaborate on the traction you're seeing with some of your new plans like Build-a-Plan and OneConnect. It seems like you're targeting a bit more of the value segment and going down market. Maybe talk about some of the success you're seeing there. Is it all incremental and just markets you have been focused on before.

And then just on fiber, you talked about balancing volume and pricing going forward. I think you mentioned ARPU flat ex Lumen, how should we think about managing pricing broadly on fiber and levers on the back book? And then last one just on satellite, does that change your assumptions on unit economics or penetration rates and maybe some rural markets over the next few years?

So we're going to do the whole call here in 3 questions. So let me start with where we are kind of on the planned execution. I would say the recalibration we did on the plans was done quite artfully and quite well by the team. And I think you've seen that in the results. And I would add to that, as you know, we've done some rejiggering and pricing on the base, and you see the churn performance that we've been able to generate.

And so you take all those together and what I think they are indicative of is a pretty seasoned team that understands kind of how to manage in this environment and do it effectively. I think, I mentioned in my remarks, we were at a 3-year high for new account additions this quarter. And I would have credited a lot of that to the shifting of the plan and our focus on the value segment where we see a lot of that new account entry coming in, not at a line into existing accounts.

And I think that's healthy for us, especially when you look at our overall service revenue performance. The margin numbers that we put forward, our growth in EBITDA, I mean, all those things, in my view, are a very healthy combination of what you want to try to achieve. So yes, we're being deliberate about moving into some segments of the market where maybe we're a bit underpenetrated. But I think you're seeing we're doing that with a nice balance on profitability and ensuring that we do it in a way that's accretive.

And as you know, I've got a typical dynamic here where I want to see percentage of service revenue in the industry grow. And frankly, our goal is to make sure that our average revenue per account grows. And as you can see in the disclosures we've given you, we're doing all that. And so that's a good thing.

Same thing on fiber. I don't think it's any different. Once we put the fiber infrastructure in place, my point of view is there isn't a customer out there that shouldn't be ours. We have the best technology. It can be operated at the lowest marginal cost. And yes, it can offer some very premium services with symmetric gigabit and multi-gigabit services, and there is a segment of the population that wants to pay for that. Needs that level of performance. But we also know that there's clearly a segment of the population that's more value oriented.

But the silly thing would be to serve those value-oriented customers on a higher cost infrastructure. And so we want to make sure that our fiber product offerings match to the continuum, both the value-oriented and the performance-oriented shopper. And we can do that really well, especially when the customers convert because we're not just optimizing for one product, but we're optimizing for the suite of products that the customer has in home. And as we shared with you, we get lower churn on those customers, a higher lifetime value and higher brand affinity. So that's what drives the lifetime value they stay with us longer.

So you should expect that on fiber, we're going to be very, very aggressive at making sure we get our fair share along the continuum of price points. And I will do that, and I will use that expertise that I mentioned earlier that the team has demonstrated to make sure that as we have the life cycle with that customer that we ultimately get a value equation that is accretive to the business allows us to continue to grow our share of service revenues. And that we improve our share position overall in the industry. And that's the play we're running, and we know that it's a long game that we have to run it against and we think about this over multiple years, and I'm very comfortable with mix and the overall performance that you saw this quarter and carrying that forward.

And then on the rural side of things, like we're investing heavily in urban and suburban for a reason, because we think it matches best to our capabilities. We think that's where we can drive returns most effectively. I also think that it's possible you could see some shift in serving architectures, moving forward in rural areas. I do believe there'll be areas that satellite might serve adequately that allow us to maybe shrink our terrestrial footprint on, what I would refer to as, poverty sites, sites sit out there and pick up relatively small amounts of traffic, but provide continuity of connectivity, and that might be able to positively impact our cost structure in those instances and at the same time, give the customer a really good experience.

So I do expect rule of characteristics of our business change. As you know, in the fixed part of my business, I'm trying very hard to shrink footprint. That's all the comments I made about shutting down wire centers and going to 0 customers. I want assets out of those areas. I want to take costs out. I don't want to be problem there, where I want to be problem is where I can build fiber and where I can use fiber to put wireless transmitting entities at the end of the edge points and use those networks effectively in consolidating traffic. And that's the fundamental underpinning of the business we want to build and then establish parent relationships or joint relationships with other providers to fill in that small percentage of the time that the customer walks off our network, that 2% of the traffic that maybe we can't get on that infrastructure.

I like coming at the customer where we own and operate 98% of the traffic. We have control of it. We have control of the product and the service that we offer and that maybe we do the integration of leasing on the other 2% as opposed to the other way around.

Operator, we'll go to the next one.

The next question comes from John Hodulik with UBS.

Great. John, could we talk about the broadband volumes, especially fiber and your comments that June adds were significantly better than February. I mean, does that suggest that these numbers are going to continue to ramp? Or do you think the Lumen property is, you're just sort of tapping into some pent-up demand? Just trying to get a sense for how you expect those volumes to shake out.

And then secondly, the comments on the Agentic traffic. That definitely confirms a lot of things you've been hearing from the data center companies and other areas of the sort of AI ecosystem. And how does AT&T -- I realize it's a longer term view. But how does the AT&T as a connectivity provider of wireless and the fixed side -- how do you monetize that over the next, say, 5-plus years? I know this is sort of a high-level question, but I'd love to get a sense for how AT&T may benefit from other traffic?

So let me clarify so that you understand what I said in my comment. What I said is that the converged rate in the Lumen footprint rose to 45%. I wasn't suggesting that the broadband sales rate increased 45%. So our ability to pair when we sell a broadband service to pair with wireless improved to 45%. So what we're demonstrating there is in the Lumen footprint, we could run the same kind of play that we've done in the non-Lumen footprint and getting converged customers brought together and all the goodness that comes with that.

Now we are improving our sales rates in the Lumen footprint. As we've told you, we have expectations that we can take penetrations up in those areas that we'll start to look like it does in a traditional AT&T footprint. And we're systematically moving through that.

As I indicated, we have steps to take to get there. What we're effectively doing right now is converting all the infrastructure, all the branding, all the support systems that we have with customers, all the methodologies, the technicians use when they show up in a house, all the CPE that a customer gets that provides that world-class WiFi that we put in place inside of a home that makes the high-bandwidth connectivity actually sing. We're converting market-by-market, and we're pretty much getting to the back end of that now.

Once we have the AT&T brand in those markets, then we can go in and really start to put a little more gasoline on the fire and start to drive those volumes up, and we're getting to that moment now where you're going to see us begin to lean into it and it's showing up in the numbers. That's part of why you're seeing these really strong results.

But we have another step-up to take here as we move through the year, and that's part of our plan. When we talked to you about accelerating performance that we're going to make that happen. And then, of course, the other shoe drop on that is we've got to get the footprint scaling faster, right? You got to get the construction engine up. And we're doing that work as well. But that's a little bit longer cycle time work. It's something that we need to take well into next year to ramp up to the rate and pace of build that we want. And we're seeing progress in that area, but it's like anything that has to do with civil work. It's bumpy in places and you do a little bit better in 1 geography and a little slower in another. Eventually, we get there.

We know how to do that. We've got everything in place to do that. We've got all the supply agreements. We're normalizing all the construction agreements and all the things we need, but that's taking shovel work that we still got to get through to kind of make the equation all in together.

Monetizing the Agentic traffic is the way I think about it is this. First of all, the wireless network, you need to build better upstream. And so part of why we did the Spectrum acquisition we did and why we leaned into the 600 megahertz is we believe the best way to manage a robust upstream and an Agentic environment is to have really strong low-band position. And we already have an advantaged low band position in the market. The 600 megahertz is going to make that advantage even more substantial.

And because you can engineer Spectrum a little bit differently given how those bands are set up, we intend to try to engineer a really robust upstream network that reaches deep into buildings and has a lot of consistency to it. And we think that's what the low base is going to allow us to do.

The other thing that's really important, of course, is to get density in the network and owning fiber footprint allows us to get density. So we're now introducing into our network PON-fed, small cell infrastructure, taking advantage of all that PON infrastructure we put out there, use the backhaul on the wireless infrastructure to get or radiating points deeper into the network.

That then allows us to use all the capabilities you've been hearing about for multiple years as to why we did 5G. Why do you do slicing? And why do you have quality the service capabilities that you drive in that are driven towards specific applications? This is what this enables. And so do I believe that just like you do in fixed broadband, where we differentiate and we drive better yields on higher-performing services, we charge more for a gig than we do for a 500 meg circuit.

You are going to see in wireless, differentiations and service, in my view. And whether it's an enterprise, the needs to buy a slice that is specific to a particular application that they need to support or a customer who has a particular way that they operate and do things in their life that requires it, I think you're going to see service differentiation. And my view is, it's managing the performance in the upstream that will be the most critical that will differentiate that.

And the last thing I'd probably share with you and the way to think about it is, you hear me say it often, I think history repeats itself in this industry. And there was a long history or segment of history where VPN was really, really important to customers. And why was VPN important? One was security. And the other was that it managed performance when there were situations of constricted or not plentiful bandwidth. And those are the 2 fundamental foundations of what made VPN effective.

The place in networks where we still see restricted bandwidth is in the wireless business. Fiber basically over provisions, and you don't have to worry about bandwidth in those circumstances, but we know that based on how wireless networks perform now and probably for the near future, we're still going to have moments where there's restricted bandwidth or restricted performance. And so I do believe the dynamics of VPN and why those engineered and highly managed networks were important for a period of time in the wireline space, will start to become more prevalent in the wireless space just simply because of bandwidth constraints and the need for higher performance given the kind of applications that are going to be always on and mobile moving forward.

And I think that's where that monetization premium comes in as kind of a corollary to what you've seen in the past.

Operator, we'll go to the next one.

The next question comes from David Barden with New Street Research.

So two for you, John. Just first, in the prepared remarks, you said that you were going to solve for corner cases into 2027 in the fiber-to-the-home business. I was interested to know if that meant that M&A is potentially in your future. And then the second is your take on what Brendan Carr's announcement was that the upper C-band will be basically undeployable, even though it's going to be auctioned in 2027 until 2031, how does that affect your thinking about how you deploy capital in the coming years?

So you know me, I'm always dropping little breadcrumbs about future M&A and everything I said. That comment was not intended for that. The comment was -- maybe I wasn't clear enough and I said, if you think about what we do today for a converged customer, we handle 90-plus percent of the traffic they need to get on and off the Internet once we have a converged customer through mobile and our fixed services.

And occasionally, they walk off the network. They get in their boat and they maybe go out beyond the coast or they go to a national park where we don't have coverage. And so what I talked about handling the corner cases, at those moments where they walk off the network. It's the 2%. It's what something like satellite constellation would be good for.

And so the work that we're doing through combinations of the JV and all the technical work we've been doing up at this point in time, for example, with one of the partners who are working with AST SpaceMobile, those are all going to come to fruition as we move into next year, and it's going to be the product that we've been working on with the AST offering. Will be a very intuitive product that doesn't require the customer to do anything differently. They have their device and it behaves and operates just like it does today as they're moving around.

But if they walk off the network, they're not going to walk off the network. We're going to provide a seamless transition into coverage via satellite on a directed device basis. And so those are the corner cases I was alluding to that by the time we get into next year, we will have solved for that other 2%, and we will be in the market doing what customers want, which is providing in the assurance that they can buy from 1 provider, it always be on the Internet.

And in that respect, we will be first in the market with that. We will be the best in the foundation of what we provide in fixed broadband. And that's a really strong position to be in, and it's what others have to come and beat, and I think it's going to be unbeatable.

Relative to the announcement on what Commissioner Carr has said about the C-band auction is that it is a long time out. I think we expected it was going to be a long time out from a planning perspective. Certainly, we've worked aggressively on the public policy front to try to get auctions back up and moving in to this administration's credit, they stepped up and have started to get that pipeline going again.

But after 4 years of activity from the previous administration, it's hard to make up for lost time, that is really what precipitated our decision to do the EchoStar transaction. That allows us to have the spectrum we need to kind of control our destiny for the next several years and feel very comfortable about that and a combination of -- I'm sure there's going to be some opportunities that pop up in the secondary market that we look at and say, look attractive to us.

And then you add that into what I said earlier, which is we have this ability now to go and use the dense fiber infrastructure we put in place to begin to be more targeted in how we augment capacity into the network to where we need it in dense areas.

If you think about how wireless networks have now evolved where there's a pretty healthy amount of spectrum that's out there on most cell towers. We're providing really, really good service, the pockets of where you need better density and more bandwidth are becoming more and more contained. We've built a lot on the interior. You go into a stadium you're not hitting the cell site outside. You're hitting infrastructure that's been deployed in the stadium, same thing in the hospital. Same thing in the high-rise building.

So now we're in a situation where you go outside of those locations where, when you augment capacity, it's going to be much more targeted, and you're just fine in the broader macro. And if you look at how a typical cell site works, if there's 3 sectors on the cell site, oftentimes, when you hit exhaust, it's not because all 3 sectors have exhausted. It's because there's 1 face on that cell site that happens to point toward a densely populated area that has a part that is busy on a Saturday or it's a congregating area.

And so now with technology where you can go in and do this, I don't think that the notion of having to get these really dense national swaths of spectrum and painting it with a paint brush across the U.S. is the game anymore. I think the game is using your infrastructure to penetrate where you need more density and then being very selective at where you go and get that broad paint brush of additional spectrum to add in.

And so my point of view is we're very well positioned to deal with the pipeline that's coming, the length of time, and being very strategic, surgical and deliberate about how we add into the Spectrum portfolio at this time. At the same time, leveraging this great infrastructure we put in place, which is this dense fiber that we have throughout the network.

Operator, we'll go to the next one.

The next question comes from Craig Moffett with MoffettNathanson.

Two questions, if I could. First, John, when you talked about the AI usage-led growth and the 7x increase by 2035. How do you think about that with respect to the amount of network capacity available for FWA? Does the -- do you reprioritize higher-value mobility traffic in that scenario?

And then just to return to the issue of satellite for just a second. There has been so much speculation about Starlink potentially competing on the basis of an MVNO. I wonder if you could just comment on not so much Starlink as an augmentation to your network, but Starlink as a potential competitor. And what do you think that would take? And is there a scenario where you would partner with them with an MVNO agreement?

So look, on the point of view, fixed wireless access, I think I've been fairly consistent about this, which is I don't consider it to be the optimal technology to serve fixed traffic over the long haul, and I have been pretty clear that, that's why we invest in fiber because that is the optimal technology to use.

However, it clearly has its point and use in the market at this juncture and in places. And I've been pretty clear about those kind of places where I think it has more staying power and longevity than where it doesn't.

I've used examples like there's a whole bunch of businesses that we support where fixed wireless access is an excellent technology for them and the nature of their business and will be for years to come, given the nature of how they do things. And they tend to be more mobile-dominated businesses with maybe a fixed location to construction yard with a bunch of people that are out every day at sites.

The yard needs some support, but it doesn't need gigs and gigs of services. And those things tend to move around and they like the flexibility associated with it. So my point of view is it's a really important tool in the portfolio. But with -- to your point, you always want to be prioritizing your scarce spectrum resources that I just talked about in the answer to the previous question with John, to use it for mobility. The answer is yes. And I never want to compromise buying the next opportunity for a mobile service at the expense of serving Netflix in a fixed location. There's a way to maybe characterize it.

And I think our strategy is matched to that. I don't have a problem with using fixed wireless access to test markets and do things like shut down fixed infrastructure that's old and tired and needs to be retired, and we're using the extensively in copper.

I don't have a problem using it to see where we can go and build some presence in a market that then indicates we should come and overbuild it with fiber, and we already start with warm revenues in place to do that. And I think we'll do that probably more effectively than anybody else moving forward. But I'm never going to sit here and tell you that the way I want to serve fixed traffic is by buying more spectrum and build more wireless infrastructure is the primary means to do that.

Speaking more broadly about satellite and satellites competition on a direct-to-device, I tried to be pretty deliberate in my comments. We sit here today with everything we need to put the best product in the market. I'm not betting on the next turn of a chip. I don't need any fantastic developments and technology in any way shape or form to do what I need to do. I mean, it's not rocket science for what we need to do to be successful in the market.

And so we're doing that today, and I think we can build the best converged product today. And we can be in the market and be effective and penetrate today. And when we think about a wholesale arrangement, as I said before, the motivation for a wholesale arrangement is always to get on a part of the market that you can't get at yourself.

And what I just described to you, all the things we're doing and recalibrating our plans, how we're tuning distribution, the success we're having in adding accounts would suggest to me that for customers that want to buy wireless and broadband, fixed broadband together, we're doing just fine in reaching those markets. We understand how to do that. We have the technology to do it. We have the distribution to do it. Those have been built up over years.

We have the infrastructure in place to put a really robust product in front of them that had been built up over years, and we can do that just fine on our own. And I don't necessarily need a wholesale arrangement to go and address that 2% of the traffic that I can't get at today, because I can get at 98% of the traffic. I'm solving for a much smaller equation.

If that number was inverse maybe I would think differently about it. So I'm not prone to look for a wholesale agreement to go solve the problem I don't have. I am from to look for a partnership to solve the 2%.

Operator, we'll go to next one.

The next question comes from Michael Rollins with Citi.

First, I was curious if you could talk a little bit more about customer behavior. If you look at the decline in churn, the lower upgrade rates, are you seeing the -- almost the opposite of last year where customers were replacing devices in the category more quickly. Now they may be slowing down. And is that something that can further press down the churn rate for you?

And then second to that, with device prices potentially going higher for a variety of reasons, how does that influence your approach to subsidies? And if that cost to the end customer goes up, does that also help slow this rate of device replacement help your churn in the process?

And then just one more separately on capital allocation. Just curious as you've identified, for example, in this quarter, some additional financial flexibility, the choice was to add to the repurchase target for this year by about $2 billion. Just curious, more broadly, if you could discuss if you're able to create more flexibility in the future to pull forward cash available, how you think about buybacks versus debt reduction versus accelerating fiber builds and pressing your advantage with convergence?

So I think the customer behavior issue on churn is not a single thing. Obviously, we've been wanting to ensure that we can improve our churn performance. You know how important it is to the business from a cost-effective perspective, and you see what it does when we can keep it in check, you get margin performance like what you saw this quarter which we all aspire to have happened consistently.

I think we've been able to achieve that through a combination of things. One is data to help us understand the base a little bit better. We've been treating really important cohorts that have helped. I think there is a little bit of suppression right now in device switching, that helps. I think that we've done a better job on convergence and bringing people on both products. That helps.

And when you kind of go in and look at it, it's a -- it's always a complex story on churn. It's never like, oh, we did this one thing and it worked out. It literally is cohort-by-cohort, product group-by-product group. You have to go and look at stand-alone wireless versus stand-alone broadband, converged customers, geographic dynamics. So it's always a contribution of those things. But I will tell you, if there's less device upgrading going on, does that ultimately oftentimes help on churn? Yes, it does. And it's a contributing dynamic around it.

Getting to your second question, I would expect that device costs are going to go up. I mean, I don't think it's a mystery to anybody. Apple has certainly indicated that that's the direction they're going. We know that memory costs are going up. I would expect when costs go up, prices go up. And when prices go up, demand goes down. I think that's what happened in economics in normally functioning markets. And it would be my expectation that if costs are going up, prices are going to go up and demand will probably be suppressed in some way, shape or form. And that is what I would expect to see moving forward and certainly probably my expectations in how we run the business moving forward.

On your question on capital allocation. Look, this is a decision for the Board. It's not my decision to make exclusively. It's something this Board is actively engaged in, in a non-stop level. And certainly, the events of the last couple of months have flavored those discussions differently than they might have been a year ago.

I would tell you sitting here today with what I view as being a very suppressed valuation on the stock, I probably have a bias that says, I'd like to buy more of it back because I think it's incredibly undervalued.

Now what does it look like 3 months from now, how do we calibrate that over the next 2 or 3 years? The board will ultimately make that decision. You can tell what our short-term decision was to bring some of our buyback forward as a result of this circumstance. As the Board reconsiders their authorization that they've already communicated and put out there, we'll refine that moving forward, and it will obviously be an artifact and a reflection of kind of where the stock is currently valued and what's going on.

I feel like the balance sheet is in a good place. We have a lot of flexibility to do a variety of things and can cut it either way. But we just got to kind of see how things develop over the next couple of months. The markets, it's a little bit different right now, and we're all looking at it, trying to understand it, and we're taking a little bit of time to see how some things settle in, and this board will be deliberate. They'll spend some time in September, at their September meeting on this topic. And when we have news to give you, we'll give you some more news.

Operator, we'll go to the next one.

The next question comes from Sam McHugh with BNP.

Revenue growth in Advanced Home Internet still running below that 30% target you have at the year, but wireless is doing quite a bit better. Has your view changed on how you deliver revenue growth this year between wireless and fiber?

And then Pascal, you talked about flattish underlying fiber ARPU this quarter, implying close to 250 bps deceleration in 1Q. How should we think about that underlying fiber ARPU for the rest of this year?

Yes. Sam, I'll start and then Pascal can come in. And I think I get what you're driving that, and you're referring to kind of the broadband revenue growth. Look, our point of view on this is, as I said, is our goal is that we want to drive growth in service revenues, and we want to drive growth and share service revenues.

And in a converged world, there's a lot that depends on whether or not the customer starts as a customer of a wireless that ultimately adds broadband, but they start as broadband and add wireless. And based on that, sometimes the incentive to get somebody into a combined relationship shifts from one product to the other.

And I don't want my team hamstrung in how they think about that. I want the converged relationship. And if it means that on a percentage basis that we need to use broadband as the lead to consolidate an account, and we take a little bit of a revenue hit to do that. And then over time, we gain that back and it sustains a really accretive relationship in wireless. I'm perfectly okay with that because the net result of that are the kind of results that you see this quarter. Really strong margin performance, churn heading the right way and growth accelerating.

And so I get less concerned about the discrete dynamics of the single product. I pay more attention to average count revenue growth. I pay more attention to whether or not we can manage the base effectively through the continuum, and I gave you some data points at the beginning of the call to show you that this is a very capable team that understands how to manage that life cycle. And I have every degree of confidence that in the coming years, we're going to take advantage of that if we run our play effectively to drive those converged numbers up.

Pascal?

Sam, the only couple of points I would add. First, overall, we reiterated our guidance for Advanced Connectivity service revenue to be 5% plus. And that underscores our confidence that on a combined basis, we're going to be able to deliver the service revenues that we thought. And we in fact, we feel really good about how we are pacing today at no concern.

We do trade-off between products. And is it possible that you're going to see broadband come in a little less than we guided. The broadband guidance is a little less and wireless a little more? Yes. But on balance, we're still really happy with the performance and that's why we reiterate all of our full year guidance.

The other point, I think, is -- shouldn't be lost in all this is in addition to our consumer business, our enterprise business is really performing well. We delivered 1.8% service revenue growth on really strong fiber and fixed wireless growth. So there are a lot of things working well. And we -- and our goal is to really try to optimize all of them. And I think the team is doing a great job at that.

Operator, we're going to take our last question now.

The last question today comes from Peter Supino with Wolfe Research.

I want to ask another question on churn. Starting at the industry level, churn seems to be settling down, both for you as you forecast at the beginning of the year and also assumingly for the industry after accelerating in 2025. And I wondered if you'd just share your perspective on what happened last year? What's happening this year? And maybe put that in context of what you're seeing in terms of consumer sensitivity to price increases like the one that you executed in April.

Yes, Peter. So things obviously stepped up a bit on the promotion side from last year to kind of moving into this year. And as you've heard me say before, I'm not sure that was all unexpected when LTVs are improving. It's likely that there's going to be a little bit more activity put in place to promote and try to attract customers. And I think we saw the general per account, per customer economics, improving in the industry. And as a result of that, there was a willingness to invest a little bit more to bring customers in, and that's the pattern we saw last year.

The fact that it's now hit a different level and maybe it's stabilized a bit, it doesn't surprise me because I think people rationally look at it and say, do I want to take it the next step up, if I'm not seeing fundamental shifts in LTV? And the answer from an economic perspective would be, of course, I'm going to be a little bit more deliberate about that.

I can speak for our game and it really didn't change last year to this year, which is we spent a lot of time focusing on getting converged customers. And we want people paired with our best products and services. And that, in particular, are -- those are accretive and effective customers to chase, and we're getting a lot better at doing that. And we're opening more footprint where we can do that.

And so we've been directing a lot of our promotional activity. We've been directing a lot of our retention activity in a way that plays into our strengths in that regard. And I think that's why you're seeing the strong margin performance you're seeing where we're able to keep our costs in check, at the same time, managing good customer volumes and getting the kind of metric performance on convergence that you're seeing moving forward.

The team has executed well in making those things happen. So I think that's how it works for us. That's the game I want to play. I can't speak to others. Some aren't, I don't think, reporting churn anymore in the same way. So it's sometimes hard to understand exactly what's going on.

But I can tell you this is what's working for us, and I feel pretty comfortable that play has some durability and sustainability and why we're engineering ourselves to do that. And I think we're going to see out -- the balance of the year look very much the same to what you saw right now.

Operator, you can go ahead and close out the call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Join us. Before we jump into it, I'm going to turn to Pascal for a safe harbor.

Yes. Good morning, everybody. It's a pleasure to be here. Just as a reminder, some of the comments I'm going to make today are forward-looking in nature and subject to risk and uncertainty. Please refer to our website. Additionally, we are in the midst of Spectrum Auction 113, and therefore, I'm unable to comment on anything related to that.

Thank you, Pascal, and thank you for joining us. We're very excited to have you again this year.

It's a pleasure to be here.

So for those of you who don't know Pascal, as I mentioned, he is the AT&T CFO, Senior Executive VP as well, where he and his team oversee the financial strategy of their $176 billion connectivity business. Since joining AT&T in 2021, Pascal really has spearheaded the company's effort for cost transformation, simplified its balance sheet and strengthened and overseen historic levels of wireless and wireline investment, which has really led to make AT&T, I believe, one of the top annual investors in the U.S., positioned it as a leader in converged connectivity and helped the company deliver on its long-term strategy.

Wow, that's a mouthful.

But really quite impressive all you've done, especially since I sat in the analyst chair in 2020. The company has come a long way.

Maybe I'll just start off -- you recently, I think as recently as last night, reiterated your full year outlook, including plans to continue investing this year in the range of $23 billion to $24 billion through 2028. It's interesting, can you kind of frame this investing because it's worth noting that some of your peers during the same period are actually pulling back on that capital investment. And how do you view this as an attractive opportunity?

Sure thing. Maybe let's zoom out a little bit. If you look at the last decade, what we have clearly seen is a trend where the demand for bandwidth has increased significantly. And as we look ahead, we look at -- you're going to see more and more increasing workloads from AI, think about autonomous vehicles, drones, smart devices. The amount of bandwidth connectivity is going to continue to increase at just exponential rates. And that connectivity demand is going to be more so driven by uplink demand than downlink. So we are building a network, not simply for today, we are building it a network for the future. And that network is going to be AI ready for whatever workloads it produces. We understand we can't wait for everything to materialize to make that investment. We think the trends are unmistakable. They've been happening, and they continue to happen. Now as you noted, we've been investing for some time.

And -- the good news is this, as investors, you don't have to wait for that future consumption to materialize. You are getting significant growth over the next several years. We are -- consistent with our guidance, we said we expect to accelerate growth in subscribers, broadband subscribers, driven by our converged offerings. We also expect growth -- a step-up in our service revenues and our EBITDA over the next several years, and we've guided to double-digit EPS during that period, all while delivering an attractive dividend, and a buyback that basically equals the level of the dividends in terms of the dollars committed to it. So all in all, we're in a position right now where we're delivering returns to shareholders today while investing for the enormous growth we see ahead.

And I want to push on that, too, because you touched on this, the capital allocation priorities. You've been very aggressive in making progress on the balance sheet, but also pursuing strategic acquisitions. EchoStar, which I know hasn't closed yet, Lumen, fiber recently required incremental capital. Do you need to pursue additional -- like in your seat, additional M&A? Where does that fall on your kind of to-do list here? And I can't talk about the current spectrum auctions, but additional spectrum down the line, et cetera.

You take a step back, what we have -- we've been focused principally since John Stankey took over as CEO on investing for organic growth. That is where we think we have enormous opportunities. There is significant room to continue to grow. And last year, we saw an opportunity to acquire attractive spectrum from EchoStar, both mid-band and low band. And we also saw in Lumen a unique opportunity to acquire fiber assets in a location where we didn't operate in a market where wireless, we were -- we had less share than we have nationally. And those assets were acquired at a price that's comparable to our building fiber and it's underpenetrated. So providing us with enormous opportunity to continue to drive incremental returns off of the existing base of assets. As importantly, when we did the acquisition, we also acquired rights of way from both rights of way to build significantly more in that territory. And it came with build engine that also allows us to continue to build right away. We didn't have to staff -- we didn't need to start new relationships in those territories. So all those things we found attractive. So right now, we're focused on what we have in front of us. We have a lot of work to do to continue to execute and monetize the assets recently acquired, and plenty of room to run in our organic footprint. That's where we're focused. Now as you would expect, in the business that we're in, we're paid by our investors to make sure we're always looking at the market to see is there are opportunities for additional returns. And that's something we do all the time. But I wouldn't -- we don't need to do anything at this stage. We are squarely focused on executing what's in front of us.

And you mentioned a large part of the driving of the Lumen was the convergence strategy, the bundle, which, again, has really come on strong just for the industry. And I think over the last few months, you've rolled out several changes for your 5G and fiber services, including a more simplified unlimited -- your Way plans, OneConnect, build a plan, which have an underlying simplification that should resonate with customers. Can you walk us through what you're looking to achieve with this?

I mean, I believe it's that bundle, lower churn, higher ARPU, but I'm curious as to what was the logic there and the timing?

Yes. If you zoom out a bit, when you look at AT&T's wireless position, I think it's fair to characterize it as we probably tend to over-index on more premium customers, customers that have more than 2 lines, and we have the highest ARPU in the industry. All those things tell us that if we want to grow in a market that is -- that's not growing quickly, we have to attack other parts of the market, whether it be value customers, 1 or 2 line customers. And how do you do that? You become very strategic and you provide choices to customers that are attractive. So when we try to execute our plans, we're guided by 3 principles.

As you noted, simplicity, value and choice. Consumers have told us that's what they're looking for. And importantly, for us, convergence. Convergence, meaning currently, we have -- we expect to end this year with about 40 million fiber passings. Our goal is for each of those fiber passings -- for every subscriber we have to try to sell them both fiber and wireless. Why? They've told us that's what they want, and they want to be able to do that simply. And so what we're trying to do with our offerings is to really provide consumers with choice, whether they are premium customers, lower value customers. And all in all, our belief is that with the unique hand that we have, with the expanding fiber footprint, it's 40 million today going to over 60 million by 2030. We're going to be in a position as a result of those relationships to drive an outsized share take in wireless.

And where you have history with the legacy fiber, you've seen that play out, right?

Without a doubt, our customers that have both fiber and wireless are our lowest churn customers, highest lifetime value and their NPS is higher than our overall base and brand love is off the charts, all things that tell us that if we want to continue to drive customer affinity and give customers what they want, this is the winning hand.

Got it. On the wireless side, a key part of the industry has always been about device subsidy. And I'm curious your current thoughts as of how much of the industry has talked about moving away from these aggressive device subsidies and really refocusing on the network and the experience there and service. But at the same time, these device subsidies have historically been a very important point of differentiation for the industry or for players within the industry from the MNOs relative to the cable MVNOs. How do you think about that trade-off?

And kind of what gives you confidence that we're going to stay in this network-first competitive environment?

Yes. The device subsidies are really -- I view them as a way to show customers' appreciation, reward them for their loyalty and choosing us. Look, I think it's fair to say at times, we probably as an industry, have over-indexed on those. There are other ways to show loyalty, provide superior products and services, great customer service and a great value proposition. We're selling a great service, and let's lead with that.

Also, look, I think there is a lot of focus on the devices. I think one of the things that I think is lost when people are talking or that's not emphasized enough is the devices also allow us, in addition to accommodating what the consumers are looking for, it allows us to sell unique products. We have an insurance product where we ensure your device, pretty attractive revenue stream for us. Similarly, we have a product called Next Up. Your next upgrade on us if you pay an additional $10 a month. So they're all things that are available and allow us to monetize the relationships in different ways. So I think it's really important. When I look at the overall devices and our relationships with consumers, there's a budget of, of subsidy that we earmarked. And we stay within those budgets.

We manage to it. So the price of the device is only one piece of it. There are other elements of value such as the trade-in, the price plan that the customer buys in at. And we also -- on all these other ancillary revenue streams that we are able to garner from the relationship. So do we continue to try to find ways to manage device subsidy more effectively?

We do. But I think we do a pretty good job. And on balance, what we invest in there, we think we get a really attractive return.

Yes. And I would think like the more convergence permeates into the customer base, I don't want to say it becomes less important. But if my family has your fiber service and 3 wire-- I mean, I'm less focused on my kind of subsidy of a particular handset. Is that what you're seeing in some of these more mature markets?

Yes, as a general matter, but look, our view is this, we have to meet the consumer where they are. And if they want a device subsidy, we'll figure out how to do it, but in a way that not only works for them, but works for us as well.

Got it. So your Lumen, I want to talk about the integration there because that is the deal you have closed on and had for a bit. You're in really one of the largest infrastructure build-outs in the telecom, I'd say, in the broadband market. You mentioned earlier a goal of 60 million fiber locations by 2030, which does include your integration of Lumen, which you closed earlier this year. Can you talk about what made these territories particularly attractive? The rights of way, I think, is a very underappreciated point, because I think people don't think that's just easy. And so I'm curious as to how you think the integration has gone thus far and your priorities from here?

Sure. You take a step back, we acquired about 4.5 million fiber passings for about $5.8 billion. Do the math, the cost per passing is very competitive with what it takes us to build. That was one element that made it attractive.

Two, as I mentioned earlier, we've acquired rights of way. So not only did we get the existing passings, we can build out well beyond those. And we've said we plan to more than double those passings over the next 5 years. So that was an attractive element. It came with a team that was accustomed to doing business in those markets, has relationships with the different municipalities where the permitting is requested, knows how to navigate the local markets. Additionally, those assets were underpenetrated. So they were at 25% penetrated. That compares to our national average of 40%, and we said we expect to go well above that. So that was an element of value. Also, in that footprint, our wireless share is significantly less than it is nationally.

Interesting...

And to boot, they are not -- the convergence rate in those territories is considerably less than what we are seeing in our own footprint. So all those things together make this a really attractive assets. We closed in February. It's early days, but honestly, the reception in the local market has been really positive. Sales demand is really strong, much higher than it was under -- when Lumen owned the assets.

We didn't have a wireless tool, right?

That's right, and they don't have the distributions that we have in the local markets. We have retail outlets across the country, all things that allow us to really be able to hit the ground running from a distribution standpoint. With that said, look, we have to ramp up the pace at which the build team is building. They have to be able to accommodate much more installations than they've been accustomed to.

And all those were things we anticipated when we -- that there would be a ramp-up period. We're in that. But what's really encouraging is every week, the team is getting better. They're continuing to execute better and achieving the scale that we anticipated.

It is part of your longer term -- this was a critical piece in this long-term fiber bet, I would say. You know I -- we're hearing a lot about broadband these days and other players. And I'm just curious, broadly, what gives you the confidence that now is the time to double down on this fiber bet?

And I'm curious, does AI become part of that conversation, too, is that last mile of connectivity?

It really does. AI doesn't exist without our connectivity. I mean, plain and simple. And we know one thing for sure that data consumption is going to continue to go up under AI. And how do you best meet that? Our view is this fiber gives us the best ability to meet that. Why? You have symmetrical speed, highest speeds available, lowest latency. And importantly, the cost to deliver -- the unit cost to deliver bandwidth is the lowest with fiber. And it has great maintenance profile, less power consumption, all things that make it incredibly attractive. Now we know it's a long game. You don't wake up 5 years from now and say, "Oh, I want to be in the fiber business". We've been at this for a while. And we are building a network that is AI ready. There will be a lot looking to catch up and trying to figure out how to catch up as those consumption trends materialize. We're not going to be in that position. And as I said earlier, the good news is this, we're able to do all this while accelerating our growth in earnings and delivering value shareholders in the interim.

You also have another tool in your toolkit in fixed wireless. You've indicated through a lease agreement that you've deployed the large majority of the 3.45 spectrum that you will be acquiring from EchoStar in the fourth -- you agreed to acquire it, I realize it hasn't closed. How should investors think about the role fixed wireless is -- has in driving this incremental growth and really the overall broadband opportunity?

Yes. Fixed wireless is another tool in the toolkit. It's another product that we have. At the very beginning, as we -- the product was being introduced, we said we didn't anticipate it being our lead offer for broadband. Fiber is our lead offer for all the reasons I just went through.

But fixed wireless, where do we think it makes sense to use? It makes sense to use in advance of fiber coming to territory. So if you still have -- in those places where you still have legacy DSL and that you want to get customers in advance of a fiber rollout and you're planning to do so, great tool.

Two, if in places where we're not going to offer fiber, even though we have plans to be at 60 million-plus locations, there's a lot of homes that we're not going to cover with fiber. So that's an opportunity for us. Importantly, when we are selling fixed wireless in those instances, we look to do it in conjunction with wireless. It's very clear when we're looking at returns, fixed wireless only makes sense if you are using your fallow capacity. And you don't have to densify your network to provide incremental coverage and capacity. It's -- once you start to have to do that, the returns on fixed wireless go down dramatically.

Interesting ok..

And so it's really important that we are surgical in how we use it. And so outside of our traditional footprint, we try to really drive convergence. And those markets also, typically, we are underpenetrated in wireless. So it allows us to increase our share of wireless in those markets.

Got it.

It's a really good tool for small and some medium-sized businesses. Those with multiple locations, where you may have fiber in one, but may not be able to cover them with fiber in another. So you're able to drive that. And the consumption trends for smaller businesses are not as significant as consumers. So all those things factor into how we look at it. It's an important tool in our toolkit. It's one that we think for the right customer, it's the right solution.

Sure.

But I wouldn't anticipate us to be -- to have to focus on those relationships to the same extent as you see some of our peers.

Got it. And with the -- the worry always with fixed wireless has been a spectrum will be tapped out. But with what you've received, or will receive, or leasing actually right now from EchoStar, that worry is not.

Well, it's not today, but at some point, you're going to have to pay the [ piper ]. That's why we're being much more surgical than others about it.

Got it.

I mean, look, there's a common theme here. We are playing a long game. We're not trying to build a company for today. We're building it for tomorrow. And it's really important -- we've been in this business 150 years. We're going to be in it more than that in the future. So I want to make sure that we are looking at this, and we are managing this for the long term. And that's been John's message. We're going to build this to last.

And between the fixed wireless and your fiber, I believe you said in the release last night that year-over-year, this fiber growth will be...

Yes. Advanced home Internet is the category that we call the combination of either fiber or fixed wireless broadband. We expect growth in customer additions to accelerate...

Year-over-year.

Year-over-year relative to what we saw in the first quarter.

So the investments are paying off...

There's no doubt like there's nothing that we've seen that would suggest that these are not the best investments for our investors long term. And so we're really bullish about the future here.

I want to shift to business. Your Advanced Connectivity business services were essentially stable year-over-year. People have always been negative on this for the group in general, but it's important to note that was the first time during the first quarter where you saw that stability in a long time, I believe. And what is -- which to me is an important milestone. What is driving that stabilization? And because people used to feel like that was like the melting ice cube and that those were just going to continue to decline, but here we go, it's stable.

Yes. Look, I'm incredibly proud of our team and business. We said this a couple of years ago that we expect, as you got through the next several years that the business would stabilize and begin to grow. In fact, we have given guidance that we expect our advanced connectivity business services revenues to grow low single digit in the next several years?

Oh, interesting..

There are several things that are happening there. One, as we build out more fiber locations and as we penetrate the existing fiber base, we're seeing an acceleration in growth in business fiber revenues, both shared and dedicated.

Two, we're also seeing fixed wireless, as we roll it out, our fixed wireless business product is less than 2 years old. And so as we are rolling it out to small and medium-sized business, we're seeing really good uptick, consistent with our theory of the case. And those 2 things, coupled with value-added services that we provide to businesses will -- are more than offsetting some transitional products like VPN -- and all told, we're at the point of stabilization, and we expect to grow low single digits over the next 3 years.

And I'm old enough to remember when it used to be called like butts and seats. The more butts and seats in businesses, the more growth we'll have. But do you feel like you've aligned the sales force in a way to kind of accommodate this new normal that you're seeing from the businesses and their needs?

Sure. Look, the business market is incredibly complex. The way you sell upmarket is very different than the way you sell small and medium-sized businesses. In medium-sized businesses, in particular, there's a -- you have to rely on distribution relationships to help drive those. So all things that we're working to make sure we have aligned. We have the right distribution for the right products. lower market, our retail channel is quite effective at driving that. In upper market, it is the traditional sales force that is really working with customers to really satisfy their needs.

Got it. I'm going to shift to 2 questions, which some might call the elephant in the room because we're a big week with a big IPO coming on Friday,

Yes, which one?

Exactly. And you know there is a lot of water cooler chit chat about satellites role and in the broadband industry. And I guess, how do you think of that evolving broadband competitive landscape with satellites, birds in the sky?

And how do you feel you're positioned? We've talked a lot about the fiber, and I totally understand that point, but there is others talking about how they're going to chip away into this broadband market. How do you think about this competition?

You look at today between broadband, -- between fiber, cable, fixed wireless and the wireless infrastructure that exists in the U.S., probably that covers 99% of the U.S. population. But there is a 1% population that's not covered today in very rural areas. And I think satellite is a great solution for that. The cost to deploy traditional infrastructure in those areas is prohibitive.

So -- but within urban and suburban areas, it's really the infrastructure that is in place is better. It is -- the cost per bit to deliver is cheaper. And those markets are competitive with well-established competitors. So look, anything is possible. But look, there is -- we think we provide great solutions at a really attractive price in urban, suburban areas, and that's where our focus is. Over time, we would expect to be able to partner with different satellite providers to help bridge the coverage where, where we don't have infrastructure. And ideally, we'd like the coverage to be seamless such that if somebody drives into a rural area from a suburban area that they are able to have continuous coverage because we've worked with the satellite providers to ensure the seamless transfer of their connectivity, no different than when you travel internationally.

And you get moved to the other carrier. And you'd partner -- I mean, the big 3 have come out together and said that they'd be willing to work together in that. Is that correct?

Yes, that is. Here is -- we all see the need to provide seamless connection to our consumers at an attractive price. And by coming together, here's what we're able to do. We're able to agree on a set of standards and principles that we're going to use to deliver that service. Two, it allows us to pool scarce spectrum resources together. And oftentimes, they are complementary resources. So it allows more complete coverage. And then finally, it also allows us to share in the infrastructure cost of delivering that satellite connectivity. So altogether, those things are made this pretty compelling for us. And importantly, I think the consumer wins here. By being in a position to come together to solve these pain points, we're able to deliver the value to the consumer at an attractive price.

And I realize you can't talk about the spectrum auction, but the fact is you've spent billions of dollars, you and your peers on spectrum of mid-band spectrum, which is tough to come by. And if physics still matter, does that also come to play with satellites?

Yes. there will be unique spectrum necessary to be able to connect direct to device. And -- so the spectrums that collectively we have allow us to do that better than each one of us trying to do that.

Absolutely. Final question. If you're sitting in the same seat, maybe this seat, 3 years from now, I think a bigger question, what would success for AT&T look like? And what do you see as the biggest variable to get from here to there?

Here is the good news. It's -- our destiny is within our control. We don't need to acquire any other assets. We just need to execute on the assets that we have and optimize those assets. We are currently in the midst of several transformation, whether it is getting out of copper, modernizing our wireless network, expanding our broadband footprint significantly -- you fast forward the next several years, those things all come to an end.

And there's significant duplicate infrastructure today that is supporting those different initiatives. You get to the other side of that. That infrastructure goes away. You have a much more modern, efficient network, both broadband and wireless. You're able to deliver better connectivity than anybody else at the most efficient cost structure. It is going to be a business that is really attractive margins, high, high operating leverage and very strong cash flows. And all that will accrue to our shareholders.

Terrific. And I think AI is going to be a major part of the conversation from there.

Yes. We are going to have an AI ready network and everybody is going to be scrambling to catch up.

Pascal, thank you. Thank you to everyone in the audience.

Thank you, for having me.

Thank you so much.

Good morning, everyone. I'm Sebastiano Petti, and I cover the telecom, cable and satellite space for JPMorgan. I want to welcome John Stankey, Chairman and CEO of AT&T. John, thank you for joining us today.

Good morning. It's good to be with all of you. Before you get on to your next question, can I just remind everybody we're in the quiet period for the FCC spectrum auction and also offer our safe harbor statement that some of the things I'm going to talk about today are forward-looking in nature and subject to risks and uncertainties. We may or may not update those prognostications, and if you want all kinds of transparent filings, you can go to the AT&T Investor Relations website.

Great. With that out of the way, so John, your long-term guidance includes expectations for EBITDA growth to accelerate to 5% plus in 2028. Can you start by walking us through your key priorities and areas of focus for you and your management team?

Sure. Look, coming out of first quarter, I think you saw that what we've put together in terms of investment in the business to build a structural advantage to drive the growth of the business is, in fact, coming to pass, and we walked out with what I thought was a directionally correct first quarter for what we're ultimately going to do that you just alluded to, saw our best broadband -- advanced broadband connectivity net additions that we've had in the first quarter, so that's accelerating. And margins were really strong, improved, held together as that growth came in.

So I look at the fundamentals of the business, we're confident that we said, look, our guidance is sound. You should expect the step-ups and the accelerations in EBITDA growth, and you should expect cash flow improvement as we move into the second quarter, consistent with what we put out there, reaffirmed all that.

And now you think about what that strategy was all about, which is increasing the footprint of which we can grow on. We've never had a year that we're going to have this year where we add 7 million passings of new fiber opportunity into our portfolio. And that is a foundation of where some of that growth comes from. In addition to that, a combination of the acquisition of the new spectrum that we picked up from EchoStar as well as what we've been doing to modernize the wireless network opens up additional footprint for us to sell converged in places where we may not have built fiber at this juncture.

And so those two things together give us this foundation and a base to sell into, which is the strength of that growth. It's going to deliver that accelerating dynamic that we just talked about of getting ourselves up to that 5% level. And we feel really good about it. All the things we're doing to increase the size of the build engine and do the things we need to do to make sure that, that footprint comes at a clip at about 5 million homes a year as we get out past next year, that's another part of that equation. Couple that with what we're doing on the cost side and the discipline we're putting around how we're restructuring the business, and I feel really good about our ability to generate the cash and the EBITDA growth.

And if you kind of step back and think about what this business looks like as we exit this decade, it is a metropolitan fiber business with a top-class national wireless footprint. And if I were thinking about going in the next dawn of AI and what's required, that's exactly the asset base I'd want.

And so pivoting a bit here. Last week, you announced a direct-to-device JV. Can you discuss -- we've heard from some of your peers already, but would love to hear your thoughts on why this makes sense for AT&T? And more broadly, how do you see LEO-based satellite services factoring into the connectivity market across both wireless and...

Whatever they said. There's got to be some benefit to going into [ the third, ] right? No, look, first of all, the path that we've been on is still the path. We view satellite as very much a great complement to the existing products and services that we offer. We've been building scaled quality networks that work in the home and work on the go for many, many decades and investing over a long period of time to make that happen. And to my earlier point, I think we've got a set of assets that are structurally advantaged over time in how you handle networking and network loads.

And the next natural thing to do for a customer is to make sure that they don't drop off of networks, they don't go some place where they can't get a text message or make a phone call. And so satellite is a great complement to the infrastructure that we've been building and the services that customers have gotten to know us for. And by bringing that into the portfolio is a natural extension of that relationship where a customer doesn't have to think about, do I need some other relationship or do I need to buy from multiple providers, I believe, is the natural progression of convergence and where things are going to go.

So that hasn't changed. I would also tell you that the path we've been on, we're very comfortable with. The path we've been on, given how the technology is maturing, is to make sure we can get the technology to work well on a direct-to-device basis so that customers can use it in a way they're accustomed to using it. And there's nothing different about a call that might have to complete over a satellite versus what they would do during the other 99.5% of the time they're using the network.

And we've had a great relationship with AST SpaceMobile. The technology and the approach that they're using is unique for direct-to-device. And I think it's going to be a great path for the first product that comes out that is effectively a seamless and straightforward product for a consumer to use that extends the network. And we're going to continue on that path, and the JV will take some time to mature and ultimately come up to operating speed. We're still going to be pushing ahead to bring that product out to market to ensure our customers get access to it. And we're really excited about what the second half of this year holds as a result of it.

Now why do the JV? Well, as we've gone through this and we've learned about things, I think all three of us kind of stepped back and said, look, there are some things that need to be fixed here. It doesn't make sense for all of us to be lobbying for different priorities on the handset deck for spectrum capabilities. And if we get bifurcation on that that's not going to be good for any of us. It doesn't make sense that you have IP that you've developed that allows applications to run more effectively in these heterogeneous networks that have to be integrated. We've got a little bit, you've got a little bit, if we kind of get together into the software space and start putting out more standards around that, things can operate more effectively.

There's a real good thing from a consumer perspective because to make these applications and the services work properly, spectrum is really necessary, frankly, a full portfolio of spectrum, both low-band and mid-band. Low-band spectrum is pretty scarce. If we did something together, we can get a service out there that makes more sense, that's available in more places, that works better. It will be better when it's paired with mid-band spectrum. We can engineer it better in that way. We can go and we can collectively figure out how that scarce licensed spectrum can be used most effectively with high utilization by aggregating our traffic.

And one of the fundamental things you want the JV to do is to make sure that there's a robust wholesale market in satellite. That means multiple constellations to buy from. And at the end of the day, that's a good thing because that means capacity will be out there that ultimately can be delivered to customers. It means a robust wholesale structure. We'll keep pricing in check, so there isn't a bottleneck of any particular single provider that can dictate what that pricing is, and that ultimately benefits the consumer because the product and service becomes more widely available.

And then finally, there's infrastructure that has to be built. And given that this is a small percentage of total traffic on a network, it is a very small percentage of total traffic on a network, building ground station infrastructure 3 times over, having to have different infrastructure for Satellite Provider A versus Satellite Provider B that doesn't make any sense, and the JV can be a very efficient way to go about building that ground station infrastructure, building it once and having a set of standards that all players work into that allow for delivery of that traffic into separate operating mobile cores. And that's really the foundation that...

Well, glad you answered that for us. Any...

I'm sure it's the same thing everybody else said.

Pretty similar.

Pretty similar. Good.

Any update in terms of timing, definitive agreement? I mean are we talking maybe inside of '26 or...

The definitive agreement will be pretty straightforward from my point of view because we have a very -- to get three of us together and do this in the way we wanted to do, we have a very definitive term sheet that we put together. So I think all the hard issues have been worked through to get to the term sheet, and I don't expect the definitive agreement is going to be a problem. We're all highly motivated, especially given there's dynamics in the spectrum market that need to be responded to and that JV needs to be an entity in which to do that with. So I don't worry about the definitive agreement coming together.

The regulatory process remains to be seen. It's going to require approval. It's too early to tell after we file as to whether or not we'll be in the second request land with the DOJ. I expect that will probably be the case. And after we get that, probably have a better prognostication of what the timing of a close might be.

Understood. Okay. And so now pivoting to -- as I describe the yield on the network and your updated go-to-market strategy, there's been some debate around AT&T's new go-to-market approach, particularly the strategy to target underpenetrated segments, which can dilute your postpaid phone ARPU. So while I agree that improving the yield on the network makes sense given some of your outsized investments and the lower penetration rates in some of these cohorts relative to competitors, some investors struggle with the trade-off. So why is this the right strategy for AT&T? And how does your asset mix and convergence strategy position you for success?

Yes. It's interesting because I don't struggle with the notion that the most profitable and best-returning networks are ones that are full. And I would tell you that from the dawn of time in this industry, when you look at the better performing assets, there's always been a mix of traffic on them. There's been a percentage of foundation that was wholesale. There's a percentage of foundation that's high value, highly lucrative. There's always some stuff that's a little more stripped down and sits in the middle. And I think our approach is no different than what historically that's been. And I believe one of the things that probably we haven't managed the business as effectively as we should over a period of years is we are probably a little bit light in the lower segment of the markets that are a little more price sensitive and value driven.

There are still great customers. There's still customers that return. And the way I think about it is you shouldn't over-rotate on an individual price that's being charged for an individual product in the market. What we should think about is what's the value of the overall relationship, especially in a converged market. And sometimes to establish that relationship with the customer and allow them to grow over time, you do certain things to attract them in and then, like any customer, their circumstances change or the value of what you're selling them is perceived to be better or you innovate on the product that you add more capabilities in. And as a result of that, they're willing to pay you more. And just because an entry level or initiation of an account comes in at a particular level doesn't mean that over time, that can't be grown into a profitable relationship. And the worst thing I think for a brand is to get pigeonholed to saying it's only a brand that's accessible to those who hit a particular socioeconomic construct.

When you have these networks out there that are very robust and have a lot of capacity on it, in particular, the beauty of fiber is that it literally has infinite capacity. When you think about what we build to a customer's home and how we provision, there's all kinds of overcapacity in that network. And if you're smart about how you do that, you want to value discriminate and price discriminate with that value in a way that allows you to match the right offer into the right customer segment. And when I start thinking about what's out in the market today, I would use fixed wireless as an example, it's very clear that there's price points in the fixed broadband market that people want to be someplace other than buying 1 gig or 5 gig service at $75 a month. There's a lot of people who want that. It's important to them. That's what they want in their household. But there's others that want to be someplace else.

And if your marginal cost is the lowest in the market, and once you put fiber in place, that's the position you're in, why would you walk away from that circumstance? And why wouldn't you build a product that allows you to address that, and you do it in a way that allows you to have a full portfolio, selling an account to enter in at a lower price point that might be dilutive to an over-indexed premium ARPU doesn't mean that you're not driving more value into the business. It means that you're filling your network, getting better utilization and better return, and then as an investor, you only need to step back and ask yourself, are they smart enough to know how to do that and distinguish those products so that they're putting the right customer and the right value proposition and the right price point.

And I don't know, to me, that's not a huge leap of faith, Sebastiano. Because you go back and you look at the history of this business over time and how we manage the subscription base, it seems to me like we've done that pretty frequently. And we do that in a lot of different ways where we portray that value discretely depending on the market segment, and I think we can do that now.

Okay. Great. You made an interesting point on your last earnings call describing convergence and churn is just math and that the benefits start compounding once the customer base is large enough. When should investors expect to see these churn improvements from further growth in converged customer base? Peers seem to be equally focused on retaining customers. Do you see this as a headwind to reaching that improvement, or just competition?

Look, it is -- it's going to take time for this to work through. And if I were to maybe go back and say, at least in the wireless space, we came out of the pandemic with historically low churn levels. I don't see us returning to those levels anytime soon. But do I see the deterioration that's gone on starting to plateau and flatten and then maybe work its way down slowly. I'm more likely to see that scenario. The math is something like we know that when we converge a customer, we pick up a dramatic improvement in churn and longevity for that relationship. And so the math becomes as the footprint gets larger and you get more converged customers, then you get a higher percentage of your base influenced to that, but you are in that process of that transition occurring. And as I just spoke about, we don't hit 60 million footprint on fiber until 2030, as we get through 2030.

And so we're adding new footprint. We're penetrating that base. We're converging those customers. And the math is, as you're doing that, you're still working through a churn dynamic as the base reorients around more converged services. We think we get a preferred position when the music stops and the deck chairs have all been rearranged because of the size of the footprint, the quality of the fixed connection married with a fantastic nationwide wireless business, but you do go through that transition.

And one of the things that was also propping up churn for a long period of time is before buyout offers came into the market, there was a little bit more resiliency on the stand-alone wireless side and a lot of that's gone now given there's a lot more portability of the customer. So we went through a year of seeing that work its way into the numbers. That's one of the reasons there's been this acceleration.

Now you get to better year-over-year compares as a result of that. I think that's kind of in the market at a particular level. That's partly what will contribute maybe to a little of that plateauing. And I do believe everybody is going to be really mindful of managing their base. But when you walk into the market with a superior product and service, when you have the portfolio of offers that we're putting in place, as you've seen at the top with OneConnect coming out and the simplicity that, that brings at the top end of the market for the customer that wants to bundle everything in their house. We've got fantastic plans in the middle, and I think you'll see us be doing a little bit more in the value segment that you're going to see. I see how that portfolio hangs together on the best product set. I feel really good that we're going to be able to continue to grow and take our share. And as I said earlier, when the footprint gets bigger and we expose more places we can go introduce that superior product set, we're going to get our growth out of it.

I think a good segue there. And so just thinking about the fiber network, if cable continues to try and mitigate more broadband losses and steps up their brand marketing, do you see a meaningful change in cable competition coming out of the quarter? And I guess where do you see some of the most pressure?

Clearly, we saw Comcast run plays to work on retaining the base and that's causing us to adjust and do some things a little differently. I saw less of it from some of the other competitors. It doesn't mean they won't adjust and drive those tactics. But as I said, in the end, we have been accelerating our growth. We came off our best first quarter on advanced connectivity net adds in broadband while they were doing that. So while we saw their tactics change, we've still been able to get a fair share.

And I think the other thing that I will keep reminding everybody of if you compare our performance today versus 2 or 3 years ago, we're not living off a base transition at this juncture because we don't have a base to transition from to speak of right now. We've been shutting down a lot of our old copper infrastructure. There really isn't a base of DSL customers to harvest. We built the most attractive markets with fiber in the footprint right now first, where a lot of those folks were clustered.

And so this growth that you're seeing and the step-ups in it is coming from transition from other competitors. And we know how to do this, we'll continue to do it, and I feel really good about the value proposition in the market and don't worry about that. And I think we're also seeing signs that their wireless base is maybe going to require a little bit more maintenance at this juncture of their life cycle and whether or not they can step up to that remains to be seen. And that -- if they don't do that well, that just means more opportunity for us.

And then pivoting to fixed wireless, you stated AT&T's Internet strategy remains a fiber-first strategy. However, you've made significant investments in both wireless network modernization and more recently, the expanded spectrum capacity. So how should we think about the long-term growth trajectory of FWA? And I guess where do you see the biggest opportunity in that product?

Yes. Look, I've said all along, our strategy is the right product to the right customer in the right place and that hasn't changed. And I've stressed one of the things that I'm really energized about in the fixed wireless space is what it means in the business market. We're growing our volumes and business, and I love that. And I'll grow fixed wireless and business subscribers all day long. Usage characteristics are different. Oftentimes, those customers come with more bodies, which means there's an opportunity in the account to sell more wireless than you might get in a typical household. So the value of the portfolio with that customer is greater. Many of those customers have more than 1 location. The beauty of fixed wireless and combined with fiber allows us to meet them where they need to be met with both technologies and provide them with national solutions.

So some of this growth that you're seeing in fixed wireless is because we're getting better in business. And I will take that all day long, and I'll do that all day and there's also great applications for fixed wireless as backup and a lot of our other customers that we drive volumes off of. That's good stuff.

In consumer, as I've said, I'm really happy selling fixed wireless is, one, in places where I can pre-penetrate prior to fiber or save embedded customers that ultimately will be converted to fiber. So if I've got some small portions of our DSL base that I can pick up on fixed wireless is a holding strategy because it's better than DSL until fiber shows up. That's a good decision to make. If it's a place I can pre-seed customers as we're going to build, such as in the Lumen footprint, that's a good place to do it because you roll a consolidated account at some point. And then in places where I'm not going to be building, there are segments of the consumer base that are well tuned to fixed wireless. It's not the 4-bedroom household with 5 people in it, but it may well be the studio apartment, or it may well be the value segment play. And those are okay places to be with it as well, and I think it has more sustainability.

And if we do that well as a business, if we tailor our selling in that construct well, we'll drive value. If we don't sell to the right places, then 2 years from now, I'm going to be talking to you about higher churn on the fixed wireless product that we couldn't sustain. And I don't want to see us in that position. And I think we're trying to manage in that regard.

As you think about the source of FWA on the consumer side, is that coming from the existing T base? Or is that new-new as you guys would describe it?

It's mostly new. But there is -- we're actively using the product in places where we are shutting down copper infrastructure to clean out the last remaining 3 DSL customers here, the 5 over here. And so we're actively using the product in that regard, but it is not the bulk of our volume by any stretch of...

Yes. But great attach rates to your wireless base because you can...

Correct.

Disclose that. Great. So shifting gears a little bit here, sticking with the business angle, but hyperscalers are making massive investments in data centers to support AI tools and applications that consumers and businesses will access through both wireless and fixed internet connections. How do you see AT&T positioned as a provider of this connectivity or as a provider of edge infrastructure for AI workloads? Is this a material opportunity? Do you need to make incremental investments or new partnerships?

I think about this in -- maybe in 3 pieces before you kind of get to the edge compute dynamic or as part of it. The first piece is you've got to have great strategic access. You got to get people on the network. We've invested heavily to do that. That's what our fiber investments in play was about, which is get more fiber to more businesses and more customers because at the end of the day, for heavy workloads, it is the best, lowest marginal cost technology with the best future proofing that you can invest in.

And then secondly, make sure you have a great wireless network, and part of our strategy on wireless is to make sure that upstream capabilities in that wireless network are superior, hence, the EchoStar transaction, the deployment of the 600 that allows us to get more symmetrical low-band spectrum that will allow us to engineer that in a way that we can have a higher performing network in the upstream than what historically wireless has delivered with our preferred low-band positioning.

So preferred access is the first thing. Once you get the network, the traffic on the network, you got to deliver it into the infrastructure that people want to use, whether it's an LLM or somebody's cloud infrastructure. And so it's important that you have a great metropolitan aggregation network and ultimately, the right backbone to deliver that traffic to the right place around the country. And when you're delivering those packets, you can see it from your access, whether they're fixed or mobile, and track it all the way back to the handoff and then deliver it back so that you know exactly what the performance of that packet is especially when you're in demanding workloads like inference that maybe require shorter latency.

And so we've been actively in the data center market and actively working with hyperscalers to ensure that we're building shared infrastructure into their access points and have the right relationships through a combination of dark and lit fiber that ensures that our backbone and our aggregation networks can deliver those packets that we get off of our preferred access into their infrastructure, and I have visibility as I hand it into the infrastructure and receive it back and deliver it to the end points. And that's the fundamental approach we're using in how we architect the network.

And we've been actively playing in that. We're not maybe as vocal about it as some because we see it as only a part of our strategy to complement our access where the real value is. And I think part of the reason you should assume that the improved performance that is occurring in our business market segment is related to what we've been able to do to sell on top of that value proposition and that infrastructure.

Now the third part of the stool that has to be evaluated is, in that value chain of delivering that traffic is it makes sense to insert some compute capability someplace in -- where we have advantaged points of presence out closer to the edge. And the answer is it may, don't know, still watching what those workloads are that are developing. I can certainly come up with some that I think might require that. I think a lot of it will depend on where those data centers for the various hyperscalers and those that own the AI infrastructure will be. My point of view is the large vertical players will probably be present in virtually every metro in the United States. And so then the question is, what is the latency to deliver off that high-performing access network we're building into that metro, and will it require something faster than that extra couple of miles to get from the edge of our network into the metro and back. And I think that remains to be seen.

We're prepared to do something if we think it makes sense to do that. I can't tell you that I'm convinced that the network itself isn't going to solve that problem as this matures over time, but we're watching it carefully.

Okay. You've talked about a reordering of assets for a while now, and you executed on this with some of your recent transactions, but peers are -- also seem to be following suit to some degree. Do you -- how do you know this is enough? Do you still feel like you have all the assets you need? Or does it make sense to maybe pursue more acquisitions, particularly on the fiber side?

We have enough to keep ourselves busy right now, and we have enough to deliver the guidance and the plan that we put in front of you that we see a really advantaged structural position as we exit 2030. I'm going to answer it the same way I've always answered it. I pay attention to assets in the industry, and I like to be opportunistic if there's something out there that creates value.

I think Lumen was a classic example of that. It was something we evaluated for a long period of time. Originally, we couldn't get the asset in a way that we thought made sense for our business. We are patient. We ultimately got it in a way that I think made a lot of sense, which was a fiber -- a set of fiber assets in great metropolitan areas at a very fair value. And our execution on that since closing is exactly on pace to what we expected to occur.

If something like that were to pop up again that could drive the same kind of value under the same construct, would I be open to deploying shareholder capital to go after that and drive the kind of upside that I think we're going to get out of the Lumen transaction? Of course, I'd be open to doing something like that. Do I think there's -- knowing the market that's out there right now, it's pretty fragmented. There isn't probably another 5 million, 6 million home opportunity that shows up. One thing that I don't think overbuilders and people who have been in this space really understand is you can't build 30,000 here and 20,000 there and 40,000 here and have a scaled business, and this is a scaled business. And so I'm not interested in picking up postage stamps, little pieces here and there. I would obviously pay attention to what made sense within the broader footprint.

But if the right thing popped up or if there were assets that were mismanaged that had to be cleansed, in bankruptcy or something like that, would I possibly be an aggregator of it? We'd, of course, look at it and understand it, and we'd do it with the same eye to making sure we sustain the returns we promised shareholders up to this point in time and doing it in a way where we could stand up to those commitments and drive the value back. But right now, we've got great organic investment, if you didn't get that from my opening comments, to drive the kind of growth we're talking about. And that's play #1, and this team really needs to execute around that. And when we do execute around that, your confidence in the management team and what we're able to do and how we're able to deploy capital will only get greater because part of delivering on that guidance is taking assets like what we picked up with Lumen and actually driving value out of them. And you're going to say that play works, that makes sense, and I like what they do, and you will trust us to do that if it were to happen.

Yes. And I think just a quick follow-up on Lumen. Because the integration is in flight there, but as we think about shovels in the ground, executing against the ramping fiber build you talked about, how many passings do you expect to add this year or the pace that you expect to get to exiting 2026? Still on track there?

Yes, there's two parts of it. There's the, how do you sell into the existing assets you picked up and that's fast afoot right now, and it's going well, including we've turned the first markets over to the AT&T fiber conversion, which means you pull the old brand out of the market, all the technology that goes into a customer's house and all the customer support, the branding and everything becomes AT&T and the methodologies become AT&T. And that's good because those are the best in the country, and they drive the highest customer satisfaction.

We did our first market a couple of weeks ago. We turned the second one yesterday, and we have a rolling schedule here in the next 1.5 months, 2 months where we get them all converted, it's going well. And as a result of that, volumes inbound on that embedded base are very much in line, if not better than what we expected. So the sales opportunity is largely being gated by our ability to staff right now, and we're ramping on that and getting better.

Second part is the build engine. And that's a harder thing to do, candidly, to grow that in. We've got multiple states where that has to expand. We feel very comfortable with our ramp in many of those states. There's a couple where, as usual and as to be expected, different municipalities have different expectations on permitting and some are smart and they like to welcome investment and make it easy, and others view it as a hijacking and that's not new in this business, and that's not new to AT&T. We know how to deal with these things, and we don't like to get hijacked.

So sometimes you adjust where you're going to go build and deploy that capital where you can get return and move quickest, and we're doing those adjustments to the build plan. But I believe as we get out -- it's a long game, I believe as we get out of a year, we're going to have a portfolio of things that can get us the volumes we want. If not, having a little bit of choppiness in the quarter is building up to that, as I've said, don't look at this in the 90-day segment, look at this over the course of the year, 1.5 years is, do we grow. And I'm very confident that what we're seeing, we're going to deliver on.

And then the quick follow-up here to close this out. Just thinking about capital intensity. I mean, do you need to pull back on any of your spending to remain -- stay competitive in the marketplace? Do you think your capital allocation framework, is this the right level?

Pull back to stay competitive, is that like pull back to be competitive with the underspending of my peer? Or is that to pull back to stay competitive to be successful in the market?

Both.

Both. No, I don't need to pull back to be -- our value proposition, what I've articulated is the direction of the company. And we believe this exits 2030 with a structural, sustained advantage in the business, and it's the right place to go for us to have the best product in the market that can compete on a consolidated basis. And I'm very confident in that, and we do that.

Now do we tweak because of opportunity on economic conditions with that in mind to get to that North Star and watch pace? We're always adjusting that, but am I going to come back out and say, we were wrong, we don't need to build that fiber infrastructure, or do it the way we're doing. That's not in the cards at least under this administration. And I'm asking investors to underwrite the fact that I think we exit with a structural advantage and a different growth profile that is the premier company that has consolidated fiber assets in metropolitan areas in the United States that serve both consumer and business with a ripping wireless network to go to boot and that we integrate all the other technologies that come in and do it better than anybody else. And that's what's going to set us apart.

Awesome. Great place to end it. Thanks again, John.

Thanks, Sebastiano. It's good to be with you.

Good afternoon. I'm Stacey Maris, Senior Vice President, Secretary and Chief Privacy Officer at AT&T.

Welcome to the AT&T 2026 Annual Stockholders Meeting. Please note that today's meeting is being recorded.

Before we get started, I'd like to call your attention to our safe harbor statement. Some of our comments today may be forward-looking. As such, they're subject to risks and uncertainties referenced in our filings with the Securities and Exchange Commission. Actual results may differ materially.

I also want to note that the quiet period for FCC Spectrum Auction 113 is in effect. During this period, applicants are required to avoid discussions of bids, bidding strategy and post-auction market structure with other auction applicants.

Later in today's meeting, we will respond to questions from stockholders. We've already received a number of questions. If you are a stockholder and wish to submit a question or a comment, we invite you to do so at any time by clicking the Q&A icon. Depending on the number of questions we receive, it may not be possible to answer them all during this meeting. For questions we don't address, we will post our responses on the Investor Relations website within 30 days. If your question is about your AT&T account, we will follow up with you individually.

Now it's my pleasure to turn our meeting over to AT&T Chairman and CEO, John Stankey.

Well, thank you, Stacey, and good afternoon, everyone. On behalf of our Board, our management team and our employees, I want to welcome you to AT&T's 2026 Annual Stockholders Meeting.

In addition to Stacey, with us today is David McAtee, our General Counsel. Also joining us is Trent Handy, who is the Global Assurance Partner representing our auditor, Ernst & Young.

In a few moments, we'll begin with the business portion of the meeting, and I'll give a brief report on the state of your company, and we'll end by answering your questions. But first, I'd like to introduce your Board of Directors.

Kelly Grier, retired U.S. Chair and Managing Partner of Ernst & Young LLP; Bill Kennard, former U.S. Ambassador to the European Union and former Chair of the Federal Communications Commission, who currently serves as our Independent Lead Director; Steve Luczo, Senior Partner of Crosspoint Capital Partners and former Chair and CEO of Seagate Technology; Marissa Mayer, Founder and CEO of Dazzle AI, Inc. and former CEO of Yahoo; Mike McCallister, retired Chair and CEO of Humana; Beth Mooney, retired Chair and CEO of KeyCorp; Matt Rose, retired Chair and CEO of Burlington Northern Santa Fe; Cindy Taylor, retired President and CEO of Oil States International; Luis Ubiñas, Chair of the Statue of Liberty-Ellis Island Foundation and former President of the Ford Foundation; and myself, Chair and CEO of AT&T.

Let's now turn to the business portion of the meeting, starting with a few reminders about voting. If you already submitted your proxy or voting instructions, you do not need to vote today. Your shares will be voted in accordance with the directions you provided.

If you are a stockholder and have not submitted your vote or if you want to change your vote, you may vote today by clicking the Vote icon on the website hosting this broadcast. So with that, the polls are now open.

Our first order of business is to vote on the election of directors. This is item #1 in the proxy. The Board has nominated 10 incumbent directors for reelection. The name and background of each director can be found in the proxy statement. Your Board of Directors recommends a vote for each nominee.

Next up is ratification of the appointment of Ernst & Young as our independent auditors for 2026. This is item #2. Your Board recommends a vote for this item.

Item #3 is the vote on executive compensation. As described in our proxy, the Board's Human Resources Committee has structured an executive compensation program that pays for performance, is competitive in the market for key talent and aligns the interest of our executives with your interest as stockholders. Your Board of Directors recommends a vote for this proposal.

Item #4 is the vote on the amendment to the restated certificate of incorporation to provide for officer exculpation. As described in our proxy, the Board believes that exculpating certain officers from personal liability under the limited circumstances permitted under applicable law would enhance the company's ability to recruit and retain exceptional candidates and allow these officers to exercise their business judgment without the distraction of frivolous litigation. Your Board of Directors recommends a vote for this proposal.

Item #5 is the vote on the 2026 incentive plan. As described in our proxy, the 2026 incentive plan replaces the 2018 incentive plan and like the prior plan, permits the company to compensate eligible employees with the equity and cash awards. The 2026 incentive plan authorizes the issuance of up to 130 million shares through a variety of possible awards and plays a key role in the compensation of the company's employees. The Board of Directors recommends a vote for this proposal.

Item #6 is the vote on the stock purchase and deferral plan. Stock purchase and deferral plan is designed to offer eligible employees the opportunity to invest in AT&T common stock by deferring their income, increasing employees' interest in the continued success of the company. The Board has amended the stock purchase and deferral plan to increase the number of shares available for issuance by 60 million to a total of 136 million and to make certain administrative changes as described in our proxy. Your Board of Directors recommends a vote for this proposal.

We'll now turn to our stockholder proposals. Item #7 in our proxy is a stockholder proposal submitted by John Chevedden on the shareholder right to act by written consent. He's elected to present the proposal live. We'll now turn it to Mr. Chevedden, who will have 2 minutes to introduce the proposal. Operator, please open the line.

The line is now open. You may begin your remarks.

Hello. This is John Chevedden. Proposal 7, shareholder right to act by written consent. Shareholders request the Board of Directors take the necessary steps to permit written consent by the shareholders entitled to cast the minimum number of votes that would be necessary to authorize an action at a meeting, which all shareholders entitled to vote thereon were present and voting. This includes the shareholder ability to initiate any appropriate topic for written consent.

Acting by written consent gives shareholders greater standing to engage effectively with AT&T management, which is especially important during AT&T's long drought of underperformance. This proposal received 42% support at the previous AT&T Annual Shareholder Meeting. This 42% support likely represented more than 50% support from the AT&T shares that have access to independent proxy voting advice and are the most informed shareholders regarding the AT&T ballot items.

AT&T shareholders who do not have access to independent proxy voting advice can be guided by the view of the most informed AT&T shareholders and vote for this Proposal 7. Now is a good time to increase shareholder rights by adopting this proposal due to the long-term underperformance of AT&T stock. AT&T stock was at $43 in 2016 and is at only $24 now in spite of a robust stock market.

Please vote yes, shareholder right to act by written consent, Proposal 7.

Thank you. Your line is now muted.

Thank you, Mr. Chevedden. As noted in the proxy, AT&T already allows stockholders owning 15% of its outstanding stock to call a special meeting. The proposal's requested changes are unnecessary, costly and burdensome for AT&T and its stockholders. The Board of Directors recommends a vote against this proposal.

Finally, Item #8 is the stockholder proposal submitted by the Comptroller of the City of New York regarding EEO-1 report disclosure. The Comptroller has elected to present the proposal live and is represented today by Ms. Yumi Narita. We'll now turn it to Ms. Narita, who will have 2 minutes to introduce the proposal. Operator, please open the line.

Your line is now open. You may begin your remarks.

Well, this connection matters. So I hope it's AT&T. Good afternoon, Mr. Stankey, Mr. Kennard, the Board and fellow shareholders. My name is Yumi Narita, and I'm presenting Item 8 on behalf of Comptroller Levine and 4 of our New York City pension funds. Our request is a proposal to adopt a policy to annually disclose the EEO-1 report.

For decades, the shareholder proposal process has provided a practical, efficient way for long-term investors to engage with the companies they own. It has allowed us to raise concerns, test ideas and work constructively with corporate management on issues ranging from governance and risk oversight to long-term strategy.

This year, however, without even engaging with us, you decided that you could effectively exclude this EEO-1 proposal as the no-action process had significantly changed, and we were left without the traditional SEC pathway to resolve the dispute. Instead, we turned to the courts and then you finally called us to let us know that our EEO-1 proposal would appear in the proxy. While we were very pleased to reach a resolution, the process was longer, more complex and more costly than it needed to be, something that could have been entirely avoided.

This is not a better system for anyone and especially not for investors or for companies. The shareholder proposal process has long served as a pressure valve. It allows investors to raise concerns and companies to respond without escalating into adversarial actions like lawsuits or proxy contests. In many cases, proposals are withdrawn after productive engagement or they provide valuable insight into shareholder priorities even when they proceed to a vote.

Over time, this could lead to more aggressive shareholder campaigns, increased votes against directors and greater market instability. We encourage the AT&T Board to reconsider their stance on EEO-1 report disclosure and to allow investors to maintain their right to submit and vote on shareholder proposals. Thank you very much.

Thank you. The line is now muted.

Thank you, Ms. Narita. AT&T is strongly committed to a workplace that values mutual respect through its existing policies and disclosures and already provides meaningful and adequate information. An additional disclosure policy for its EEO-1 report will not provide additive information and carries risk of confusion. Your Board of Directors recommends a vote against this proposal.

This is our final business item. Please finish submitting your ballots.

[Voting]

The polls are now closed. That concludes our official business. While we await preliminary voting results, I'll give you an update on the state of your company, and then we'll take your questions.

We delivered another solid year in 2025 as we made good progress against our strategy to be the best advanced connectivity provider. Based on our view of how U.S. connectivity is evolving, we've been investing at the top of our industry in fiber and 5G, strengthening American competitiveness, supporting local communities and economies and positioning us to best serve customers' increasing preference to get all of their connectivity needs from one provider.

As a result of these investments, we own and operate America's largest advanced converged fiber and wireless network. The market continues to validate our direction and execution. Our vision, combined with the assets we put together now uniquely positions AT&T to lead our industry forward.

I'm proud to report that 150 years after the very first phone call by Alexander Graham Bell, the company stands here today financially strong and well positioned to meet the growing demand for converged always-on advanced connectivity.

We also continue to deliver on our commitments. And in 2025, we met or exceeded all consolidated full year financial guidance. We brought fiber to more places and increased fixed wireless availability with deeper spectrum coverage. This resulted in our best consumer Internet subscriber growth in a decade.

In wireless, we're growing the right way, attracting high-quality profitable subscribers. Most importantly, more people are choosing AT&T for all of their connectivity needs than ever before. Our investments, both organic and through acquisitions have positioned us to accelerate and scale the execution of our converged strategy in 2026. By the end of the year, we expect to reach over 40 million fiber customer locations. This puts us well ahead of the competition and on target to reach more than 60 million total fiber locations by the end of 2030.

We're now able to reach more than 90 million customer locations across the country with our advanced Internet services over either 5G or fiber, all in America's largest wireless and fiber network with America's best and fastest home Internet backed by the AT&T Guarantee. As we continue to expand our reach with our advanced Internet services, coupled with the accelerated pace of converged customers, 42% of our advanced home Internet customers choose AT&T wireless.

We strongly believe we still have plenty of runway to grow. By applying the right strategy to the right market, we have the ability to win in new places and with underpenetrated customer segments across consumers and businesses.

While investing to drive the business forward, we also return more to you, our stockholders. We returned over $12 billion through dividends and buybacks last year. That's more than a 50% increase from 2024. In January of this year, we detailed plans for even greater shareholder returns over the following 3 years. Over this time frame, we anticipate delivering more than $45 billion in returns to you, thanks to an attractive dividend and share repurchases.

As responsible stewards of your capital, our plans balance increased shareholder returns with continued investments to expand and modernize our networks while working to become more efficient in how we operate our business and serve our customers. This includes achieving over $1 billion in cost savings in 2025 and scaling to an additional $4 billion in cost savings by the end of 2028 by leveraging AI, moving more customer transactions to digital experiences, achieving greater operating leverage from a growing customer base, executing against our ongoing transformation initiatives, including powering down the large majority of our legacy copper-based infrastructure by the end of 2029 and modernizing our wireless network to be more open and interoperable, an effort we are now more than halfway through.

We're operating our business from a position of strength. As we lean into the strategic foundation we built and as we continue to accelerate and scale the execution of our strategy, we expect to deliver on the shareholder commitments outlined at our Analyst and Investor Day in 2024 and updated in our 2025 fourth quarter earnings that will demonstrate increased cash generation, consistent growth in adjusted EBITDA and EPS, solid balance sheet flexibility.

As we enter the next era of connectivity, we remain focused on playing our part, ensuring every American has reliable high-speed Internet so they can take advantage of and benefit from the AI era through access to education, jobs, health care and so much more.

With private sector investment and smart public policy coming together, more people and communities are connected than ever before. It's clear that government leaders across all levels recognize the critical role advanced networks play in driving economic growth through flourishing intermodal competition and initiatives like the federal government's BEAD program and pro-investment policies included in the One Big Beautiful bill, we're closer than ever to closing the digital divide.

The FCC also recently adopted rules that strengthen our ability to invest in modern networks and shift from outdated copper to new and more reliable services like fiber and wireless. We appreciate the FCC and Chairman Carr's continued leadership in modernizing America's communications networks and we remain committed to taking the right approach in deploying investments to modernize infrastructure as we support our customers every step of the way.

Ultimately, our goal is to make Internet access not only more easily available, but affordable to everyone. To do this, it's critical that the next big policy issue is a sustainable universal service fund aligned with how people connect today. This is the next important step for congressional policymakers to create a digital future that benefits everyone, and AT&T will continue to advocate for a smart and tailored solution to the challenge.

In closing, our teams have positioned AT&T to lead our industry as we enter the dawn of the AI economy. Building and expanding infrastructure to ensure advanced connectivity across America remains critically important, and we remain optimistic about the opportunity to invest and drive returns in this environment.

I'm grateful to our dedicated current and past employees. It's your hard work that keeps our country connected. Thank you for all you do. I also want to recognize the invaluable insights and support of our Board of Directors. Your leadership, counsel and expertise remain vital to our company's success.

Of course, I'm grateful to you, our stockholders, for your confidence in AT&T. We remain committed to the growth objectives we've laid out. We'll continue to be responsible stewards of your capital and expect to deliver competitive returns to you while positioning AT&T for a bright future.

After years of investing in best-in-class connectivity, we now have a structural advantage that others won't catch. We're laying the foundation to deliver the connectivity needed to lead our industry in the AI era. Even after 150 years, I'm convinced our best days are ahead of us.

With that, we'll now move into the question-and-answer portion of the meeting. Stacey?

Thanks, John. Our first question is about growth. Why do you believe AT&T will be able to drive growth in a saturated market where churn remains elevated?

Well, as I just mentioned, we believe one of the best ways for us to attract and retain customers is by leaning into the strength of our network and the services that we offer. After making years of industry-leading investments in fiber and 5G, we've got a structural advantage now that I don't think others can easily catch up to.

And if I put a finer point on that, we believe we're best positioned to win because we've got great scale reaching over 90 million customer locations with advanced Internet service. And because of that scale and the fact that we can run that infrastructure effectively with owner's economics, we believe we're able to offer that customer access to the Internet on a lower marginal cost structure than any competitor and do it with superior performance and an industry-leading experience on America's best and fastest home Internet.

And frankly, this positions us to compete on performance and value by putting our service at the center of our converged offers and over time, shifting the focus away from expensive device subsidies. I think the strategy is working. Customers are increasingly purchasing their Internet and wireless together from AT&T. And when that happens, really good things happen. We see that their lifetime on the network increases. They consistently express stronger brand love. They have higher Net Promoter Scores. The profitability goes up to us. They stay with us longer. And all that's good for us and good for the customer.

Stacey, how about the next question?

We're seeing a number of questions on satellite. Do you think that Starlink/SpaceX will be offering terrestrial cell service alongside their satellite offering? If so, how will AT&T compete?

Well, I'm not going to speculate on Starlink, but certainly anything is possible. What I can tell you is that we continue to view satellite as an important complementary role in connecting customers better in really hard-to-reach areas. But I don't think satellite is a substitute for the speed, reliability and capability of our assets that we've been investing in for decades to raise service levels and performance.

And we intend to build and offer the best always-on product in the market. Fiber, which is today's best performing, lowest marginal cost technology, is the foundation of that strategy, and it's best suited to win as we move into the AI generation. Always-on connectivity is no doubt coming to the U.S., and we think will be an important aspect of what our customers want from us.

And it's natural that we would work with LEO providers that have the capabilities to integrate those offerings into our services. That's precisely why we announced our planned joint venture this morning with 2 other U.S. networking companies to jointly buy satellite capacity and harmonize technical standards so we can foster a robust wholesale satellite ecosystem that seamlessly integrates these capabilities at an attractive price into the services that we already offer.

Stacey, what's next?

The next one is, how will AT&T win in an AI future?

Our strategies and capital allocation are going to remain focused on meeting the advanced connectivity needs of consumers, businesses, the public sector, first responders as everybody adjusts their business models and their lives to AI-enabled tools and applications. A little bit of what we just talked about with all that fiber deployment and what we're doing to bolster the wireless network.

I expect AI is going to fundamentally transform network requirements as well beyond download speeds to the ability to support more symmetrical traffic upstream just as much as downstream and ultra-low latency capabilities, session control of packets across multiple access technologies under sustained loads. And that's really how we're investing and architecting our network to be able to respond to what's going on right now. Investment in high-performance networking is a critical component of a competitive American AI ecosystem. And frankly, we've committed to greater investment than any of our peers in U.S. connectivity.

By the end of this decade, we expect we'll operate the most advanced and open communications network in the U.S., and it's going to be built on a foundation of dense metro fiber and deep nationwide spectrum. With the opportunity to reach more end users than our competition, coupled with our historically scaled metro and long-haul core assets, I think AT&T is incredibly well positioned to lead our industry in AI-ready connectivity.

All right. I thought AT&T committed to a leverage target of 2.5x. Why has it jumped so much?

Well, we shared at our Analyst and Investor Day in December of 2024 that at a 2.5x range net debt to adjusted EBITDA, our plans would support continued investment in the business at that level and enhanced shareholder returns and opportunistic use of the balance sheet would be also able to be sustained at that level.

We ended the first quarter with net debt to adjusted EBITDA of 2.71x, which is up from 2.53x at the end of the fourth quarter last year. This is primarily due to the close of the Lumen transaction, adding over 4 million fiber locations into our footprint. So that's a good example of using the flexibility of the balance sheet to focus on a strategic opportunity that was in front of us.

We expect leverage is going to temporarily move to 3.2x following the closing of the EchoStar spectrum acquisition and then to decline to approximately 3x by year-end with a clear path to return to our 2.5x range target within approximately 3 years of the EchoStar closing. And we think that's a really comfortable place to run the business and gives us the right flexibility and the right balance on returns to our shareholders.

With that, Stacey, let's now go over to the preliminary voting results, if you will, please.

Okay. The first item is the election of directors. All 10 nominees were reelected.

For Item #2, the ratification of Ernst & Young as independent auditors for AT&T, there were 93.25% of votes cast in favor. As a result, the appointment of Ernst & Young as our independent auditors for 2026 has been ratified.

For Item #3, the advisory vote on executive compensation, there were 93.05% of votes cast in favor. Therefore, the proposal is approved.

Next, Item #4, the vote to approve the amendment to the restated certificate of incorporation to provide for officer exculpation. Unlike the other proposals in this proxy, an amendment to a restated certificate of incorporation requires a for vote by a majority of outstanding shares. With 86.65% of votes cast in favor and 53.88% of outstanding shares voted in favor, the proposal is approved.

For Item #5, the vote to approve the 2026 incentive plan, there were 96.22% of votes cast in favor. Therefore, that proposal is approved.

For Item #6, the vote to approve the stock purchase and deferral plan, there were 98.67% of votes cast in favor. Therefore, the proposal is approved.

For Item #7, the stockholder proposal on the stockholder right to act by written consent. There were 67.90% of votes cast against the proposal. Therefore, the proposal is defeated.

And finally, Item #8, the stockholder proposal on the EEO-1 report disclosure policy. There were 71.41% of votes cast against. Therefore, the proposal is defeated.

Thank you, Stacey. That concludes our formal business. I now declare the meeting adjourned. On behalf of the Board and the executive team of AT&T, thank you for joining us today, and thank you for your continued interest in our company.

Ladies and gentlemen, you may now disconnect.

Good morning, and welcome to AT&T's First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference call over to our host, Brett Feldman, Treasurer and Head of Investor Relations. Please go ahead.

Thank you, and good morning. Welcome to our first quarter call. I'm Brett Feldman, Treasurer and Head of Investor Relations for AT&T. Joining me on the call today are John Stankey, our Chairman and CEO; and Pascal Desroches, our CFO.

Before we begin, I need to call your attention to our safe harbor statement. It says that some of our comments today may be forward-looking. As such, they are subject to risks and uncertainties described in AT&T's SEC filings. Results may differ materially. Additional information as well as our earnings materials are available on the Investor Relations website.

I also want to note that the quiet period for FCC Spectrum Auction 113 is in effect. During this period, applicants are required to avoid discussions of bids, bidding strategy and post-auction market structure with other auction applicants. And finally, I want to note that the discussion of our operating results and outlook during this call will be on a continuing operations basis.

With that, I'll turn things over to John.

Thanks, Brett, and good morning, everyone. I appreciate you joining us today. We executed well in the first quarter, delivering results that were consistent with the outlook we provided, while implementing several key strategic initiatives. Last quarter, we told you that we had positioned AT&T for improved growth with our investment-led strategy in fiber and 5G, and there is clear evidence of this in our first quarter results.

We reported 584,000 total fiber and fixed wireless advanced Internet customer net additions. This is our best ever first quarter result and the sixth consecutive quarter with over 0.5 million consumer and business net adds. We also continue to see accelerated pace of our customers purchasing their wireless and Internet connectivity together. 42% of our advanced home Internet customers also choose AT&T wireless. But when excluding the transaction with Lumen, this convergence rate approached 45% on an organic basis during the first quarter. This is more than a 3 percentage point increase compared to last year, which is our fastest ever year-over-year convergence growth rate.

These results are encouraging, but not surprising. It is exactly what customers have told us they want. They're increasingly choosing what we believe to be the best combined fixed and mobile Internet service in the market. When our customers choose AT&T for their wireless and Internet connectivity, they consistently express stronger brand love, higher Net Promoter Scores and ultimately stay with us longer.

During our Analyst and Investor Day in 2024, we shared a few data points highlighting the relative improvements that we see among our converged customers in key operating metrics such as customer lifetime values and churn. These benefits remain robust, and we expect that as a greater portion of our customers purchase their wireless and Internet connectivity from AT&T, we'll demonstrate improved trends in churn and additional improvement in account growth.

During the first quarter, we made further progress in positioning AT&T as the preferred provider for connecting consumers and businesses to the Internet. We closed our transaction with Lumen ahead of schedule, adding 1.1 million fiber customers and over 4 million fiber locations. We're pleased with the progress we're making as we integrate these assets in several major metro areas and position the business for faster growth. Early indicators are positive. We now offer fiber services throughout our distribution channels in these areas, which has driven sales activity well above pre-transaction trends.

We're executing the steps to scale engineering, construction and service delivery in the acquired geographies and expect that as we move into the back half of the year, we'll achieve steady improvement in fiber and wireless customer growth in these areas. When we focus on customers' needs and invest in the experience and products they want, we find success. And in the first quarter, we gave customers more reasons to choose AT&T.

We expanded the AT&T guarantee to cover Internet Air and launched a new flagship app to deliver a simple digital-first experience to customers. We also launched AT&T OneConnect, which enables customers to easily connect all their eligible devices at home and on the go and eliminates the need to buy Internet access twice. We refreshed our Unlimited Your Way plans to deliver more value. All these moves are based on a consistent set of principles that drive our approach to serving customers the way they want to be served with offers that deliver on simplicity, value and choice and converged connectivity.

After years of industry-leading investments in our fiber and wireless network, we believe that we have now established a structural advantage that others will not catch. We reach more than 90 million customer locations across the country with our advanced Internet services over either fiber or 5G. We believe this provides us with more scalable reach and converged connectivity than any of our peers, including a meaningful scale and performance advantage in fiber. This is an advantage we're growing as we ramp our deployment at a faster pace than anyone else. Today, we reach over 37 million customer locations with fiber, and we're on track to reach 60 million-plus locations by the end of the decade.

As I discussed last quarter, when we complete our work at a fiber location, we believe we're able to offer that customer access to the Internet on a lower marginal cost structure than any competitor with superior performance and an industry-leading experience on America's best and fastest home Internet. This positions AT&T to compete on performance and value by putting our service at the center of our converged offers and shifting the focus away from expensive device subsidies.

You saw us lean into this advantage with the launch of AT&T OneConnect, the industry's first-ever single subscription service for fiber and wireless with a flat monthly price. This is how you should expect us to go to market as we accelerate the expansion of our fiber availability with offers and marketing strategies that yield attractive returns by driving deeper fiber penetration and growth in converged customer relationships. Running these plays has not only strengthened our performance in the consumer market, but they've begun to demonstrate that the same strategy can strengthen our business enterprise operations.

During the first quarter, Advanced Connectivity business service revenue stabilized on a year-over-year basis for the first time ever. This reflects improved growth in fiber and 5G that is now offsetting declines in transitional services such as VPN as we drive better sales execution across an expanding footprint of business locations that we can reach with fiber and fixed wireless. We're operating from a position of strength as we lean into the strategic foundation we've built. Our investments have positioned us to accelerate and scale the execution of our strategy in 2026. And through the course of the year, you can expect to see the momentum in our operating trends build.

As we continue our journey forward, our strategies and capital allocation will remain focused on meeting the advanced connectivity needs of consumers, businesses, the public sector and first responders, as they adopt and rely on AI-enabled tools and applications. We expect AI to fundamentally transform network requirements beyond download speeds to the ability to support symmetrical capacity, ultra-low latency and session control across multiple access technologies under sustained load. And that's how we're architecting our converged network.

We've committed to greater investment than any of our peers in the U.S. connectivity infrastructure. And by the end of this decade, we expect to operate the most advanced and open communications network in the U.S., built on a foundation of dense metro fiber and deep nationwide spectrum. With the opportunity to reach more end users than our competition, coupled with our historically scaled metro and long-haul core, AT&T is well positioned to lead our industry in AI-ready connectivity.

Investment in high-performing networking is a critical component of a competitive American AI ecosystem. We continue to appreciate the leadership of FCC Chairman, Carr, and the commission's continued efforts to modernize America's networks. What we see transpiring on the federal policy front are the absolute right moves for the U.S. to sustain leadership in communications infrastructure at this seminal moment in the birth of the AI economy.

I reflect on this moment within the context of AT&T's milestone celebration of the 150th anniversary of the first phone call. For a century and a half, we've adjusted to shifts in markets, technology and the evolution of public policy. It's a story of many chapters over 150 years shared by proud and dedicated AT&T employees and retirees consistently rising to our long-standing call of the spirit of service.

While all the chapters are important, some turn out to be more consequential than others. And I believe we're entering one of those chapters that will be exactly that. I couldn't be more optimistic given how this company has positioned itself as we enter this defining moment that our best days are ahead of us.

With that, I'll turn it over to Pascal.

Thank you, John, and good morning, everyone. At a consolidated level, total revenues were up 2.9% year-over-year in the first quarter, and service revenues were up 1.4%. Our growth is increasingly driven by gains in fiber and fixed wireless Internet customers as well as our success at growing customer accounts that choose AT&T for both Internet and wireless connectivity. We continue to expect we will grow consolidated service revenues in the low single-digit range for the full year, driven by growth in wireless service, fiber and fixed wireless revenues, partially offset by declines in transitional and Legacy revenues.

Adjusted EBITDA was up 2.3% year-over-year in the first quarter, and adjusted EBITDA margin decreased 30 basis points to 37.4%. As a reminder, our first quarter 2025 results included a benefit to adjusted EBITDA of approximately $100 million related to the resolution of vendor settlements.

During the first quarter, we made good progress executing against our ongoing transformation initiatives as we work towards achieving our target of $4 billion in annual cost savings by the end of 2028. These include force optimization and vendor rationalization, efficiency gains from further AI enablement, accelerated digitalization efforts, and reductions to our Legacy operations and support costs. We expect improved growth in adjusted EBITDA in the second quarter as comparisons normalize, service revenue growth improves and as we implement further cost actions. And we continue to expect consolidated adjusted EBITDA growth in the 3% to 4% range for the full year.

Free cash flow was $2.5 billion, which is at the high end of the $2 billion to $2.5 billion outlook we provided in January. Free cash flow declined by roughly $600 million compared to last year, which was driven primarily by higher capital investment of $5.1 billion as we accelerate the pace of our fiber deployment. For the second quarter, we expect free cash flow in the range of $4 billion to $4.5 billion, and we continue to expect $18 billion plus of free cash flows for the full year. Adjusted EPS of $0.57 in the first quarter was up nearly 12%, and we continue to expect full year adjusted EPS to be in the $2.25 to $2.35 range. Under our new segment reporting, over 90% of our consolidated revenue and nearly all of our adjusted EBITDA is generated by our Advanced Connectivity segment. We believe this new reporting format improves transparency into the growth we are achieving from our investments in fiber and 5G as well as our progress at powering down our Legacy copper network.

Focusing first on Advanced Connectivity, service revenues were up 3.6% compared to a year ago. Wireless service revenues grew 1.7% year-over-year, which is consistent with our guidance that growth in the first quarter would be below the run rate we expect for the full year. Our wireless service revenue growth was primarily driven by growth in our customer base, including 294,000 postpaid phone net adds in the first quarter. Postpaid phone ARPU was flat versus a year ago. This is consistent with the outlook we provided for relatively stable ARPU, as we gain customers in underpenetrated categories such as the value segment, and grow our base of converged accounts that receive discounts, but typically stay with us longer.

We expect second quarter year-over-year wireless service revenue growth to improve from growth reported in the first quarter and maintain our full year outlook for growth in the 2% to 3% range. This is driven by our outlook for customer gains from our new unlimited and converged subscription plans and our expanding opportunity to sell wireless and home Internet services together. It also reflects our recent pricing actions that take effect during the second quarter.

Advanced home internet service revenues grew 27.3% year-over-year. This includes 2 months of revenues from fiber customers in geographies we acquired from Lumen, which added about 650 basis points to our reported growth rate in the quarter. Similar to wireless, our organic growth in advanced home internet service revenue was primarily driven by growth in our customer base. advanced home internet net adds were 512,000, which does not include the 1.1 million customers we acquired from Lumen in early February. This was our best ever first quarter and included 273,000 fiber net adds and 239,000 Internet Air net adds. We continue to expect that our fiber reach will grow by about 8 million locations in 2026, including over 4 million locations we acquired from Lumen. As we ramp our fiber reach, we expect to see improved trends in our fiber net adds over the course of the year while still considering typical seasonality.

We are also seeing strong growth in our Business Fiber and Advanced Connectivity service revenues, which include business fixed wireless and value-added services. In the quarter, these revenues grew 7.2% year-over-year, which is consistent with the trend last quarter and improved from mid-single-digit growth a year ago. As John noted, total Advanced Connectivity business service revenues were essentially flat year-over-year for the first time ever. Based on our improved sales execution and expanding fiber reach, we expect total business service revenues within Advanced Connectivity segment to remain stable in the near term and continue to grow at a low single-digit CAGR through 2028.

Advanced Connectivity EBITDA grew 5.6% year-over-year, and we improved EBITDA margin by 30 basis points despite a few notable headwinds. These include high single-digit growth in low-margin equipment revenues as well as the inclusion of revenues in geographies acquired from Lumen, which did not make a material contribution to EBITDA in the quarter. In addition, about 40% of the adjusted EBITDA benefit from the vendor settlements we called out in the first quarter of 2025 was incurred in the Advanced Connectivity segment. So the improvement in Advanced Connectivity EBITDA margin was driven by service revenue growth as well as the durable benefit of cost actions that I discussed earlier.

Our outlook continues to anticipate an immaterial EBITDA contribution this year from the operating regions acquired from Lumen. This reflects increased spending within these geographies to stand up a business that is positioned for faster growth in fiber and wireless customers, as fiber deployment accelerates and as we leverage our existing distribution in these regions. We're really pleased with how the business is positioned coming out of the first quarter and continue to expect Advanced Connectivity service revenues to grow 5% plus this year with EBITDA growth of 6% plus.

Legacy service revenues declined about 25% year-over-year, which is consistent with our outlook for 20% plus decline in 2026. We stopped taking new orders for Legacy services last year in most of our wireline footprint, and we now have approval to discontinue Legacy services in more than 30% of our wire centers. We're actively working with customers in these areas and helping them upgrade to more advanced services like Internet Air and Phone Advanced. There is a lag between when customers migrate to more advanced services and when we are able to discontinue operations of Legacy infrastructure. This is the primary reason why the decline in Legacy EBITDA of about 40% was greater than the decline in revenue, and we expect this dynamic will persist for the next several quarters.

We ended the first quarter with net debt-to-adjusted EBITDA of 2.71x, which is up from 2.53x at the end of the fourth quarter last year. This was primarily due to the close of the transaction with Lumen. We continue to expect that our net leverage ratio will increase to approximately 3.2x following our transaction with EchoStar, then decline to approximately 3x by the end of 2026, and return to a level consistent with our target in the 2.5x range within approximately 3 years following the transaction.

We ended the first quarter with $12 billion in cash and with $19 billion available to draw on the term loans. So we are in a strong liquidity position as we prepare to close our transaction with EchoStar. We also continue to expect that we will close the transaction with an equity investor for the acquired Lumen Fiber assets during the second half of the year. We returned $4.3 billion to shareholders in the first quarter through dividends and share repurchases. We continue to expect to repurchase approximately $8 billion of stock this year and to maintain a consistent pace of buybacks through 2028, as we execute against our plans to return $45 billion plus to shareholders over this time period. I'm really proud of the team's ability to successfully balance our investment in fiber and 5G while maintaining consistent return to shareholders.

To wrap up, we continue to execute well, and I'm confident that we're positioned to drive improved growth and consistent capital returns through 2028, as we execute on our strategy.

Brett, we're now ready for the Q&A.

Thank you, Pascal. Operator, we are ready to take the first question.

[Operator Instructions] The first question comes from John Hodulik from UBS.

Two, if I could. First on OneConnect, can you talk about sort of how widely it will be rolled out? What kind of support you have from an advertising standpoint, maybe the target market? And then do you think it can drive subs in the near term? And just sort of your view on what the impact that could have?

And then secondly, the phone churn trend definitely improved, up 6 basis points. You had been seeing double-digit increases. Can that kind of improvement in phone churn that we've seen continue despite the increases from the Unlimited Your Way pricing?

John, your first question, look, if we didn't think it was going to have an impact, we wouldn't have started down this path. But to get to maybe the root of your question, and I think as we indicated when we rolled it out, this is going to be kind of an iteration rollout. We've established a platform now with OneConnect that allows us to start looking at the segments and the customers differently. I think you can pretty well understand by how the plan is tailored, the kind of customers that it is targeted toward.

One of the things that we see is, first of all, the BYOD segment is increasing more broadly. That's one reason why we started with it. We see customers more willing to hang on to their devices a bit longer, and they're certainly becoming more accustomed to porting them from one carrier to the next. And so we want to tailor this plan to make sure that we can receive those customers and then attach them to a network construct that drives churn down. And our belief is that by allowing them to have the simplicity of taking a number of devices and not thinking about whether it's the Wi-Fi in the car, the watch or anything else that they carry around, we think that, that starts to provide the network as the basis for driving customer loyalty and relationships, which plays into our strong suit. And that's also bolstered by the fact that, as you notice, it requires that you have fiber broadband.

And one of the best things we have to drive customer retention and customer lifetime value is by pairing fiber broadband with wireless. And so this is a plan to allow that to happen. It also tailors well into those account sizes that maybe are less than family plan sizes today that can grow over time. And I think you should expect that this platform that we've now laid out there can iterate over time. It can evolve. And over the course of this year, you'll see more variants of that plan come out that start to open the aperture more broadly in the market for customers that can qualify under the construct and work into it. And it will be one of several offers in our portfolio.

We just redid all of our rate plans, if you notice. And this is a particular plan that's targeted a particular segment and group of customers that we think will help with convergence and drive churn in a better direction over time. But we also have done some rework on our other base plans that will hit other portions of the market. And I think these are just natural evolutions that you see, one, given the maturity of the wireless space; and two, given the shifts that are occurring in convergence in the market that allow us to play offense and go out with something that's pretty important.

So I don't expect -- right now, sitting here today, I can tell you, massive amounts of volume on it in the first couple of weeks. We didn't expect that to be the case. But we do expect the platform to evolve and become an important part of the portfolio as we move forward. And an important part of the portfolio of putting the network first as a basis to attaching the customer and minimizing other constructs of how people have maybe chosen their service provider over time.

And related to your second question on churn trend and can it continue? I mean, I don't mean to be flip about it, but I think this is -- over time, the churn dynamic is just math. And as we shared in what I tried to articulate in my opening remarks, the best way for us to manage churn is to converge customers. And when we get through the repositioning, the shifting that's going on in the industry right now, which is aligning customers to asset bases, I believe you're naturally going to see that churn dynamic improve.

And so we said we're at 45% converged on kind of our non-Lumen base. You've been getting those numbers in the last several quarters that we've been sharing with you to show that acceleration. We've given you guidance out for several years where we've gone and done the math on where our fiber footprint is, where our AIA footprint is, the cohorts of customers we're going to target in those particular areas, the ones that we think we can hold over time, and we believe that, that's what builds a sustainable franchise and leads us to service revenue growth, and growth and leadership in the industry by the time we exit this decade. And that's that reordering of convergence along those asset bases that's going to make that happen.

It's going to take a little bit of time for that reordering of customer base to asset base to occur. And I think there's going to be a little bit of the accelerated churn dynamic that you've been seeing in the last couple of quarters as that shakes itself out. But just like any math equation, you hit that tipping point where you start to get the benefits of the strategy, and I think you're going to see it ultimately come back into the line. And when we tell you that we've got fantastic converged lifetime values, for example, fiber and wireless, then we'll have a dominant part of our portfolio that represents that base, and that's when profitability looks good and the franchise looks like a really strong franchise moving forward.

The next question comes from Michael Rollins with Citi.

John, in your opening comments, you described that AT&T will operate the most advanced and open communications network by the end of the decade. Can you unpack how AT&T is defining the term open, including how that impacts your go-to-market and how you look at further partnerships or acquisitions to maximize the TAM and your return on capital?

And then just secondly, if I could, on the account growth sequentially in consumer and mobility, can you share what's working for you and how you're balancing growth in accounts and ARPA relative to what you were just describing on convergence versus kind of the core mobility services that you offer?

Michael, so when I think about open and what we're driving toward, the thrusts I would articulate in that regard are, one, you know what we're doing in our wireless network. And the purpose of us opening aspects of our wireless network is to manage supply chain costs and performance of equipment and the architecture over time. And I think we're leading the industry in that regard. And I would expect that shortly as we begin to get to a point where we start to deploy some new spectrum as we close the EchoStar transaction, you'll see the first instantiation of that as we move forward and work our process of deploying that spectrum and how we build our network and what we're able to gain as benefit associated with that. And so that's one aspect of it.

The second aspect is the complete reengineering of the core of the network that we're doing that I think sometimes is overlooked a little bit. As I've shared with you before, we have multiple routing infrastructures that support different product lines in this business or different segments. What we use for routing infrastructure and consumer broadband fixed services is different than what we do, for example, for our business enterprise services, which is different than how we ship around our wireless packets and services, and we've been investing very aggressively to rearchitect that network, flatten it, integrate it, so that it's one solid routing network that handles all traffic.

In doing that, it does a lot of things. One is it opens up the opportunity, given the software stack and how we build that, to begin to offer a much broader set of APIs out into the public domain that allows people to manage and control their traffic differently. And that's going to allow for a tremendous amount of flexibility. And if you want to think about it in the context of just as hyperscalers opened up the ability to spin up compute and storage through touching parts of a terminal, there's no reason why our routing infrastructure and what we turn out to customers shouldn't have that same software-based capability that is digitally driven through API structures and allow not only our end users, but partner network customers to be able to control aspects of the network moving forward at a much lower internal operating cost that's all software-driven. And as that core becomes software-driven, it allows us to also use AI as a basis of us administering and managing that network. So instantiating those APIs out to the broader domain of our customer base is what makes the network flexible around it.

And so I would say that those are the 2 most fundamental aspects of opening the network that allow for us to be effective moving forward. And if we have great preferred access technology, meaning we can get bandwidth in more places than anybody else, hence, a deeper fiber network or a denser spectrum footprint and better wireless network, then that attracts traffic onto that network. It's the software control and programming of it and the dense access capillaries that allow people to say, I can get to more places with better bandwidth and better performance than anybody else. And therefore, that's why I want to be on that network. When it matters, it must be AT&T. And that's how you drive returns over the long haul on that investment strategy and that aggregation of capabilities.

In terms of account growth and what's working, it should be, I think, fairly apparent from what we shared, what's working is converging customers. And so when you look at the step-up in the convergence levels that you're getting, and I look at what's happening now, we're getting account growth. And if you look at like average line sizes, for example, on our wireless account base, those accounts that are coming in tend to be below average for what we might have in the embedded base. And that's an indicator that we're picking up 1 and 2 line accounts that are new to us. They're new, new. They're new fiber, they're new wireless. And that's really good, because ultimately, those 1 and 2 line accounts become the 3 and 4 line accounts of the future.

And as I said earlier during John's question, if we get them anchored in on a fiber base when they come in, it's the highest brand love of any product in the market, it's the best-performing product in the market. They have great positive brand perceptions. They're more likely to stay with us longer. They're more likely to buy more from us in the future. That's what all the data says on the customer base that's out there. And so those new, new customers, those kind of accounts are the ones that I want to grow.

And then secondly, we're getting some lift from Internet Air and the ability to converge both wireless and Internet Air with new customers on a combined basis. And we're being more specific in targeting that places, for example, where we know we will have fiber in the future, so that we can grow that customer base today and ultimately meet them with a very, very good, robust, sustainable offering over time. And those 2 things, I would say, are probably the biggest impact on the consumer side.

And then I would also tell you to look at the business revenues and look at the business performance and what we've been able to demonstrate to you. That doesn't happen without some new business account growth that's occurring in order to stabilize the Advanced Connectivity service revenues that you've seen in the quarter. Very proud of what the team has done on that, and obviously optimistic that we can carry that momentum forward, and there's more that we can do there as we fine-tune our distribution even further.

The next question comes from Sean Diffley with Morgan Stanley.

I was curious how you assess and plan for the perceived threat from satellite more on the fiber and broadband side, but anything you would add on direct-to-cell? Clearly, you have an AST SpaceMobile partnership. Would you ever consider doing MVNOs with emerging players? And how would you compare and contrast satellite versus the fixed wireless learnings?

Sean, sure. Let me -- it's a long question, but let me start by reiterating kind of what I just said and what our direction is. Our direction is to build the best converged network offering in the United States. And that means in order to do that, you have to have great foundational assets that you own and operate to do that. I just shared with you, for example, why is it important to have a core switching architecture, routing architecture that allows you to see every packet on a network, because that's the way that you're able to manage service performance, security, offer the kinds of capabilities across heterogeneous access technologies like wireless, fixed fiber, Wi-Fi, other technologies that allow you to ensure the quality of service of delivering a packet over those heterogeneous architectures.

And we start from a fantastic place with assets. We have great fiber. We've got a great wireless network. We have a great customer base that we know, that we know how to manage their accounts, we know how to manage their billing. We can build trust with them over time on the relationships that we have. And so when you start to think about more access technologies becoming available, such as direct-to-cell, which we're going to see an opportunity to close out white spaces, I think we're naturally positioned to add those capabilities on to the great integration we've already done to be a converged access provider. And I don't mean to harp on fiber, but once you get that in place with a customer, it's a really good place, not only because it's the lowest marginal cost to carry a bit of any technology that's available out there, but its performance is superior. And when you get top-end performance, the best performance, coupled with low marginal cost in the networking business, that's typically a really good combination for the long haul.

So we're going to continue to move to integrate partners. And I think when I think about LEO and satellites, you've heard me say it before, I think it's going to be great innovation for consumers. I think it's going to open up applications that none of us expected or knew about, and they're going to be new and different, and they're going to help grow the market in total. I think that when you look at where we're at right now, what's really on the horizon that maybe a couple of years ago we all would have said, could this really happen, 12 to maybe 18 to 24 months from now, we will have always-on connectivity in the United States.

And that's going to be really, really important. And I think our customers are going to want that. And I think it's natural that we work with LEO providers that have the capabilities to solve that problem, to integrate those offerings into our services. We have a great position with those customers. And as you've heard me say, my ideal outcome for the satellite space is that there's more than one satellite constellation up there.

And I've offered that, at some point, I'd expect that there's probably at least 3 serving the United States with capable products and services. We're working with one closely right now to make sure that they get off the ground and they're viable. That's AST SpaceMobile. We've been putting most of our R&D and our work on bringing product out with what they will be matching to the market, but I fully expect that SpaceX will ultimately have a robust direct-to-device capability. I would expect that Amazon LEO will have a robust direct-to-device capability. And who knows, maybe even a fourth shows up.

My goal would be that I have a good strong wholesale relationship. And it may not just be with one of them, it may be with more than one of them, and that we architect this in a way that we can continue to manage the traffic on our network and control packets, so that we are able to offer that end-to-end integrated service on a heterogeneous network. And that's the direction that we're taking.

Now if you're thinking about the threat of a direct-to-device approach, look, there's a lot to be done in getting LEO constellations up and working on direct-to-device. I think it will happen. But I don't think it's going to be a straight line from here to there. There's all kinds of challenges to work through these things. One is getting satellites up in the air. Two is getting them up and keeping them up. It's getting the right spectrum portfolio in place and working through all the issues of power levels and interference that are driven from it. It's getting the devices tuned, so they work properly.

Satellite works really good outdoors. It doesn't work very good indoors. It's sometimes lost on people that we have spent literally decades investing in communications infrastructure in this country to raise service levels and performance for end-user customers that they become accustomed to. And the landscape is littered with those that have come in and tried to kind of get into the business on the cheap or get into the business without understanding what the level of performance is necessary to have a minimally viable offering. Customers don't tolerate much interruption anymore. And there's decades of that infrastructure that's built. A lot of it is built on the interior buildings. I know in our company, we put about $1.5 billion a year into doing things to make sure hospitals and stadiums and hotels and universities all work really well, and you can't just flip a switch and get that done.

When I think about an MVNO construct, my approach in terms of how AT&T looks at it is we like to think about MVNOs in a way where it gets to a part of the market that we can't get to. It's an extension in a segment that maybe we're not doing a good job of penetrating and somebody can do it in a more creative way. And we also think about it in the context of we ensure that our network capabilities are used in a way that's consistent with our long-term goal to be the best converged operator in the U.S., which means that we don't just give traffic away without certain conditions and capabilities and requirements as to how they do business with us and how that capability is instantiated in the market. It's just not a wide open here, get connection to the network, do what you want with it.

And within that context, do I think that I'm looking at satellite LEO right now and saying that that's a place that an MVNO relationship would open up access to customers I don't have today. No, I don't think that's the case. I think I've got a way to bring the right value to customers broadly and what I just articulated. And look, I don't know that I'm worried about taking on any comer in broadband right now when I've got fiber in a home. As I said, lowest marginal cost, best performance, that usually does pretty well in the market. And I like our investment strategy and where we're going to have 60-plus million fiber homes by the time we get to 2030 and living off that base and being very successful with it.

The next question comes from David Barden with New Street Research.

So I guess 2, if I could. The first would be, John, the EchoStar Spectrum acquisition, could you kind of elaborate how that's going to augment the business and how we generate a return off of that opportunity?

And then second, could we update us on the copper retirement program and some of the advancements that you guys have been able to generate at the FCC along that front, and what that means from a cost savings and return standpoint?

Sure, Dave. So on the EchoStar side, look, there's 2 fundamental things that come here. One, the improvement of performance in the network is noticeable and there's markets where, because of the deployment of the spectrum, and I'm not speculating on this, as you know, we have a lease on a portion of the spectrum that we're acquiring that we've shared with you that we've put a large percentage of that already in service. And when we do that, we are already testing network perception in those markets that we felt like it would most help in, and we are seeing that perception shift. And as a result of that perception shifting, it will help our wireless business just by nature. It will help in terms of customer growth and retention and all those things that drive value in on that.

As you know, when we can buy spectrum, there's economic value created that is capital efficiency. It avoids us from having to build growth and capacity in other ways that are more expensive, and that has been since the start of time, and that still plays into the factor. And then as you are seeing, it's also allowed us to expand and increase our AIA or Internet Air penetration and distribution. And I'm very happy with where we stand on that right now. As I said earlier, it's a fantastic tool for us to use, one, to get businesses that we haven't had before. And I think it's a very sustainable technology for certain types of businesses that are out there.

Again, I'll go back to where you're seeing some improvement in our business performance. AIA is part of that. It's what's helping us get into customers where maybe we didn't have fiber before that have a little different broadband portfolio or a profile that they need, and we can be relevant and we can go into large multi-location bids for customers. And now we can do 100% of the bid in many instances rather than just 65% or 70% of the bid on fixed infrastructure for broadband. So that's an important way that it helps us. And I think in particular, with our strength in the business market segment at AT&T, it's a natural pairing for us to be able to do that.

And then in the consumer space, preceding in markets where we know we're going to have fiber and being aggressive about our deployment to hold converged customers. That growth is really good growth because the transition is from a fixed broadband connection ultimately to a fiber connection, and that transition is a very profitable connection when you have a converged customer in that situation. And then in the markets where we know we're not going to be in fiber in the near term, finding the right segments to attack that we can hold for a long haul with fixed wireless and wireless together as a converged customer. That's not every customer in those markets. There are clearly what I would call the scaled broadband profiles that are going to probably use terrestrial connections to ultimately sustain themselves, but there's good places we can hunt in those markets that I believe a fixed wireless with wireless combination is a good combination. We've been able to open up and expand that market and grow in that space to drive some return off that spectrum as well.

On your second question about copper retirement, look, probably 5 years ago, if I were letting you in on the inside baseball and started to kind of set the direction on where we're going to go on aggressively shutting down Legacy infrastructure in this business, I would tell you, I probably got some looks across the table from individuals within the business and said, never going to happen. We're going to be with it a long time. And a big compliment to the team. It's like that's not an acceptable outcome. And went to work on what we needed to do to literally get to a path to shut down the infrastructure.

And to sit here today 5 years later and to have what we have in front of the FCC today is absolutely fantastic. It's the right moves for this country, because the old copper infrastructure does nobody any favors. It sucks a ton of power. We've got buildings being cooled and switches that are running with a nominal number of customers on it. It's stuff that was built decades ago. It's not as secure and as robust, from a cybersecurity perspective, as today's technology can be when built properly. It doesn't offer the same level of resiliency and services that we're building into networks today.

Our capabilities of putting resilience in the wireless network that is actually able to withstand other problems that copper, especially aged copper, can't withstand is clearly there and advanced features that are available on these networks are better. So this is a good thing for the customer, it's a good thing for U.S. competitiveness, and it's a good thing for AT&T, because we need to get those costs out. We need to get that infrastructure shut down, and we need to remove the distraction from the business, all the mainframes that go with it and all the business processes that have been built up over decades of regulation that have been layered on that.

And as you heard Pascal mention, 30% of our wire centers are on a definitive schedule for shutdown right now. And we have a path to do more. And I think you're going to see, in the next couple of months, even more activity moving forward. This FCC order that came out is a very strong order in my view. It gives a very good road map for how this should work out. We have a very receptive commission to getting this work done. We are mobilized at AT&T to take advantage of these things. We have a good organization built around it.

The leadership of that organization has been doing a nice job getting the company in tune with everything we need to do. It's not what I would call really sexy work to shut this stuff down, but it's essential work, and that includes what do you do with the copper when you're done with it and how do you get it out and make sure that you monetize it and do all the things you need to do. And we are planning all the way through that and have every intention of being in a really great place by the time we get to 2030. And those cost improvements and that structure is all forecasted in our going-forward guidance that we've given you.

The next question comes from Mike Ng with Goldman Sachs.

I have 2, if I could, as well. First, for John, in prepared remarks, you talked about shifting away from device subsidies, competing more on service. Will that be more gradual as OneConnect gains traction? Or do you expect a harder shift away from subsidies that we may see across 2.0 plans as well?

And then for Pascal, it was encouraging to see the reiteration of the guidance. You talked about accelerating growth in 2Q. I was just wondering if you could provide some color on key drivers for the EBITDA acceleration throughout the year. How do you expect the Lumen opportunity's cost efficiencies and kind of new plan traction just impacting the curve of growth throughout the year?

Mike, the short answer to your question is it's a balancing of the portfolio is the way I think about it. Our portfolio right now is over-indexed on device. And it's not that devices aren't important to customers; and to certain segments of customers, they will continue and remain to be important, but I think we need a more balanced portfolio that makes sure that the customer understands the inherent value of the network underneath the relationship and the true amount that they're paying for that fantastic service that they depend on every day and that they're not clouded by the difference of what they're paying for device versus network. And I think we have an opportunity to really help people understand the inherent value of what's in the network and what's the difference between what they need to do to access the network.

And there are other things besides devices that customers get value out of. And putting that at the forefront to ensure that customers have choice about how they choose to allocate those perks and those benefits and things that are important to their loyalty over time, I think we can do a better job of balancing that portfolio, and I think we will gradually work our way through this over time. I don't think this is throwing a switch, but you've got to get a foundational capability out there in which to work from, and OneConnect is a foundational capability that we can iterate on and work from in the coming quarters to continue to work to balance that portfolio.

I could probably answer your second question for you, because everybody in the company is laser-focused on this particular issue, but my voice is tired, I'm going to let Pascal do it for you.

Sure. Mike, pleasure to talk to you. Going into Q2 and improving for the rest of the year, we expect both service revenues and EBITDA to accelerate gradually. There are a few factors at play. One, in our wireless business, we expect to continue to drive growth in converged relationships, including wireless. That should drive improvement. Plus we have pricing actions that begins to take effect in April. For Q2, it's going to be not the entire quarter that benefits, but most of it. And it will get, for the rest of the year, full quarter benefits of those pricing actions.

Also, we're scaling Lumen. We said coming into the year that Lumen early on, we're going to have to invest significantly in order to stand up that organization, in order to drive incremental fiber penetration into their footprint and to really set up ourselves. That process began in earnest in Q1, we'll continue. But I expect every month that passes, the performance of the Lumen asset will continue to get better. We're going to continue to see improvement in fiber net adds and converged relationships.

Also, as you get through in terms of free cash flow, Q1, as a reminder, is always seasonally low for a couple of reasons. One, you have our annual incentive comp payment in Q1. That's a meaningful cash draw in Q1. Two, majority of the devices from the holiday season are paid in Q1. Those headwinds go away. And you also saw in this Q1 that we stepped up our -- we began the step-up of our capital, and that was also a headwind. As we get through the balance of the year, I expect pretty much the same seasonal patterns that we've seen in free cash flow, and we remain confident. All in all, look, even at Q2, I think you should see meaningful improvement in our service revenue trajectory as well as our EBITDA trajectory. So I feel really good about where we are and the pacing for the rest of the year.

The last question today comes from Peter Supino with Wolfe Research.

Question about the broadband market. AT&T reported 2.5 million DSL subs, and that's been a really valuable feedstock for the fiber business over time. It's a great thing that you have a long-term declining business that is going to stop diluting your growth rate over the next couple of years. I'm wondering if the fade of the DSL business in general, including and beyond your own, affects your view of the broadband market over the next couple of years, whether that relates to fiber volume growth or fiber pricing or FWA pricing, all the above?

Peter, I don't know that the fate of the DSL base in and of itself causes me to think differently about things. I'd probably offer a couple of observations on the market. One is that base is getting pretty tiny at this juncture. And I think one of the things we should inherently understand is our fiber growth numbers have been relatively consistent over the last number of years. Our ability to find DSL customers that want to be fiber customers is a much more difficult prospect these days, because there really aren't many DSL customers left. And so when you look at our growth numbers on fiber, the question that was asked earlier about new accounts, they're new accounts. They're customers coming in. And that's that new, new dynamic I talked about. And we're getting better at picking up those new, new customers.

And I think that the other observation I would give is -- and you've got certain parts of the DSL base that, in some cases, customers self-selected. They may be in a situation where it's the best that they can get in a not very good set of choices. Some of that's being taken care of today. That's what satellite serves well. That's what BEAD addresses. But there's also the price-sensitive segment, because in many cases, people could buy that maybe at a little bit lower price than other broadband alternatives in the market. And so the place I think about where we naturally need to mature at AT&T, that I want to make sure we do well, is we should be able to be a man for all seasons. We should be able to handle every customer, one that wants a premium, high-powered, most capable service around, and one that wants efficient, more cost-effective, more value-driven offering.

And fiber, when we have it in there, certainly allows us to do that given the marginal cost structure, unprofitable at any point, and that's maybe different than DSL. I mean, DSL was a high-cost infrastructure to manage. And I've shared with you that when we get fiber in, our operating costs are dramatically reducing in these geographies now. And when we get the copper turned down, it's going to be even more. So we should be a little bit better on making sure we're hitting all segments of the market with our offerings. And hence, the question earlier about why OneConnect and why these things we can drive value into some of these segments and make sure that we're monetizing in an effective way on those price options for customers.

And I think we can be a little bit better at picking up some of that price-sensitive segment, not only with a better portfolio of fiber pricing as well as what we do with fixed wireless in places where that performance is adequate given the nature of the household, the size of the household or the demands of the particular customers in those households, and you can maybe drive a little bit more of a value profile and what you're offering in that customer base to match that as well.

And then finally, I'll say this also lines up with the reality of where the broadband market is, in my view, which is getting from 0% to 40% penetration as we build fiber is really important. That's a really good return when we do that. And we're doing that incredibly well and very effectively. And that hasn't changed as we've opened up new footprint and accelerated our build. We see our path to 40% as being really good, really strong. We continue to even refine it, get a little bit better, although I'm pretty impressed, I've shared with you before that we're probably a year faster than what we expected we would be in the original business case, and that helps drive returns up higher.

But getting from 40% to 50% is different. It's a different set of plays that are required than getting from 0% to 40%. And the reason I bring that up is because I think it's that value segment from 40% to 50% that's an important segment for us moving forward to add new accounts that we can do on an accretive basis. And so for those of you that are looking at new accounts, that's a driver of it. For those of you who are looking at ARPU temperament, look, it's entirely economically rational and value creating and the right thing for AT&T to do to get from 40% to 50%, even if it means we take some ARPU dilution to do that. And I think in the size of our base today and what's going on, you're going to see a little bit more of that. And some of that directs to that customer base that was that DSL holdout base that you're referring to that you need to get really good at figuring out how to pick up with the more value-sensitive, price-sensitive parts of the base.

Operator, that's it. You can go ahead and close out the call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

I want to say thank you so much for joining us. You guys know Igal as Chief Technology Officer at AT&T. A combination of scheduling conflicts and war and airplanes and government funding have left us doing this virtually. But we really appreciate AT&T making the effort to be part of our conference again this year. So thank you, Igal, for doing this.

Thank you for having me. Good morning, everyone.

So Igal, and I'm here joined on stage with my BCG counterpart, Simonas. And I'll do maybe the first part and Sim will do the second part. But I guess, Igal, I know you're at an off-site right now.

But one of the things that John Stankey really made a priority at AT&T was kind of slimming down and simplifying the AT&T business. And I think that we heard that some of your competitors earlier today want to follow that playbook. And I guess from a technology standpoint, what are the new priorities at AT&T? Is it wireless coverage? Is it wireless capacity? Is it fiber network availability? Is it fixed wireless access? Is it slimming down the business even further through efficiency initiatives? What are the kind of things that a guy in your seat is working on right now to kind of fulfill the AT&T vision?

Yes. Thank you, Dave. And maybe before I start answering that first question, I need to call everyone's attention to our safe harbor statement. I think you're seeing this on the screen. And it says that some of the things that I'm going to share today are forward-looking and as such, they're subject to risk and uncertainty and that the results may differ materially.

I also want to remind everyone that we are in a quiet period of Auction 113. And as a result of this, unfortunately, I won't be able to discuss that. So now that we got that off the table, we can -- I can try to address your question.

So that was really a mistake on my part, Igal. And so I feel bad about me.

No. It's okay.

But I'm glad we got that out of the way. So thank you.

Exactly. Exactly. That's the important thing. Well, I think, Dave, obviously, I'm sure you're anticipating the answer that says it's all important, all of the characteristic of the network that you described are important, all need to be addressed. And obviously, we are addressing all of them.

The way we think about this is like everything else in AT&T is through the lens of our customers or a customer-first perspective. And if you ask customers, I'm sure they're going to tell you that the first thing or the most important for them is to actually get on the Internet. So they're able to make a phone call or send a text message or do an e-mail or whatever they need to do over the Internet. I think they're also caring about consistency. Is their experience over the network is consistent? So things like drop calls. AT&T has the lowest drop calls rate in the U.S.

So that kind of tell you about how we think about reliability. We are all privileged here to serve first responders, the first responders of America. We're building and operating the FirstNet network. That tells you that the bar is even higher when it comes to reliability and how we think about this. Now at the same time, you mentioned capacity. Capacity is really important with the growing demand for connectivity and AI and video all traversing the wireless network.

As we are going through our wireless modernization, think about the fact that we are putting to work all of our mid-band. We are simplifying the mid-band spectrum. We are simplifying the configuration in all of our cell sites. We are opening up the architecture so that can help us to drive efficiency up and cost down. So this is how we think about all of those characteristics and how we're serving customers.

I think that it's also an interesting optimization problem. And as such, AI is a great capability to help us to think through this in terms of how do you bring in different attribute as customer experience, devices, reliability, coverage, capacity, other use cases and how that help us to guide our investment and how we're thinking about proportionately investing in the various capabilities that you mentioned.

So thank you for that, Igal. So those are the kind of the whats, but I'm interested in a little bit on the hows. So I think that one of the bigger events that's occurred with AT&T, there's been a couple. One big one was the acquisition of the fiber asset from Lumen. Another was the acquisition of spectrum from EchoStar. And I think that there's a lot of question about how these pieces fit together, the fiber, the fixed wireless access and the wireless network. And which one takes priority? I'm assuming your answer is going to be everything takes priority. But what is the real answer? And how do you come to that answer in terms of what you decide to spend your time and energy on?

Yes. Great question, Dave. Maybe zooming out a little bit to where you started. What we're actually doing is building 2 scaled network platform, right? We have a modern, open, nationwide 5G wireless network, and we're also building a metropolitan multi-gig fiber network that is already covering 36 million living units, which no one else has that size of a fiber network and no one is building at the rate -- at the pace that we're building our fiber network.

And that leads to the true benefits that are 2 in my mind. One is owner economics. Our ability to build and operate both a wireless and a fiber network gives us a lot of flexibility in owner economics. The other thing is actually supporting our overall strategy, which is all around convergence. So the way we are thinking about this is that we have a converged network strategy.

One of the things we like to say about our network is that we're actually building a fiber network that has different access technology hanging off it. Think about the ability for us to optimize our fiber routes and building in a way that supports 3-or-more distinct use cases, consumer broadband, wireless backhauling, enterprise services. But the magic doesn't stop there. Historically, all of those services, the way they would converge in our core network was deep in our core backbone.

And they reroute or traverse our technical spaces or central offices through different architecture and different infrastructure. We are changing this through our network modernization. We are pushing out all of that convergence to the edge of our network to each one of our central offices. So now you can imagine how each one of our services is actually running on the same converged and intelligent architecture and infrastructure.

And now let's talk about fixed wireless because you brought this up. Clearly, when you have a fiber assets in 32 markets that will always be our lead offer. This is what we want to take to our customers because I don't think anyone is going to argue with the fact that fiber is the best broadband technology. It's symmetrical, it's reliable, it's doable. However, there are different scenarios in which either we don't have fiber assets or we know that we're going to come into a new neighborhood or a new area, but that's going to take us a year or 2 to build our fiber then or we need the cache product to get people off our copper infrastructure, small, medium businesses or there's an interesting segment of customers that we prefer to go with other type of services.

For all of that, we have our fixed wireless service, which is a great product, addressing all of the use cases that I just mentioned. You mentioned the fact that we acquired more spectrum in a matter of weeks, we were able to push out through a short-term spectrum management lease, all of the additional 3.45 throughout our network through 23,000 cell sites. That added capacity that opened up a lot of new geographies and created a more addressable market for fixed wireless capabilities.

Let me -- so there's been a conversation here a little bit today, some mixed feelings about the enterprise market opportunity. And as the largest enterprise provider in the United States today, this AI evolution from a B2B standpoint, I'm an old guy. I watched the Internet lead to tiers with millions of bankruptcies. I saw the cloud evolve and no one made money except Google and Amazon and Microsoft and Oracle.

And so now we're talking about this new AI Internet that's supposed to be coming into being. And there's been some players who've been noisy about it. I would say that AT&T and others have been were quiet about it. Is it a real thing? Is it a construction project that's a one-off? Or is it something that's real?

First of all, I think we're living in the most remarkable period, technology period that I can remember, and it's really exciting to be part of it. To your question, I will probably take this further out a little bit than just the enterprise space. And I will tell you that I don't think we're sitting here today and seeing a complete difference about how the network is operating or what kind of AI workloads we are seeing traversing.

But we're absolutely seeing signals. And what I mean by this is all of us are using AI capabilities on our smartphones. We may start wearing all kind of AI devices. The characteristic of those applications and devices is a little bit different. They are more heavy on what we call the upstream side of the network. We have a couple of examples of autonomous cars or robotaxis that driving over our network for sure in the training phase. We are seeing the ratio of upstream be above 50%, which is something that we never saw before.

We are absolutely seeing growing demand for high-speed, low latency services, 400 gig with the enterprise space, absolutely seeing this happening. If you think about agents, I'm sure everyone heard about agentic AI and with the proliferation of agents, how this is going to start behaving over the network. They don't work 8 to 5. They work 24/7. We don't know at what time of the day or the night they will operate. The traffic might be east-west, which is different than how traffic is behaving today.

So I think there's all kind of exciting capabilities and demand that is starting to show up. Think about physical AI, autonomous cars, drones, humanoid robots, all kind of other capabilities. They're all going to drive for different capabilities and characteristics from the network. What I am very pleased with is the fact that I believe we have all of the assets that allows us to be AI-ready or build an AI-ready network.

We have the right holding of low band for sure, with the add of the 600 megahertz, which is very useful for upstream services over the wireless network. If you move to an open architecture, our ability to adapt in real time to different usage characteristic of [indiscernible] in real time is something that we're going to get better over time.

Our symmetric broadband with our fiber services to people's home or offices is going to be extremely important when you think about all of those upstream usages. Our ability, and we are continuing investment in building high speeds and low latency capabilities in each one of our metros, bringing this up to 400 gig and above this over time is going to be critical for many of those enterprises to connect with hyperscalers. We already have fiber connection to 600 data centers in the U.S. That gives our customers the ability to see and run their AI workloads or capabilities in different locations.

They just need us to be there with providing them high-performing networking, whether it's high speed, high capacity and low latency. So all in all, I think we are in a very exciting time. Maybe another example to see how convergence is coming to life. I talked about those physical AI devices or our capabilities. Many of them may demand what we call deterministic network. We are uniquely positioned to provide deterministic experience all the way from the device over the wireless network through the transport and follow their context for AI models no matter where they are. So as I said, I think we have all of the assets in place, and we are uniquely positioned to really be ready for this AI-ready era.

And building on that, you've mentioned a lot about your capabilities facing outward. Internally, how have you used AI in the network operations space? And what kind of advantages are you seeing versus the complexity that has been present in the past?

First of all, I think we're all privileged to be in a company that actually established a Chief Data Office more than a decade ago. And we went through big data to machine learning and AI. And obviously, when the new capabilities of generative AI showed up 3 years ago, the team was able to be one of the early movers to help us to adopt those technologies at scale across the companies.

We all have access to capabilities, whether it's in software development, whether it's in day-to-day work, we all have access to the latest models and the latest capabilities and across the company, no matter if it's in customer service or fraud detection or in finance or in other areas, capabilities are being built to the benefit of operating our company.

On the network side, we've been building machine learning and AI capabilities for years in the network space. No doubt that 2 things help us to accelerate this. One, obviously, the advancement in AI capabilities. The other part is our move into an open architecture. It allows us to have more structured data model that's flowing up into models, and it helps us to take action, what we call in our terminology closed loop in an easier way, follow intent and being able to build modules, software modules and AI modules that helps us to operate our network, whether it's energy savings, which, again, we've been doing for years, like what we call cell site sleep where you take down carriers when you don't need them in order to save.

The ability to use newer model help us to increase this by 20% or 30%, the efficiency of those models, self-optimized networks. We built what I would consider probably the most advanced 3D rays tracing model, which allows us to really have a model of all of the propagation of all of our cell sites. So think about the disruption in our network, whether it's a fiber cut or a weather event, the ability of the network in very close to real time to readapt the tilts and the ability of our network to readjust itself, so there's no customer impact has been increased phenomenally through, again, the advancement of our model.

So we are using this across the board, mainly in the RAN space because clearly, this is the area that we are spending the majority of our capital. So we've been engaging on those models and capabilities for years. And again, we were able to take advantage through very unique skills that we have internally and the newer model to actually improve significantly existing models and create new ones to the benefit of our network.

And you mentioned that you're building an AI-ready network. And as we look forward into the future, there's conversations around 6G enabling AI, AI moving to the edge. How is that, if at all, changing your thinking for the longer term?

Well, that was the conversation of the day at Mobile World Congress. I don't know how many of you are attending there. Here's how I think about this because I think it's an important question. And I want to unpack a couple of those conversations. First of all, about 6G. I think the cycle of Gs over the years was instrumental to the success of the wireless industry and the ability to connect 7 billion or 8 billion people around the world to the Internet.

However, we just described the fact that the advancement we are seeing in AI. In a world in which every month or 2, a new language model or foundational model is getting dropped at us, I don't think we, as an industry, can talk about what we think our industry is going to enable in 2030. That doesn't work with each other. And if you think about the state of the architecture of wireless today, it's already based on software. It's based on openness, AI, cloud-native infrastructure.

None of those technology domains live in 5- or 10-year cycles. So I think the first thing we need to do as an industry is completely decouple the Gs or the cycle of the Gs and our ability to innovate. We need to move to a continuous innovation and continuous progress and being able to consume new capabilities and innovation as it becomes available. So that's the first thing that we have to do as an industry, and that's part of our Open RAN strategy. That is exactly what we're doing.

To the second part of your question about how far is the edge, which I think that is the question because there's no doubt that AI is going to be embedded into wireless network, and we're going to call it AI native and combining the physical space with the intelligence of the network. This is all true. The question is, one, the moment we have a software layer, the moment we moved away from purpose-built baseband or the infrastructure we have at the bottom of the tower to a compute-based platform and software, we disaggregated both.

Then over time, we have full flexibility to decide what is the right compute that we want to use at that cell site to serve our customers, to support our spectrum or whatever we want to do in terms of innovation. The second part of this is how far is the edge? And how do you want to serve some of the use cases with compute and intelligence? My view on this is probably a little bit different than what you may have heard otherwise. I think in the U.S. where I think the number is just this year, $600 billion or $650 billion of investment just in data centers just in 2026.

I think the proliferation of compute and high-performing compute across the nation in all metros is just happening with a software layer on top of this, with the tools that developers need. So I am not sure that there's much value in extending that compute all the way to the far edge just to save another millisecond of latency or 2 millisecond of latency. So I think the U.S. perspective on this is a little bit different. We want to take advantage of our nationwide modern wireless network, our deep fiber build and being able to create that deterministic experience between whatever use cases comes and help them to intelligently connect to the right model that they use, the context or the infrastructure that they need because that's going to be heavily distributed across the U.S. So I think the U.S. is a little bit different from other countries and other perspective just because of how deep out there compute is being built.

So shifting gears for the last topic. We've talked about the terrestrial networks. Thinking about the stars in the sky, what is the role of satellite? And how do you view Starlink as a potential competitor for your terrestrial network and the D2C capabilities and how do you compete with those as well?

So I think, first of all, D2C as a technology evolution in our industry is one of the most important innovation that we're seeing. I still remember the day that the folks from AST SpaceMobile walked into our office 7, 8 years ago with that concept that we're going to have an antenna in the sky and it's going to work on our regular phones. And yes, some of us rolled our eyes and say, what? Really? But here we are. It's actually working. It is -- from our perspective, it is absolutely a complementary service and capabilities to the terrestrial network.

I think it has placed -- we have the largest wireless network in the U.S., but still we cannot cover every square inch of America. And therefore, our ability to provide our customers with service no matter where they are, whether they're hiking in Grand Canyon or doing something else off the grid is a great opportunity for us in terms of our strategy around seamless connectivity and enabled connectivity to our customers no matter where they are.

Is this Starlink is competitive to terrestrial network? First of all, we are partnering with AST SpaceMobile, and we think the technology that they're going to bring to life and the way they're building their antenna in the skies is very unique, and we have a lot of trust in their architecture. I don't see anytime soon in terms of the beam creation or indoor experience, I don't see how D2C from the sky becomes a true competitive offering. It is absolutely -- I don't think I'm telling you something you haven't heard. This is absolutely something that we and the industry are looking as a complementary capabilities that is needed, and it's a great innovation. And that's going to provide a lot of value and benefits to our customers.

Thank you, Igal. I think those are the topics we wanted to discuss with you today. Really appreciate your time, and it's great speaking with you again.

Thank you so much for having me.

Okay. Good morning, everyone. Welcome to our conference this year. I'm Bryan Kraft. I cover media and telecom for Deutsche Bank on the equity side. I'd like to welcome everyone to the conference.

And I'd like to introduce our first speaker today, which is Pascal Desroches, who's the Chief Financial Officer of AT&T. Pascal, welcome.

Good morning, everybody.

So I think you've got some safe harbor language to talk about before we get started?

Sure thing. Please refer to our website for our safe harbor statement. Also we are in the quiet period for Spectrum Auction 113. So we -- so I will not be commenting or answering any questions about that.

Okay. Forgive me, I'm being blinded by the sunlight right now coming through the window. But why don't we just start off with a high-level question? I think last year was a very active year for the company. In addition to just the normal running of the business, you announced the EchoStar and the Lumen deals, increased the fiber build pace, accelerated the fixed wireless access customer growth pace, and also made really a lot of progress against retiring legacy network assets, among other things. What's the focus in 2026? What are you and the rest of the management team really focused on accomplishing this year?

If I take a step back, last year was an incredible year, and it's -- honestly, the last 5 years, I'm really proud of what we've done as an organization to reposition the company. We had, over the period, significantly expanded our fiber footprint, significantly improved our wireless network and our spectrum holdings. And last year, we saw an opportunity to accelerate the pace of our fiber deployment and to continue to bolster our spectrum. And that's what we did with those 2 transactions.

And we are now in a position where, this year, we have all the assets that we need in place and you could expect us to focus on executing. In particular, we closed on the Lumen transaction in early February. And we are -- we welcomed over 2,000 employees. And we're in the midst of starting to integrate those assets. In particular, we are adding resources to handle early increases in volume that we see relative to this time last year for the Lumen assets. And so we're doing that. We expect to close on EchoStar early this year.

And importantly, in our organic business, last year, we passed over 3.5 million passings. This year, we are stepping up our efforts and we expect to end this year organically in our own footprint passing 4 million fiber locations, at a pace of 4 million fiber locations as we're exiting this year. That's in addition to what we expect to be a significant contribution from both the acquired Lumen assets and our GigaPower assets. So as we exit this year, we expect to be building fiber at a 5 million passings pace. We expect to be at over 40 million locations as we exit 2026.

So this is a year where we are integrating, we are welcoming over 1 million Lumen customers into our footprint on the 4 million passings. And it's about execution. What's great about where we are is that we're in a position to take share by adding by -- through the expansion of our fiber footprint, we are well positioned to drive convergence. So you should -- that is going to be our main play as we execute this year and the next several years.

I'd like to dig a little deeper into the Lumen deal since you just completed the acquisition of the Mass Market assets, as you mentioned. First quarter will be your first quarter reporting with Lumen, Incorporated. Can you walk us through the next steps? What does that integration look like? How will it impact 1Q results, if at all? And you had previously mentioned that you plan to bring an equity partner in to invest there. Do you have any updates on when you expect to have that completed? And maybe just walk us through your reasoning for the equity partner.

Sure thing. On Lumen, like said, we welcomed over 2,000 employees with the closing in early February. Right now we are starting to stand up the organization. What that means is a big part of our efforts will be focused on increasing penetration. The Lumen assets come with over 4 million passings and about 1 million subscribers. It's about 25% penetrated. I compare that to our AT&T footprint where we are penetrated 40%. And so on a consolidated basis, I would expect us to take a step back in penetration because we're acquiring a business that is less penetrated than ours.

With that said, we're spending a lot of money marketing to those customers, driving increased penetration and also trying to drive increased convergence. Within the AT&T footprint, 42% of our fiber customers also take our wireless product. In the Lumen footprint, it's less than 20%. So there's an enormous opportunity to drive convergence in the Lumen footprint. We're investing to drive that. And so in the quarter, you would expect both our convergence rate and our penetration rate on a consolidated basis to decline a bit because of that phenomenon.

Also on a reported basis, we're going to consolidate Lumen, the subscribers are going to be treated as a base adjustment so that -- and in Q1, I've said this previously, but I think it's worth underscoring, we would anticipate that our EBITDA performance and our free cash flow performance for Q1 will be less than what we expect for the full year. For EBITDA, the way to think about it is low single digits. And for free cash flow, we expect $2 billion to $2.5 billion, all consistent with the guidance we gave at year-end when we started the year.

Some factors to keep in mind as you are modeling Q1 is that Q1 is going to have integration costs associated with the acquisition. There was a onetime benefit last year in Q1 of $100 million. That alone is about 100 basis points of growth. We also expect transaction costs associated with the Lumen transaction to hit free cash flows and earnings. And so all told, Q1 will run at a lower rate in terms of EBITDA performance.

Similarly, when you think about revenues for Q1, both our fiber and our wireless revenues, it's important to keep in mind that, for the full year, we are guiding to over 30% advanced home Internet revenue growth for the year. For Q1, I would anticipate that run rate to be less. Why? Because we're only -- we have 2 of the 3 months of the quarter. And for the rest of the year, you'll have a -- it will be consolidated for all the periods.

Similarly, on wireless, a big -- this year, we expect to grow 2% to 3% wireless service revenues. I would expect our wireless service revenue in Q1 to be less than the full year run rate because we are -- over the course of the year, we expect to drive significant convergence in the Lumen footprint. And so that will gradually build as we make our way through the year. Also in Q1, the new Lumen customers, we proactively gave them a convergence discount, those who were AT&T wireless customers, we proactively gave them a discount in the first quarter.

So all told, the first quarter is going to have a lot of moving pieces to keep in mind as you're modeling. But for the year, we feel really good about where we -- how we're positioned. In the assets, it's early -- the Lumen assets, it's early days, but I feel really good about the demand in the marketplace for that.

That's very helpful. Maybe we could talk for a minute about the new segment reporting. You announced that beginning with first quarter earnings, you plan to report results in 2 segments: Advanced Connectivity and Legacy Communications. What led you to decide on this new structure? Why now? Why is this a better reporting structure for AT&T's investors than your current segmentation and disclosure?

When we -- the last 3 years, internally, when we set our goal to be out of copper by the end of the decade, we started to develop the internal mechanisms for separating the business out between the legacy components and the balance of the business. And it was important to us because all of our investments, all the returns that we were trying to drive were really towards fiber and 5G. In contrast, the legacy parts of the business, we knew at some point that would ultimately decline to 0.

And we've been looking at this and we thought it was an important step forward in allowing us to do 2 things very well. One, to show investors the returns that we are generating from the significant investments we've been making in 5G and fiber. And two, it will allow us to manage our legacy footprint much better and to show investors the progress we're making towards sunsetting our legacy footprint.

And importantly, many of the same metrics we provided you historically, you will continue to have. Even our wireless P&L, we will continue to show that supplementally for a period of time. So this was a way for us to really shine better light on the different components of the business, in particular as we -- our goal would be, as we exit this decade, to really be talking about our Advanced Connectivity business, because legacy will largely be gone.

Okay. Makes sense.

Bryan, I realize I didn't answer your question about why are we bringing in a network -- a partner for the Lumen assets?

Yes, thank you.

With regards to that, it's important to keep in mind, the assets, in addition to the 4 million plus passings that we are acquiring, we are also planning to significantly expand the footprint in the Lumen territories, the historical 11-state footprint. And think about that as doubling that footprint over the next 5 years.

So we thought it was really important to, on the one hand, continue to deliver returns to shareholders in the form of buybacks and dividends over the next 5 years, while at the same time building out that footprint. And we thought it was a sensible approach to bring in a partner to help finance that.

And any update on timing or expectations as to when that could happen?

We expect that that should be completed by the second half of the year.

Okay. So maybe moving on to the growth outlook. So over the past 5 years, growth in wireless, and broadband, has been driven by multiple factors across both volume and price. As you look ahead over the 3-year guidance period, how do you expect these growth drivers to shift, if at all? On the volume side, what are the major growth drivers for AT&T? And where do you see opportunities to increase share in different segments of the market?

Just to level-set, we ended last year with 32 million fiber passings. With the closing of the Lumen transaction, we are now over 36 million. We expect to end this year at 40 million fiber passings. So incrementally, for this year, we are adding over 8 million fiber locations. With each of those fiber locations comes a convergence opportunity. You should expect us to drive incremental share take in -- where we are expanding our footprint, plus the build that -- the existing build, which there's still opportunity to drive further penetration.

And that's going to drive not only fiber volumes, but that will drive also wireless. I mentioned earlier, our penetration in the Lumen footprint, of convergence, the convergence in the Lumen footprint is significantly less than our own. And so you should expect us to really focus on driving incremental convergence in that footprint. So those 2 things should allow us to really drive share take in fiber and mobility.

And our guidance is predicated on much more of a volume growth and, to a lesser extent, pricing. But it doesn't mean that you're not going to see pricing in different parts of our portfolio for both wireless and fiber. In any given year, there are pricing actions where we believe we are conveying additional value to consumers. But at the same time, we are giving, when we're driving convergence, we're giving consumers discounts. So on a blended basis, we wouldn't expect a meaningful contribution from ARPU, for both wireless and fiber.

Okay. So kind of as we look forward, probably a shift versus the last couple of years, more volume both on the broadband side and the wireless side, a little less ARPU growth?

That's right.

Okay. Makes sense.

And as you -- the other thing to keep in mind, as you exit this year, I said this earlier, we're going to have -- we're going to be building at 5 million fiber locations. Again, incremental opportunity to drive convergence and footprint.

Okay. Great. Maybe we could talk about just market dynamics a little bit. Early last year, we started to see this increase in promotional intensity across the industry. That really continued throughout the year and arguably got a bit worse in 4Q. How would you characterize the health of the wireless and the broadband market today? Has anything changed in your view since the fourth quarter? And are year-to-date trends any different versus your expectations when you provided guidance in late January? And then maybe as part of that too, just how does pricing come into play in a competitive market where everyone is trying to battle for share right now?

Last year, in a year where we did see elevated competition -- and I think that elevated competition, there were several factors at play. First and foremost, I think overall, there were less new -- less addition net adds in the wireless industry. Why? I think immigration -- or the absence of immigration served as a real headwind. Also DOGE did play an impact on the level of volumes available across the industry. And for us, we were in a period where you had a higher percentage of our customers coming off of contracts. So all those things resulted in an elevated environment.

With that said, last year we grew wireless service revenues over 3%, we grew fiber revenues mid-teens, we grew margins and we grew EBITDA 3.6%. So a real solid year. And I would expect this year to be very similar. Our plans for the year were that we were going to be operating in an elevated environment -- an environment with elevated competition. So in that regard, we're going to have to compete based upon our own asset position, which gives us unique advantages.

Like I said earlier, we're going to lean into driving incremental fiber penetration through the Lumen footprint as well as through our incremental build and additional penetration of our existing footprint. And you should expect us in this environment to lean heavily on capitalizing on that unique advantage. Most of our promotional and investment dollars are going to go into servicing and growing our penetration in those areas and to drive incremental convergence.

And in terms of pricing actions, I would expect in any given year that there will be pricing -- pricing will be part of the mix, in instances where we do provide a customer with incremental value. So as an example, you change price -- you increase pricing, but you provide more hotspot minutes. And it's been a play that we've run. We are very careful whenever we go into any market -- any pricing action, to ensure that there is a reasonable value exchange.

Maybe we can talk about churn for a second. So postpaid phone churn increased pretty meaningfully across the industry in 2025, including for AT&T. How would you put this into context for investors? Are we likely to see churn continue to creep higher? Or do you think that we're at a sort of plateau at this point?

We came into the year, we assumed that we would be operating in an environment with elevated churn. Look, it's hard to pinpoint whether it's going to be high or low, but it could be a few basis points higher. But generally, I think what we saw last year is what we are planning for.

Okay. Similar environment, okay. On the fiber side, so AT&T has led the industry really in fiber investment over the past decade. It's your fastest-growing business both from a revenue and a subscriber perspective. Can you talk about your plans to invest in expanding the footprint further, longer-term targets for the business and the opportunity to grow this business in a way that keeps it a sizable contributor to revenue, EBITDA and free cash flow for the next several years?

Yes. As I mentioned earlier, this year, with the Lumen acquisition, we expect to end the year with over 40 million fiber passings. Over the next couple of years, we're going to be building at a pace of 5 million passings annually. So the 3-year period we provided guidance on, I would expect us to end that 3-year period with over 50 million fiber passings.

Similarly, in each and every year, I would expect us to continue to add converged relationships. And those 2 plays, driving convergence, increasing our passings and penetration, is really going to be the basis of competition and where I believe we will gain most -- we will drive most of our revenue growth.

In addition to that, we also, through the continued modernization of our wireless network, are offering fixed wireless in more and more locations. Where we don't -- our lead play is fiber and will remain fiber. Where we don't offer fiber, you should expect us to have fixed wireless as our Internet offer. And we have enormous opportunities to drive incremental fixed wireless subscribers because we're increasing our passings each year.

And last year, we added -- we now have over 1 million subscribers, and I would expect that to accelerate as we look ahead the next several years, because we're going to be increasing our passings to more and more locations where we don't have fiber. So the growth in our advanced home Internet is going to be driven both by fixed wireless and fiber growth, and principally, units, as we've talked about.

Right. Okay. I wanted to ask you about the cost to deploy fiber. I think the prevailing wisdom in the market has always been that the deeper AT&T, or really any other company, went with fiber upgrades, the higher the cost per passing and the lower return on investment, just since that lower -- those lower build cost areas would naturally be prioritized first. But if we look at your cost per passing, it's seen minimal inflation, and that's despite material inflation pressures over the last 5 years, obviously, in every area. Can you just help us understand how you've been able to contain those build costs and why costs have stayed in check even as you've gone deeper and deeper into the footprint with upgrades?

I think you have to look back to, first, how we architect our fiber network. Through working with our fiber vendor, we have a very modular approach to fiber installation, which what it does is it simplifies the installation process, ensures a level of consistency across, and as the training we provide our techs to work with the modular setup really allows us to gain efficiencies in installation. That's one.

Two, being the largest fiber provider, and we've been that for some time, gives us some unique advantages in our supply contracts. And we have great partners that we work with, and being able to secure this -- the volume of labor and supplies that we need at an effective price point has also been a key to how we've managed to keep costs contained and how we expect to keep costs contained over the next several years.

Another thing that is really important when we talk about it, it's not only the cost of installing fiber, but also the cost of connection. So again, as we get deeper into passings and penetration, more and more of our connections are going to be self-service because we've already connected the home and the customer -- the next customer can just simply come in and call us up and have service. That's an important factor at play. The maintenance profile of fiber is much better than copper. And the energy consumption is much better than copper. All those things together really are unique advantages to having fiber and to doing it at the scale that we do.

I wanted to come back to fixed wireless, which you talked about a little bit already. So if we look at Internet Air, which is AT&T's fixed wireless broadband product, it's been around 3 years since you launched the product. What have you learned over this time period? What surprised you as far as the product capabilities and the customer response? And what are the customer use cases that you can service with Internet Air? And do you think we'll see growth in net adds continue to -- or growth in net adds continue to accelerate this year in addition -- or because of the addition of the 3.45 gigahertz spectrum that you recently added to the network?

Yes. When we are -- when you think about fixed wireless, one of the things that has enabled more locations for us recently is an effort that we started in 2024 to modernize our wireless network. We are literally changing -- we're touching every single tower and changing the radio access technology in those towers to be more open source and to have a consistent architecture.

Those things have enabled us to really, as we've completed portions of our footprint, we've managed to deploy fixed wireless. And the locations that we are able to offer it have grown steadily. It started in earnest in late '24. You saw the effect of that in 2025 with our significant step-function change in net adds.

I would expect 2026 to be a year again where we see more net adds in fixed wireless than we did in 2025 as we're opening up more locations. We complete our wireless modernization in 2027. And by then, we expect to basically be at nationwide coverage for fixed wireless. And that's going to allow us, wherever we don't have fiber, to use fixed wireless as our lead play to drive convergence.

And fixed wireless, I think for consumers who are young, who live in multi-dwelling units, tend to be more transient, it's a fine product. I think if you're a family of 4 with significant bandwidth consumption, it's probably not going to satisfy you as much. Similarly, we've seen really good success with fixed wireless on the small business side. And that's where I would expect most of the growth to come from.

But unlike some of our competitors, I wouldn't expect us to be as focused and to have -- to be as dependent on fixed wireless for growing our broadband. Our lead play has been and will remain fiber as we look ahead.

You've talked quite a bit about convergence already in this discussion. But selling fixed and mobile is a core part of your strategy, and you've laid out clear progress against that strategy in your quarterly earnings calls. Can you help us understand all the measurable benefits that you're seeing from convergence? And also, you've expressed your conversion strategy in the context of fiber plus mobile, but what about Internet Air plus mobile, do you see similar benefits as you do with fiber and mobile bundled together?

Yes. When we have some customer with both broadband and wireless with us, we clearly see lower churn characteristics. We have 10% more share in wireless in our fiber footprint than outside of our fiber footprint. Where we have the 2 products together, fiber and wireless, we're #1 in NPS, #1 in brand love. And those customers tend to buy more from us and we have a higher lifetime value. So enormous benefits.

We were the first ones saying that convergence was one of the primary objectives and goals of how we're going to go to market, and the benefits are true. Also when you take a step back, our research is showing very clearly, customers want to deal with one connectivity provider. They're not looking to deal with more than one. So being able to offer multiple different products to consumers and businesses at a competitive price is an advantage. And that's the way they want to shop.

And with fiber and, to a lesser extent, fixed wireless, we believe we have the very best technology solutions in broadband. And with the modernization of our wireless network, we will be the most modern, efficient and reliable wireless network.

Maybe we could talk about just the cost side of the business and AI a little bit. So you've got a large cost savings opportunity as the company shuts down the legacy copper infrastructure. And then there seems to be a big runway from savings from technology like digitization and AI. Can you just help us to understand these cost opportunities more broadly, how sizable they are, as you execute over the next few years?

If you look back the last several years, as an organization, I think we've done a really nice job of continuing to drive efficiencies across the company, whether it is in support functions, whether it's in care, some of our other front line functions. We are a smaller company today in terms of number of employees because of the adoption of different technologies.

And importantly, there have been several things we've done. First, you look at our call centers, our call volumes are down relative to 5 years ago, even though our subscriber counts are up significantly. How? It's through the use of AI and machine learning, we're able to route calls to the right customer rep the first time for resolution. Big advantage. We are able to optimize field dispatch to make it more efficient through the use of AI. Each year more and more of our sales process and upgrades are going through digital channels, another source of efficiency.

And we have this massive legacy footprint that we are decommissioning, and that's driving costs to come out of the system. So all those things together have really created significant efficiencies the last several years.

And as I look ahead, I would expect us to continue to lean in on AI. I would expect us to continue to work towards retirement of our legacy footprint. More and more of our sales will go through digital channels, which will also drive efficiency. So all the things that we've been doing, I expect us to be able to make meaningful improvements and drive further efficiencies.

Okay. And maybe to wrap up, we can talk about capital allocation a little bit. So you've levered up a bit to acquire the Lumen assets and the EchoStar spectrum. But you're still returning capital, which is great. Walk us through your deleveraging path and capital allocation framework. Perhaps you could also help us understand what flexibility you have to make more additional investments if there are any opportunities that might arise in the coming years.

Yes. I think one of the things we've done really well, we've been very clear about how we think about capital under John's stewardship. Our current guidance and construct is this. Free cash flow goes towards, first, dividends. We have an $8 billion dividend, another $1 billion plus in preferred dividends. We committed $8 billion towards buyback each of the next 3 years. This year, we're going to generate over $18 billion of free cash flow.

So as you look ahead, that $18 billion plus of free cash flow will continue to grow over the next several years, giving us capacity to reduce our net debt some. But more importantly, over the next 3 years, we expect our EBITDA to grow significantly. And higher EBITDA will create higher debt service capacity. So a combination of lower net debt as a result of free cash flows after dividends being used to pay down net debt and -- but more importantly, growth in EBITDA and the capacity to service debt.

But what about flexibility for additional opportunities that might arise?

We said within 3 years we expect to get back to 2.5x, and that remains the goal. Within that envelope, there is some flexibility to go out and secure key assets. But I would, right now, as I said at the outset, what stood about the position we're in is we don't need to do anything. And anything we do, we'd have to look at it and believe, one, it will deliver attractive returns to shareholders, and two, we have a path to get back to our target leverage ratio of 2.5x within a reasonable time frame.

Okay. All right. Well, why don't we wrap up there? Pascal, thank you very much. And thanks, everyone, for joining us.

Thank you.

Okay. Good morning, everybody. Welcome to day 2 of Morgan Stanley's TMT Conference. I'm Ben Swinburne, Morgan Stanley's telecom and media analyst. Quick disclosure, for important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, reach out to your Morgan Stanley sales representative.

And we're kicking off day 2 with Jeffery McElfresh. He is the COO of AT&T, overseeing the company's global network, technology and operations since 2022, but has a long, long career at AT&T, which we're going to talk through all of the important things at AT&T over the next 30 minutes. Jeff, thanks for being here.

Ben, thank you for having me. And if I could call everyone's attention to our safe harbor statement and remind everyone that we are in the quiet period for FCC Spectrum Auction 113 as it's in effect.

Great. Well, with that done, so you guys provided an update to your multiyear guidance on your January earnings call, laying out expectations for healthy and improving organic growth over the next few years. And I'm sure you wouldn't be surprised to hear that competition is a big focus in the investment community in the telecom space in the U.S.

So stepping back, what gives you and the team confidence you can deliver on those growth targets in an environment that at least people would describe as being mature on the wireless side and heavily competitive in both wireless and broadband?

Yes. Thanks for the question, Ben. We -- at AT&T, we have a differentiated strategy. I mean it is a disciplined investment-led strategy to drive convergence. And we have been incredibly consistent with this for quite some time. This is not just something that's new for us. In fact, when I look at the number of customers that we now serve in a converged environment, the quantum of customers is significant. And what we learn from what they tell us is there's only one Internet, why pay for it twice.

And for us at AT&T, when we see that kind of response and adoption to the products, it's rewarded in things like where we offer convergence, that's backed by fiber. AT&T is #1 in brand love, #1 in NPS. Churn profiles of these customers are the lowest among all customers. The propensity for them to buy multiple products and help grow up the revenue stack continues to increase. And this playbook that we've been executing in a heightened competitive environment for the last many years gives us a lot of confidence that continuing to focus and execute on that is winning play.

And I'd say we've got all the building blocks. Like there's nothing that we need. We've now closed on the Lumen transaction. That adds 4 million passings. We're at 36 million fiber passings as of today. And we'll exit the year with 40 million. I mean there's nobody else in this sector that is expanding their growth funnel the way AT&T is by executing a proven strategy.

That's a great start. You mentioned convergence. And I think the market seems to oscillate between being bullish on convergence and then worrying it's sort of devolving into discounting and maybe even a price war. So how does AT&T approach convergence in the market in a way that drives growth but also preserves customer lifetime value and returns?

Yes. I mean the continued performance of churn profiles with these customers and the number of products that they purchase continue to maintain the most attractive LTVs in our business, and that continues.

Now at AT&T, when we think about investing, as we are, at the highest levels of anybody in this industry, what do we hold ourselves responsible to? One, we got to drive penetration into that investment. Two, we've got to sell multiple products to get even stronger returns. And so our strategy to serve the best, highest-performing quality product in a converged manner drives these LTVs that we're seeing and keeps these customers incredibly loyal and sticky.

We're not competing on promos. We're not competing on just pricing actions. We're competing on performance and value. And the more we do, the better the brand performs in these markets. And I think that's an important note. That discipline that we hold ourselves to is something that has generated very attractive returns. I mean, during this competitive environment, as we continue to drive convergence, we've delivered in fourth quarter, very strong wireless growth, strong fiber growth, strong EBITDA, expanding margins. And we're able to do all of that while maintaining our commitment to our capital returns program with share buybacks and attractive dividends.

And so this is a working formula. And what I'd like to impart on the audience is, I mean, we're still in expansion mode. We are still growing. And as we expand this fiber network and we run this convergence play, we gain even more and more scale. Ultimately, AT&T will have the absolute best, largest fiber network that is a superior technology, that can serve traffic at the lowest marginal cost of any other technology in the industry. And we complement that with a modernized open 5G network that is now fully fueled with a very impressive mid-band spectrum portfolio. So owning and operating both of those networks gives those at AT&T the ability to serve customers where they want to be served, offering the right performance and the right value.

You mentioned the wireless network. So let me ask you about your outlook for that business, mobility. So you guided to 2% to 3% wireless service revenue growth through 2028, primarily volume driven, I believe, the way you framed it. So where are the opportunities in the U.S. wireless industry for you to do a better job with market share and go after?

It's probably two frames to think of. The first is we continue to see opportunity in market -- segments of the market where AT&T is historically underpenetrated. That might be more of the price-sensitive or value-conscious market, single-line accounts as well as maybe 55+. We still are seeing success in growing our small business franchise with wireless. These are the more classical straight-up wireless-to-wireless plays that we continue to execute on and is bringing new accounts into the AT&T fold.

But importantly, on the convergence footprint, when we closed this transaction with Lumen in record time, we ingested 4 million passings network that is 25% penetrated against AT&T's 40% penetrated larger fiber network. So you can imagine, as I said earlier, okay, well, Jeff, you and the team are focused on penetrating, driving that fiber up from 25% to 40% in that footprint. And our ability to drive convergence, which is to attach mobile to that account. Inside of that footprint, the Lumen territory represents areas of market share where AT&T is lower than our national average. And one in five of those Lumen accounts have wireless services from AT&T.

So as we execute the same strategy we've been executing, we drive incremental wireless growth in a differentiated manner that's durable to the competitive pressures that you see in these footprints. That ability for us to go grow is, as I just explained, now, but we're not stopping at where we sit with this fiber footprint. I mean we'll add another 4 million incremental to exit the year with 40 million passings by the end of this year. And so this convergence play is fueling incremental mobility growth, which is why our guidance incorporates continuing to execute our convergence strategy.

There's been a lot of focus, as we've mentioned earlier, on the competitive environment, Jeff. And I think over the last 6, 9 months, the cable operators have incrementally gotten more aggressive, I would say, from a pricing and packaging point of view and really leaned into wireless and broadband bundles. What impacts, if any, are you seeing from this on AT&T's ability to compete and grow, particularly in wireless?

We've been seeing cable being competitive for quite some time now. But I'd say like we're not cable. We're not like cable. I mean our playbook is, as we are expanding our fiber, which is the absolute best, highest-performing product in the sector in this industry, as we're expanding that into territories where cable has enjoyed some incumbency, it's clear. It's clear that customers are going to pay and switch service for a company that will give them better performance at better value. And as we own and operate both the fiber network and that wireless network, that gives us the ability to serve the household in a way -- in a competitive way that is unmatched by cable.

So over the last, call it, 3 to 4 quarters, as you've seen, as you cited, some heightened competitive intensity, I would just guide the audience to and look at our results over the last 4 quarters. And can you see signals that, that cable strategy is actually giving us pressure. And I would say no, we're actually being quite successful.

Yes. You touched on it earlier, the network and the modernization of the network that's going on. I think AT&T -- somewhat unique strategy and network position. Talk a little bit about where things stand right now on that modernization process and what it does for the company as it wraps up?

Yes. I'm super excited about this because I've been at the company for a long time. Next week, we get to celebrate 150 years of connecting people from the very first phone call next week, and that's why I'm wearing this nice pullover.

And I shared last night with some guests that I've never been more excited as an engineer in the industry for what we got going on at AT&T right now. This modernization that we're doing across our network assets is by all means, kind of quiet and behind the scenes. We haven't spoken a lot about that. But we're making incredible progress on our wireless network. We're about halfway through the switch, the rip-and-replace of some radios. And we've got another 18 months before we're kind of complete with that program.

What I'm excited about is that's been almost flawless in terms of implementing this tech upgrade across all these towers without disturbing customer service. And if you're a company like ours that backs your product with the industry's only guarantee, like we've raised the bar on ourselves to make sure that we don't impact service when we're making these investments in modernizing the wireless network.

So the progress, what we're seeing when we have touched these cell sites and really refreshed the technology that's on the towers, we're seeing gains in customer experience, gains in throughput, gains in retainability, gains in performance and lower cost structures because we've gone to more standard models across these towers so that our operating teams find efficiency in maintaining that RF environment. And that's just going to continue to improve as we make our way through that transformation.

So this sounds like it's both an efficiency and a customer-facing.

It is. And then that's kind of like on the surface. The second tactic and the second objective of this modernization effort is to open it up. And opening up introduces new players to come in from the hardware perspective to innovate on small cells, femtocells and some even high-performing radio assets. And we've seen some really good success in the lab and some early market trials of providers of equipment that are new to the category, interfacing with our network in this open standard.

That's one benefit for capital efficiency in the future. And I'll remind you as we get through this modernization, like right now, we're at peak levels. When we complete the wireless modernization, that capital intensity falls kind of similar to when we're done building out our 60 million-plus passings, our capital intensity falls. But when we get to that point of the wireless modernization, we now have a platform that we can open API interface to maybe, let's say, a wireline network or a hyperscaler. And at AT&T, our convergence strategy isn't just a go-to-market strategy. It's actually what is guiding our investments in our networks as we modernize.

So think convergence of these network assets well -- deep into the edge of the network, closest to customers. This is why we have confidence we will emerge with the absolute best, lowest marginal cost network to serve an ever-increasing demand of traffic as AI workloads and all of these new capabilities are starting to surface and emerge.

Got it. Why don't we -- let's shift gears to broadband, and I want to -- you mentioned it earlier, but let's talk about Lumen. You closed the Lumen Mass Markets acquisition last month, adding over 4 million homes to the footprint. What's next in terms of leveraging the newly expanding fiber footprint and kind of folding it into your overall convergence strategy?

Yes. You probably recall John's commentary in our fourth quarter earnings. I mean we closed this transaction in record time. And at AT&T, we've done a lot of horizontal mergers, acquisitions and integrations. And as the teams are preparing for a close, generally, we have more time to get a few of the final pieces assembled, but the close occurred in record time. And so as John alluded to, for the first cycle or 2, we're still completing that integration work.

And that integration work isn't, let's say, technically complex. It's about things like you convey employees, you welcome new employees from Lumen into the AT&T world. And then you've got to allocate resources out into the markets where you're finding increased demand for your fiber product. And the technicians that you need to locate, that takes a minute or 2 to hire, to train and to get them positioned. We've also got a build engine that conveyed with the Lumen transaction. And we are going to capitalize that build engine and scale it along with our Gigapower franchise to generate 1 million passings a year run rate.

And so we're working on the building blocks for that organization to increase their rate and pace of new footprint build. Because remember, the acquisition of Lumen wasn't a synergy-based case. This was a growth-based case. And so we'll take the time to get the assets positioned right. And I'll be excited for when we start to report results as the year progresses so our investors can actually see the success we expect.

So with Lumen, I think you're at 36 million fiber passings, you plan to reach over 60 million by 2030. You mentioned you're building more than anybody else in the country, but you've actually got to ramp up the run rate to get to those numbers.

Yes, we do.

What really needs to happen? Like how do you derisk a pretty key expectation of the market to get up to sort of a 5 million type build run rate. I mean this is -- it's a pretty significant ramp.

It is, but you have to remember that this build isn't happening all on top of one another. And so as -- I mean, we, at AT&T, we have built at a 4 million run rate level in the past. So as we scale up to that 4 million number, you have to ensure that you've got good cost control over your supply chain and your labor markets, which we've demonstrated we do, and we continue to do.

Two, you've got to ensure that your implementation out into the markets is effective. And so that is the permitting, that's the prepositioning of all the materials and the contractors and the employees to get the work done. So we've successfully scaled from 2 million to 2.5 million to 3 million to 3.5 million. We've got the runway on that from an organic perspective.

On the Lumen side and the Gigapower side, the amount of footprint that they have to pursue to go grow is known. It's identified and it's in the permitting process. And then the scale of the AT&T purchasing power with fiber providers and with equipment providers helps to derisk those build engines from scaling.

And how do you think about cost containment, cost per passing in a world of inflation and supply chain complexity and the world you're operating in?

Yes, a lot of people buying a lot of fiber lately, right? Well, a couple of things. First, over the last couple of years in an inflationary environment, our cost per passing has been inflated no more than 2%. So we have been very successful in managing costs. But as I said -- as I shared with the investors at our Analyst and Investor Day in Dallas, there's three costs we pay attention to. We pay attention to what it costs us to actually build the network to pass a location. We pay attention to how much it costs for us to connect the customer to that network and then the cost to maintain.

And so when we're looking at investing this amount of capital into a fiber network, we're going to go drive penetration because it's the only way you get revenue on it. And the cost associated with turning that investment into revenue is a large component of the total cost. It's just not the cost to build. So as we find efficiencies in our cost to build, which we have as we've scaled, we are finding even more efficiencies in our cost to connect. And cash is cash. So it gives us the ability to redirect any improvements or efficiencies in our cost to connect in other areas like growth, maybe building one more passing.

And the scale advantages of this network and this build engine and this team is impressive. And that's what gets me excited because when we wrap up this transformation and this fiber expansion, then you're kind of sitting there looking at having a highly penetrated, best-performing future-proof fiber network where you've got happy customers that buy more from you than just broadband. They are loyal, they have low churn, the highest NPS scores, you can kind of get this image of this becomes a cash flow generating platform that AT&T is going to enjoy when we make our way to the end of the decade.

You guys laid out growth projections for broadband. There has been certainly a little bit of a moderation in fiber ARPU growth, and I think the market has been focused on that in your results and your outlook. What's your perspective on the opportunity or risk around AT&T's fiber ARPUs? And is it still an opportunity for AT&T in terms of driving growth long term?

Yes. I mean it's -- there's no change of perspective in terms of what kind of revenue yields we can get on the fiber network. But I think this is an important point. We're growing, like we're expanding. And when you're running a very large-scale network like ours, you get into a yield management strategy where once you achieve a certain pin rate on an investment, you have secured the payback. You've hit your IRR like success.

And what we're seeing at AT&T is we are continuing to beat our own internal expectations in terms of penetrating that fiber when it's built, converging it with mobility, securing the home with a quality of installation that's durable. So any resident that ever occupies that location in the future is eligible for self-install and the cost profile of that is very attractive.

And so our strategy is to maximize the number of connections on our fiber network, to do so in a manner that penetrates in segments that aren't just SFUs. There are many different kinds of customer cohorts. And fortunately, because of our execution and the cost structure of this technology, we're able to compete across many of those cohorts in a way to gain share and continue to drive attractive returns and profits in that part of our business.

Last broadband question, then we'll move on. But how does fixed wireless fit into all this fiber focus?

Same as it always has at AT&T. It's a very tactical product for us. We don't sell fixed wireless where we offer fiber. We use it for preceding, preselling where fiber is coming. We use fixed wireless effectively and drive convergence in markets where we never intend to have a fiber asset. And you can think about as over the last year or so, as we lifted up that 3.45 spectrum, it opened up more sectors of fallow capacity we could sell into in areas where we have low wireless share like we did in the Lumen footprint. You can imagine AT&T was offering fixed wireless in those markets. Now that we have fiber, we won't prioritize fixed wireless. We'll prioritize, obviously, fiber.

Fiber remains our #1 play where we have it. Fixed wireless is a tool in the toolkit to drive conversions, to drive growth in markets where we don't have fiber.

Let's move to the business market. What do you think is the most exciting opportunity in B2B? And since this conference is all about AI and hyperscalers, maybe you can talk about how AT&T sits in that ecosystem.

It's -- we're well positioned, Ben. We've got a storied -- we've got a great book of business with enterprise, as you know. And we've been around a while doing this. I've never seen the kind of conversations like I'm seeing today with enterprise customers. They are trying to figure out where their workloads go. And in the past, maybe it was a hub-and-spoke model. I've got my data center. I got to get to another hyperscaler data center. Maybe I have to interconnect through a MeetMe point.

Now they're realizing that with AI coming on strong within their enterprises that these workloads are really going multiple places. They need a high-availability, high-assurance, high-performing network that is not single threaded, but multi-threaded in order for them to secure their future. And when you couple that need against the largest fiber network and the strongest 5G position in the industry, AT&T has got real opportunity to drive not only fiber and 5G, but some value-added services to help our enterprise clients actually attach to this AI-enabled network of the future.

And I think that's emerging and developing. I think there's no pinned out winning strategy yet because many people are still investing in these data centers in the metro areas, but more and more of the conversation is leading in that direction. And why I like it is, well, AI needs high-performing bandwidth. And that's kind of the business that we're in.

Yes. There's a lot of focus also on satellite connectivity. I mean I know you've spent a lot of time thinking about and looking at -- you have a deal that you've recently announced with Amazon with their -- what used to be Kuiper now Leo product. You're also an investor and I think an early partner in AST. So talk a little bit about AT&T's position on direct-to-cell or direct-to-device and sort of how you think it fits in either as an opportunity or even as a potential new competitor down the road?

At AT&T, we view our #1 role is to connect people and to do so in a very seamless manner. And so it's our job to remove the complexity. You just want to be connected to the Internet. So we still view satellite as an important but complementary service.

The Amazon Leo deal was for a different mission or different use case than direct-to-device, which I think bodes to our strategy where we're not wedded to one particular technology or provider. Our job is to ensure that we can provide seamless connectivity to the Internet at the lowest marginal cost with the best performance. And if we do that in this industry that is being shuffled and reshaped right now, we believe that's the winning strategy. So you'll see consistency from AT&T in bringing in partners like an AST or an Amazon or others where it helps us deliver on that vision of being the company that makes connecting seamless.

Do you see satellite as a potential competitor to terrestrial long term?

No. We've been pretty consistent on that. It will have its place where it is uniquely positioned to perform miracles actually and fantastic things. But the amount of traffic growth that we see in the terrestrial networks right now is not slowing down. And it's not just download traffic. It's these AI applications and robotics and autonomous vehicles, the uplink needs that they are bringing forward are massive. And you really need dense, very robust terrestrial networks on the ground to carry that traffic.

Got it. Okay. Let's shift gears a little bit more on the expense and EBITDA side of the equation. You're aiming to decommission I think the majority of your copper network by the end of 2029, not a small project.

Not a small project.

Give us an update on sort of where you are now, what milestones you've achieved? And also, what are the big pain points in front of you when you think about certain geographies and all the regulatory bodies you guys interact with?

We've had really good success here, and it's been a long mission. Susan did a nice job at our Investor and Analyst Day in Dallas, kind of laying out what the milestones are, and we're right on those milestones.

One thing that's important to note is we've announced a new reporting convention that we're going to begin reporting here in the first quarter, separating out our Advanced Connectivity and our Legacy business. This is an important move for AT&T. We're giving clear transparency to all of you, our investors, as well as we're creating some accountability for our teams that have to go mine out these legacy services, you're able to now see what kind of revenues and expenses are associated with that copper network. That's an important point for us.

We've got about 85% of the wire centers today, we're not selling in anymore. We have permission to discontinue sale. We've got about 30% of them where we can go to full discontinuance, which means we can actually shut down these wire centers. We've got over 5,000 of these scattered across all the states. And right now, we are in execution mode. We are migrating customers off of those services. We are transitioning them to our products to get them off of the copper. And then we go in and we cleave out equipment and hardware, shut down power and basically lower the operating expense of that wire center. And it is a wire center by wire center task. There's no rip the Band-Aid and one day, it's all gone. It is going to atrophy like this as we manage that.

Then the bigger challenge is many of the systems that support legacy, they're not a system just for that wire center or that state. So success across the footprint is required for us to decommission some of these larger legacy IT platforms that support that work. That will come towards the tail end of our unwinding strategy with copper. So you'll be able to now track and see our progress on unwinding that copper legacy business. While at the same time, you'll see these very attractive growth rates in our Advanced Connectivity segment, where it's where all of our capital is going, and we're excited about that structure.

And the expectation you've laid out for the market is 3% to 4% EBITDA growth this year, ramping to 5% plus by '28. When you think about the expense piece of that acceleration, what else are you focused on beyond what we just talked about to get there?

Well, we -- I mean, we are -- this is an investment-led transformation. It's not just sheer cost cutting. The other activities that we have in flight in the company beyond copper sunset are: we touched on wireless modernization. So standardizing on our architecture out in the field gives us synergy opportunity in the workforce and the tool sets that we use to maintain that. That lowers our carrying cost and cash operating expenses.

Second, in our wireline modernization strategy, as it begins to get implemented market by market, when we're done with that market, that market is in the future state and the support cost that are required to maintain that go away. So it's not a cliff event for us in terms of driving operating leverage. We have guided to a $4 billion cost target out to 2028 right now. Well, that continues as we continue to execute each of these transformation strategies.

Got it. Well, that's a good place maybe to -- for my last question, which is beyond 2028. I know you guys are thinking long term about the network and the business. So if you think about AT&T 2030, and you think about all the capital you're investing into the business more than really anybody else in the sector between now and then, what does AT&T look like as these investments and transformations wrap up and you reach the other side?

It's going to be a beautiful day. I remember when we first started talking about the end of the decade, I'm like, well, that's a long way away. I mean that's just 4 years from now. That looks right around the corner.

One, an industry-leading, most modern, most open and most cost-efficient wireless network that is ready for the future state of technology nationwide, plus dense metropolitan fiber in all the markets where we find attractive returns with success in driving and leading in convergence in this industry with customers on those networks with attractive churn profiles -- churn performance and return profiles. And everywhere else across this great nation, no more copper, we're only serving with wireless. And the efficiencies that we generate when we come out of that transformation, I think, are self-evident in terms of the P&L and the expenses.

We're going to be in a position where we've got -- we've proven consistently and are in a leadership position with a converged strategy as this industry resets around us. We don't need to buy anything incremental. We just need to execute, and it's in front of us to go execute. And when we get there, the cash flows that this company will generate will be industry-leading.

Great. Perfectly landed at 0. Thank you, Jeff. This was awesome. Appreciate it.

Yes, touchdown.

Thanks, everybody.

Good morning, everyone. I'm Kannan Venkateshwar, and I lead the North American cable telecom and media research effort here at Barclays, Sorry, we had to make this event virtual last minute, given all the travel disruptions. But I did want to acknowledge all the work of my corporate access team who have been very busy in the last 24 hours, setting all this up to work seamlessly. So thank you, Jamie and team.

I'm really happy to have here with me Pascal Desroches, CFO, AT&T. Pascal, great to have you, and thanks for doing this. But before we get started, I think you have to go through the safe harbor statements.

Sure thing. Good morning, Kannan and it's a pleasure to be with you. Before I begin, I want to call your attention to our safe harbor statement, which says some of my comments may be forward-looking and, therefore, subject to risks and uncertainties, and results may differ materially. Also, we're in the quiet period for the FCC Spectrum Auction 113 and during this period, I'm unable to comment at all about the upcoming auction.

So with that, Kannan, we can get started.

So maybe we could start with Mobility, Pascal, and just the overall operating environment across the wireless business and address some of the questions that everybody has top of mind. It seems like volumes have been a big priority over the last few years. And at present, pricing based on your guidance as well as what others like Verizon have said, it seems there is this debate about whether this is a race to the bottom, are we in a new normal, especially if volumes don't grow. So could you talk a little bit about the ARPU trajectory from here and how you could maintain your service revenue growth trajectory in case ARPU was to remain in the present trend line for some time?

Sure thing, Kannan, I think what's really helpful to keep in mind is 2025 was a competitive environment, right? And you look at 2025, we grew wireless service revenues a touch over 3%. We grew our broadband revenues mid-teens, and our ARPU was up modestly. And I think it's a reflection of the -- candidly, how we have been going to market and what you could expect from us as you look ahead. We are in a unique position in that. We are significantly expanding our fiber and fixed wireless footprint.

We were the first to really highlight the fact that we're going to -- customers want to buy on a converged basis. And we have been driving convergence for some time, and our opportunities for convergence are going to go up significantly. Last year, we ended with 32 million fiber subscribers. As we sit here today, we are above 36 million, having closed the Lumen acquisition, and we expect to end this year at over 40 million fiber locations passed. Those locations, coupled with an expansion of our opportunities for fixed wireless, give us an opportunity to drive convergence.

Why is it so important to us? We have found that where we have both fiber and wireless, we are #1 in brand love among consumers and small businesses. We are #1 or 2 among medium and medium-sized businesses and enterprises. So it's -- our customers love the products when we're able to solve them together and our opportunity to deliver those products together is growing. And what we are able to do when we have them together is you have customers who typically buy more from us, higher price points. They stay with us longer and allow us to achieve much higher lifetime value.

So the place that we have been running, they're going to be available to us on a much broader basis as you look ahead. And I feel really good about where we are. And I think 2025's performance is a good reflection of what we think we're going to be able to do as you look ahead.

Got it. And from an ARPU perspective, just continuing on that thread for a bit. But when we think about your change in focus over the last couple of quarters, it seems like the origination cohorts have changed a little bit in terms of where you are focused, what changed from a targeting approach -- what changed for the targeting approach to change towards some of the lower-priced cohorts?

Sure thing. Here's which -- when you're running a subscription base, the size that we are, you have to have a pretty broad offering. Remember, we start from a place where we have the highest wireless ARPU. And in order to grow our service revenue, which is really where we are -- what our goal has been and will continue to be, you have to broaden out who you appeal to. That doesn't mean you're not able to extract more value from other portions of your overall subscriber base. And we've been doing that for some time. Last year, you saw a significant effort to really try to drive growth among value customers and also converged customers typically come with a service -- with a bundled discount, but over time, we're going to be able to drive more value from those customers. And I think it's really important that we differentiate ARPU from pricing. It's possible that our ARPU doesn't grow, but we're still able to drive pricing in parts of our base, and that's what we've been doing, and that's what I would expect us to be able to do as we look ahead.

Got it. Actually, before I ask the next question, I forgot to mention at the start that in case the audience has questions, there's a chat box in front of you, feel free to type it in and I'll read it out towards the end. And on the Mobility business, Pascal, when we think about churn, I mean, that's also been a little elevated. And you've mentioned a larger-than-normal proportion of contract roll-offs not being a factor anymore. And so is this all because of competition? And do you expect 2026 to be different as you go through the rest of the year in terms of churn or does it mean revert to some extent?

Yes. When I think back to 2025, there were a few factors at play. I think, one, for us, you had a bigger cohort that was coming off contracts. Two, I think immigration clearly had an impact in terms of the number of new subscribers available in the ecosystem. Three, those had an impact, not only at the federal level, but many state and local governments had those-like efforts and other institutions like colleges and university. All those things were at play in 2025.

Our planning assumption as we came into 2026 was to assume that many of those still exist. We're not going to experience a contract roll off that we did last year. But Kannan, the way I think about it is given our unique position and our driving convergence, yes, we are planning for a higher level of churn in 2026. But over time, as we drive more and more convergence in our base, it's very clear that converged customers churn less. So over time, we would expect churn to come down as more and more of our base is converged. And it's one that I think currently, we are planning for that not to be the case in 2026. But over time, it's just a matter of time as we drive more convergence.

Got it. And so pulling on that thread for a bit, more on the fiber side, you recently closed on Lumen. How should we think about the timing of the integration process? And how quickly can you ramp the pace of build and scale this business? So when should we start to see these opportunities show up?

Yes. We are quite excited about the Lumen opportunity. We closed in early February. And as a reminder, the Lumen business came with over 4 million fiber locations passed. Importantly, those locations passed are only 25% penetrated. And so we think we have a huge opportunity to ramp up penetration. Also, the convergence in those locations is less than 20%. As a point of comparison, in our own footprint, convergence is over 40%. So we think we have a huge opportunity to capitalize on that asset and to really improve penetration and drive additional convergence.

It's going to take some time. Through the good work of our legal team, we were able to close this candidly a little faster than we even thought. And so right now, the work that is being done is build, adding to the distribution in the area to drive more penetration, also adding to things like field tech to ensure that we're able to meet with the higher volumes we expect. And all that work is underway, and I would expect, as we make all the way through the year, we will be able to get through to a normal operating cadence that we do -- we see in our own footprint. And look, it's early days, but I feel really good. The reception about our brand in that new footprint has been really positive, and we think that will only grow as we add more and more marketing muscle behind it.

As it relates to the build, again, it's similar to distribution and penetration that I just talked about. It's going to take a little bit of time. Lumen has been building less than 0.5 million in each in its footprint. We expect to ramp that up significantly. Just like we've talked about in our own footprint to do that, it just takes some time. You have to add more resources and the build engine has to scale. But we know how to do this. We really do, and it's only a matter of time, and we have every confidence that we're going to be able to do it. And the AT&T brand will be really accepted well there, and it's going to be a great acquisition for us.

When you think about the other aspects of the deal, I mean, you've also mentioned an equity partner potentially as a source of capital in this. I mean what's the timing around that? And then as we go forward, will Lumen be broken out in terms of its metrics in terms of net adds, subs penetration so that we can see the underlying performance?

Sure thing. With regard to an equity partner, when we announced the deal, we said it would take us 6 to 9 months to close on an equity partner. We're in that process right now, and I expect us to be in a position to close some time in the second half of the year on that. Remember, it has to -- similar to the acquisition itself, the equity partner has to go through -- the acquisition of an equity partner has to go through a regulatory review process. That's why it takes that long, but we have pretty good line of sight to that process. As it relates to disclosures, rest assured, we're going to give you visibility in terms of how the asset is performing relative to our expectations.

Got it. And I guess just broadly around this investment theme, John has mentioned that you have capacity on your balance sheet for other strategic options. Do you see future asset acquisitions as an opportunity, especially given that you also have a deleveraging goal? And then more broadly, are there other structures possible? I mean Lumen obviously is one alternative structure, you have GigaFiber and so on. As you think about the underlying asset within your balance sheet, which is pretty big now, are there other structures possible even for that asset base?

Here is the good news about where we are today. We don't need any other asset to execute on our strategy. With the acquisition of the EchoStar spectrum and the Lumen assets, we have clear line of sight to get to over 60 million fiber locations. We have the largest wireless network that we are in the midst of modernizing, and we expect that process to be largely completed as you get through the next couple of years. So -- and it will be -- and we'll have a really deep spectrum portfolio. So we feel really good about where we are. So there's not a need to do anything. But as you would expect, it's our responsibility whenever anything comes to market to evaluate it to see whether we have an opportunity to generate returns for our owners. But right now, what is exciting is there's -- we don't have to do anything. We have a lot of running room ahead of us without having to do anything inorganically.

Got it. And on the fiber side, volume growth is obviously a huge focus for everyone, and you have the goal of 40 million passings this year as well. But cable is also trying to fight harder now with back book repricing and network upgrades and so on. So when you think about the fiber market more broadly, what's the competitive playbook or your go-to-market strategy? And then in terms of a growth cadence, I mean, should we expect the push for volumes to lead to an acceleration, either on the volume side or the revenue growth side. So if you can just talk about broadly the strategic advantages and the path from here, that would be useful.

Yes, I think it's worth underscoring the comments I made at the outset. We're at a point right now where our opportunities for incremental fiber subscribers is growing. With the closing of Lumen, we are above 36 million locations passed. This year, we are stepping up our organic build, and we expect to end 2026 at of a 4 million bill pace annually in our own footprint. We're ramping the Lumen build engine and expect that to be ultimately at 1 million locations. So in 2027 and beyond, we expect to be adding 5 million fiber locations each year. And this year, we expect that number to be over 8 million. And so that gives you a sense for how our opportunity set is growing.

And where we are building, we are building in a location that we haven't been before. And we're bringing the AT&T brand. We're bringing the ability to converge. In that instance, cable is the one playing defense, we're playing offense. We're coming in with a better product. We're in a position to offer it at a better price point, and we're able to converge it with wireless all on our own networks, not having to rent somebody else's network. And as I said at the outset, when we have those 2 products together, we are #1 in consumer brand love and NPS. So we feel really good about our position. And I think the question should be, what is cable going to do about our plans to continuing to expand.

Got it. And then on fixed wireless, you have been accelerating quite a bit over the last few years. I mean, the industry as a whole has been accelerating quite a bit. Now you have a pretty substantial spectrum portfolio, but we saw a sequential decline in Q4 for the first time in your numbers. So how should we think about the long-term trajectory now with your more expensive spectrum portfolio? And what does the growth opportunity here to look like?

Sure thing. I think just taking a step back, one of the things that we've said we've been doing, and I think it's really worth emphasizing is we've been modernizing our wireless network. That means we didn't literally taking every single tower and putting new radio access technology in it. And we've been trying to sequence that process and the rollout of fixed wireless in those territories. That process is still mid-flight. So we haven't even -- we haven't completed the modernization. And as we complete it, more and more opportunities for fixed wireless open up. That's one. Two, as you mentioned, we've got through the EchoStar acquisition, pretty attractive spectrum holdings. Those 2 things are going to help us expand our opportunity set over the next several years.

With regard to the fourth quarter, I think the fourth quarter, typically, the focus is device offers and other holiday sales. I wouldn't read too much into it. Fixed wireless as a product because it's not available nationwide, we haven't really put the AT&T marketing and distribution muscle behind it. So we have every confidence once we do that, we're going to be able to drive really attractive returns.

Got it. And you've spent about $30-ish billion on EchoStar and Lumen assets, but you haven't shown much accretion benefits in your guidance as you go through your guidance period into 2028. So could you maybe expand on why it takes so long for these acquisitions to contribute to EBITDA?

Sure thing. With the Lumen assets, right, let's take those first, they come with a revenue base, call it, about $900 million. In order to grow that into a drive deeper penetration, we're going to make pretty substantial investments in driving our distribution and service capabilities in that footprint. So largely, we would expect that to be -- it won't have a material impact in year to EBITDA. It will have slightly dilutive impact to interest because we are -- to EPS because we are paying interest on the debt.

As it relates to EchoStar, it's a very similar story. As I mentioned, we are in the midst of modernizing all of our towers. And what that's going to result in is over time, we expect to complete that modernization by -- largely by the end of 2027. What that will do is it will allow us to fully deploy that spectrum.

As you can tell from my comments, both whether it's the Lumen assets or the EchoStar, there's a ramping period and an investment period that we are going to undertake over the next couple of years. And we expect that to be largely completed by the time we exit 2027. That's why the accretion is expected to really show up in 2028 in earnest.

What I think is impressive is the fact that we are able to absorb these assets, not change the guides we previously had outstanding. We're still able to deliver that, which speaks to the strength of our underlying business. And these assets will produce really attractive long-term returns for our shareholders. So I feel really good about the pace at which we are executing on this. And I think the returns on this will be really attractive for our shareholders.

Got it. And during earnings, you also gave us some color on free cash flow and EBITDA for the upcoming quarter. And that was a little softer, largely on account of capital investments and cash interest and so on. Could you help us understand how the cadence for free cash flow plays out the rest of the year? How should we think about any kind of seasonality or any other factors that impact future quarters?

In terms of quarterly cadence, I think the cadence should be largely consistent with what you've seen in the past. The first half of the year, in particular Q1, there are a couple of things that impacted from a seasonality, holiday sales and the devices that are paid for in the first quarter is always a bit of a headwind to Q1 free cash flow.

The annual incentive comp is also paid in Q1. This year, in particular, we are ramping up integration of Lumen. So those are expenses that we didn't have last year. We're also stepping up our capital spending from '22 to between '23 and '24. That's expected to be a headwind. As we make our way through the year, some of those items no longer persist or those comps ease. So you would -- you should expect free cash flow to continue to grow as you make your way sequentially.

As it relates to the 3-year plan, this year, we expect free cash flow to grow largely as a result of EBITDA growth, lower pension contributions. And last year, we had some nonrecurring working capital investments, including litigation expenses and wholesale access advances that are not expected to recur. That's going to be offset by higher capital. As you make your way through the next couple of years, you should expect free cash flow growth to be largely driven by EBITDA growth.

Got it. I guess the other variable is the cost transformation project. And you've talked about $4 billion in new cost savings between '26 to '28. So could you talk about how this relates to the prior $3 billion goal? I mean is this incremental? Are you accelerating the time line? Is there anything new? What are the new components that you're including in this?

I think we've done a really nice job the last several years of continuing to transform our cost base. You look at last year, at the end of '24, we gave a 3-year guidance that said we were going to reduce -- we were going to save over $3 billion. Last year, we saved over $1 billion and it's in a variety of areas, third-party costs, third-party vendors, software, force, access. And if you look at our trending schedules that we have on our website, those will show you when you exclude equipment costs and other growth-related expenses. We -- our cash operating expenses were down last year. And I would expect that trend to continue. We have done a great job on cost. We're reinvesting a lot of that -- those savings back into growing our customer base and because we think we have a huge opportunity to do that, but the team has done a great job, and I would expect that to continue over the next several years. The $4 billion really is going to capture '26 through '28. The prior guidance captured '25 through '27.

Got it. And in terms of decommissioning, you've obviously talked about this being an opportunity in the coming years and that you -- but the other part -- other side of this is you expect legacy service revenues to decline by over 20% in 2026 and for it to be immaterial by '29. But EBITDA is expected to turn negative in '27, which means that your revenues are declining at a faster rate than the cost opportunities. So how should we think about the cadence of cost savings from this front?

Yes. I think if you look back the last couple of years, our legacy revenues have been declining faster than our cost, and that's what's been impressive about our organic performance the last couple of years. And with each year that passes, the absolute drag on legacy should diminish. And you saw last year, we took out about $1 billion of the costs associated with the legacy business. And I would expect that to continue as you make your way through the next several years. I have every confidence that we can manage that process through cost reductions and continued accelerated growth in advanced connectivity.

Got it. And we just have a couple of minutes left. So anybody in the audience, if you have questions, please type it into the chat box. But Pascal, maybe on the decommissioning side, another question here is, obviously, there's a cost and revenue side of it, but there's also an asset unlock opportunity here. You have a lot of real estate potentially in this business. You also have -- copper itself is quite valuable in today's market, and there's a lot of it in the plan. So when you think about this opportunity, when should we start seeing some of these -- the asset opportunities start to show up? I think some of it has already happened, but it would be great to understand how this plays out in the coming years.

Yes. Look, none of the guidance we've provided you includes any monetization of real estate or monetization of copper. And I think the opportunities there are pretty attractive. As we -- I think it's important to keep in mind, it was with the Carr FCC that we were able to really start to gain some exit velocity on decommissioning process. We now have approval from the FCC to stop inwards new subscribers onto legacy. That's a big deal for us.

We expect by the end of 2026 to be able to stop offering -- not only stop offering but to be able to get out of 30% of our wireline footprint. That's a big deal. As we get out of more and more of that footprint, that's when you should start to see some of these monetization opportunities realize themselves. And so we are in really good shape, and I would expect that to only grow as we make our way further into the decommissioning process. And I think with the regulatory environment, there is a tailwind at our back that we didn't have for a long time.

Got it. All right. On that note, Pascal, we're out of time. This was great. Thanks for joining us.

Thank you. Thank you for having me.

Absolutely. Yes, we'll see you next time.

Take care.

Bye.

Good morning, and welcome to AT&T's Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference call over to our host, Brett Feldman, Treasurer and Head of Investor Relations. Please go ahead.

Thank you, and good morning. Welcome to our fourth quarter call. I am Brett Feldman, Treasurer and Head of Investor Relations for AT&T. Joining me on the call today are John Stankey, our Chairman and CEO; and Pascal Desroches, our CFO.

Before we begin, I need to call your attention to our safe harbor statement. It says that some of our comments today may be forward-looking. As such, they are subject to risks and uncertainties described in AT&T's SEC filings. Results may differ materially. Additional information as well as our earnings materials are available on the Investor Relations website.

With that, I'll turn things over to John Stankey. John?

Thanks, Brett, and Happy New Year to everybody. I appreciate you joining us today. As you can see in our earnings materials, we have a lot to cover. So I'm going to quickly summarize a few highlights from our results and then spend most of my time discussing how our investments in differentiated position support our long-term outlook for improved growth and significant capital returns. After that, Pascal will provide a little more color on our fourth quarter performance, planned changes to our segment reporting next quarter and key drivers of our financial guidance through 2028. So our prepared comments are probably going to run a little bit longer than usual, but we'll allow a little extra time to take your questions.

During our Analyst and Investor Day at the end of 2024, we outlined our path to become the best advanced connectivity provider in America, and I believe our team executed well against this strategy in 2025. We met or exceeded all of our consolidated full year financial guidance, driven by another solid year of 5G and fiber subscriber growth. We reported over 1.5 million postpaid phone net adds for the fifth consecutive year and over 1 million AT&T Fiber net adds for the eighth consecutive year. We also accelerated the growth of AT&T Internet Air with 875,000 net adds, which more than doubled our customer base from where we began the year. The result of this operating momentum was the best year for consumer broadband subscriber growth in a decade. This strong growth is a result of over 5 years of executing a sustainable investment-led business model that centers on providing customers with all of their advanced connectivity needs from one trusted provider.

We also made progress on many of our capital allocation commitments in 2025. During the first half of the year, we achieved our target of net debt to adjusted EBITDA in the 2.5x range and commenced a share repurchase program. Overall, we returned over $12 billion to our shareholders through dividends and buybacks, which was more than a 50% increase from 2024.

Our improved financial flexibility and confidence in our investment thesis also positioned us to make opportunistic strategic investments that benefit our customers and ultimately, our shareholders. This includes our agreements to acquire spectrum licenses from EchoStar and fiber assets from Lumen, and we continue to expect both these transactions to close early this year. These transactions represent key building blocks that significantly expand the total addressable market for our advanced connectivity services in the years ahead.

Our investments in 5G and fiber, both organically and through our acquisitions, have positioned us to accelerate and scale the execution of our strategy in 2026. This includes the pace of our fiber expansion. Within our traditional operating region, we continue to expect that our annual pace of fiber construction will ramp from 3 million new locations in 2025 to a run rate of 4 million by the end of this year. We also expect to accelerate the availability of our fiber Internet services outside of these areas following our acquisition of Lumen's fiber assets and build capabilities. Including Gigapower and the fiber assets that we're acquiring from Lumen, we expect to reach over 40 million customer locations with our fiber services by the end of this year, up from 32 million at the end of 2025. Beyond 2026, we plan to expand our fiber reach by approximately 5 million locations annually through the end of this decade. We expect this to drive rapid expansion of our opportunity to sell fiber and 5G together to both households and businesses at unmatched scale.

The size and pace of our fiber deployment has positioned us to achieve these objectives with consistent execution and a high degree of capital efficiency. Over the past 2 years, in an inflationary environment, our average deployment cost per fiber passing has increased by approximately 2% annually, and we expect a similar trend over the next 3 years. While our Internet strategy will remain fiber first, our investments in wireless network modernization and spectrum materially expand our opportunity to offer our advanced Internet services over fixed wireless to the right customers in areas where we do not reach with fiber. Today, we're able to offer advanced Internet services over fiber or 5G to over 90 million customer locations across the country.

You can see the benefits of our scale and the improved growth of our advanced home Internet connections. During each of the past 2 quarters, we've added over 0.5 million combined AT&T fiber and Internet Air customers, which is nearly 30% growth in net adds versus the second half of 2024. Our convergence strategy is a winning play, both structurally and in the market. During the fourth quarter, we once again saw acceleration in the portion of AT&T fiber customers that also have our wireless services. Our fiber convergence rate climbed 200 basis points year-over-year to 42%, which is our fastest annual increase since we began tracking this metric. This is further evidence that where we have fiber, we win with fiber and 5G.

The impact of this success on our wireless business is material. We estimate that our share of postpaid phone subscribers is 10 percentage points higher in areas where we offer fiber and in areas where we don't. The power of our converged offers is evident across our business. In areas where we offer converged services, we rank #1 in brand love and #1 in Net Promoter Score with consumers and small businesses in both wireless and Internet connectivity. And we're #1 or #2 with medium-sized businesses and enterprises. Scores for our converged offers are not simply better than our stand-alone services, they're improving in most categories. So it's no surprise that our converged customers remain our most valuable, lower churn and a propensity to take higher Internet speeds, attach more wireless lines and stay with us longer.

Our acquisition of Lumen fiber assets, which we expect to close in short order, is a key example of how we positioned AT&T to materially improve share in the home Internet and wireless. We're acquiring a fiber network with only 25% customer penetration, well below AT&T fiber penetration of 40%. We estimate that fewer than 20% of these customers also subscribe to our wireless services. This is less than half of the convergence rate we've achieved in our current fiber footprint. We already have extensive wireless distribution in Lumen geographies. And soon, we'll have the network assets and deployment capabilities needed to offer customers a better choice for connectivity at home and on the go.

When we complete our work at the fiber location, we believe we're able to offer that customer access to the Internet on a lower marginal cost structure than any competitor with industry-leading product performance. We see this as a structural advantage that provides us with the flexibility to price and position our fiber services to reach customers in underserved categories and geographies, and ultimately achieve higher penetration. This includes value-conscious consumers who are currently being served by networks with lower capacity and higher marginal costs. Our ability to put the right offer in front of expanding customer opportunity positions AT&T to compete on performance, and value and not by leading with uneconomical device offers. As we accelerate the expansion of our fiber availability, this is how we expect to go to market, with offers and marketing strategies that yield attractive returns by driving deeper fiber penetration and growth in high-value converged customer relationships.

We're also making progress towards our goal of discontinuing legacy services in the large majority of our footprint by the end of 2029. We stopped the sales of all targeted legacy copper-based services in 85% of our wire centers. The FCC has approved our applications to discontinue copper-based services in more than 30% of our wire centers by the end of 2026. We appreciate the FCC and Chairman Carr's continued recognition, the importance of modernizing communications infrastructure, and remain committed to supporting our customers every step of the way.

The transformation of our network and support infrastructure is also driving the transformation of our cost structure as we benefit from open technologies, simplify our business processes and deliver a better customer experience. Last year, we achieved over $1 billion of cost savings, and we plan to accelerate efficiency gains across the company by leveraging AI, moving more customer transactions to digital and achieving greater operating leverage as we grow our customer base.

We've been investing at the top of our industry for years, and we expect this to continue based on the capital investment outlook we provided through 2028. This outlook anticipates that our major capital projects will be substantially completed by the end of 2030 or sooner. As we complete these investments, we expect our capital intensity to decline from a high-teens percent of revenue to the mid-teens, driving higher durable long-term cash flow. But our shareholders will see the benefit much sooner. We believe the nature of our sustained investments and execution against the priorities I just outlined position us to drive improved growth now. That's exactly what's reflected in our long-term outlook.

Over the next 3 years, we expect to drive accelerated growth in adjusted EBITDA, double-digit adjusted EPS growth and strong free cash flow. We also expect to return $45 billion plus to our shareholders over the next 3 years through our attractive dividend and consistent pace of share repurchases. This represents nearly 30% of our market cap and over 75% of our expected free cash flow. Over time, we expect that our improved growth, declining capital intensity, and higher free cash flow will provide us with even greater flexibility to support enhanced shareholder returns.

Over the past 5 years, we've evolved how we operate our business to be investment led, customer-centric and focused on being the best advanced connectivity company in America. This has changed how we talk about our company, and I think it reflects how we see industry assets reordering to compete with our success. So beginning with our first quarter results, we plan to adopt new segment reporting that aligns with this reality, the ongoing transformation of our company through the end of this decade. Pascal will walk you through the details of our planned new segment reporting and long-term guidance in just a moment. At a high level, we'll begin reporting the growth in our domestic wireless and fiber-based businesses, which we refer to as advanced connectivity, separate from the results of our legacy operations. By separating the performance of our advanced connectivity business from our declining legacy segment, we believe investors will have greater transparency into the returns we're generating on our growth investments in 5G and fiber.

I'd like to close by reiterating a point that I made last quarter, which is that this is a great time to be in our industry. In my career, I've never seen federal policy this supportive of market-based investment in advanced networks. This welcome policy stance has been adopted at the front end of an AI revolution that we expect to increase the need for dense fiber networks and more symmetrical connectivity into and out of homes, businesses and devices. We operate in a competitive marketplace. This is not new, and neither are the keys to success, which you're investing in best-in-class technologies at scale in order to provide customers with connectivity that they can depend on at a good value. This is a winning play. And by running it well, I'm confident that we'll lead our industry in advanced connectivity service revenue and adjusted EBITDA by the end of this decade.

With that, I'll turn it over to Pascal. Pascal?

Thanks, John. We had a strong finish in the year and met or exceeded all of our 2025 financial guides. In my view, one of the key takeaways from our fourth quarter performance is that it demonstrates our continued success at driving profitable growth even in a competitive operating environment.

We achieved over 4% growth in consolidated adjusted EBITDA during the fourth quarter, while expanding adjusted EBITDA margins by 20 basis points. This reflects the margin gains we achieved from growth in 5G, fiber and fixed wireless service revenues, driven by gains in convergence relationships while taking cost out across the company. We are also winning with the right customers, with the right offers, and we believe that our investment-led convergence strategy positions us to sustain profitable growth over the next several years.

Before I cover our long-term outlook, I want to highlight a few items from our fourth quarter and full year results. Adjusted EPS grew by over 20% in the fourth quarter to $0.52 and nearly 9% for the year to $2.12. This was above our 2025 guidance for adjusted EPS at the higher end of the $1.97 to $2.07 range, with the upside primarily driven by a lower-than-expected effective tax rate and solid growth in adjusted EBITDA. Full year free cash flow was $16.6 billion, which grew by over $1 billion and came in towards the higher end of our 2025 guidance in the low to mid $16 billion range. This includes cash taxes of $1.1 billion, excluding DIRECTV, which were below the low end of the expected range by approximately $400 million.

However, this cash tax benefit was offset by a decision to accelerate our planned pension funding by a similar amount. So in the quarter, the combination of lower cash taxes and higher pension contributions were effectively neutral to free cash flow. We made a $1.15 billion cash contribution to our employee pension plan in 2025 and expect to contribute an additional $350 million this year. As a result, we remain on track to contribute $1.5 billion of cash tax savings from provisions in the One Big Beautiful Bill Act to our employee pension plan by the end of 2026. Looking ahead, we expect annual cash taxes of approximately $1 billion to $1.5 billion through 2028. Our cash tax outlook primarily reflects further assessment of expected savings due to this legislation. Our goal is to put these savings to work over the next 3 years to fund working capital and growth initiatives.

As John discussed, we are planning to adopt new segment reporting beginning with our first quarter 2026 results. Our largest segment going forward will be called Advanced Connectivity, which primarily represents results for our domestic 5G and fiber services. In 2025, Advanced Connectivity drove about 90% of our revenues and over 95% of our adjusted EBITDA on a recast basis, and substantially all of our organic and inorganic investments to support growth in Advanced Connectivity. Our legacy segment represents results from our domestic services provided over our copper-based network. We have a goal of discontinuing a large majority of copper-based services by the end of 2029, and are managing our legacy segment to achieve this outcome.

As John noted, the separation of our Advanced Connectivity results from our domestic legacy operations should provide investors with a better framework for assessing the returns on our investments in 5G and fiber. For example, over the past 2 years, our consolidated adjusted EBITDA grew by over 3% annually, while EBITDA from Advanced Connectivity grew considerably faster at an average of more than 6% annually. We also expanded EBITDA margin in this segment each in the past 2 years, which highlights how we are achieving profitable growth across 5G and fiber services to both consumers and businesses, even in periods of increased competitive activity and while making significant investments to scale our growing fiber and fixed wireless footprint. We've posted materials to our Investor Relations website that recasts our results over the past 3 years under our planned new segments. We also intend to provide results for our Mobility business as a supplemental disclosure for a transitional period.

Now let's talk about where our business is headed. In our earnings release, we provided long-term guidance through 2028 that anticipates improved growth in consolidated financial performance, driven by investments in our Advanced Connectivity segment. Here's how we expect to achieve that growth across our primary service categories. We expect total wireless service revenue growth in the 2% to 3% range annually over the next 3 years. The primary driver of this outlook is growth in consumer and business customer relationships as we continue to gain wireless subscriber share through convergence in areas where we offer fiber and fixed wireless Internet services. Our outlook assumes a relatively stable trend in postpaid phone ARPU as our consistent disciplined approach to pricing is balanced by gains in underpenetrated categories such as value-focused customers as well as growth in converged customer relationships who enjoy a service discount that typically more than offset over time through lower churn and the purchase of additional services.

We also continue to plan for an operating environment with elevated levels of new and existing customers that are eligible for device offers. While this has no impact on our service pricing, it does impact the calculation of ARPU as we amortize a portion of our device offers through our wireless service revenue. This was approximately a 90 basis points headwind to our reported postpaid phone ARPU growth in 2025, and our outlook anticipates a similar headwind this year.

We expect our advanced home Internet service revenues to grow organically by 20% plus annually through 2028, which is consistent with the annual growth we have achieved in these revenues over the past 2 years. The primary driver of this outlook is growth in customer relationships as we expand the reach of AT&T Fiber and the availability of Internet Air as we complete our 5G network modernization and continue to deploy spectrum from our EchoStar transaction.

Our long-term outlook assumes a lower contribution from ARPU growth than we have seen over the past few years. Similar to our approach in wireless, we intend to maintain a consistent approach to home Internet pricing balanced by gains in underpenetrated customer categories at different price points as we materially expand the availability of home Internet services. Our outlook also factors in the portion of our convergence discount that we allocate to Internet services as we grow our converged customer base. We continue to expect that we will close our acquisition of fiber assets from Lumen during the first quarter, which will add approximately $900 million of annualized fiber revenues. So we expect that our reported growth in advanced home Internet revenues in 2026 will exceed 30%.

Our business customers continue to utilize a range of fixed connectivity services at different stages in their life cycles. Over the past few years, growth in our business fiber and advanced connectivity services, which includes fixed wireless, has been more than offset by declines in business transitional and other services, which includes mature product categories such as VPN. Our outlook anticipate that service revenues from business customers across wireless, fiber, and fixed wireless will accelerate over the next several years and more than offset expected continued declines in transitional and other services. Altogether, we expect that total business service revenues within the Advanced Connectivity segment will grow at a low single-digit CAGR through 2028.

We also intend to maintain our cost transformation initiatives across the business. We achieved over $1 billion of cost savings in 2025 and expect to achieve an additional $4 billion annual cost savings by the end of 2028. We expect these savings will be driven by the operating efficiencies John discussed earlier, along with reductions in legacy operations and support costs. Our long-term outlook does not anticipate any material contribution to EBITDA growth from our pending acquisitions until 2028, which is also when we expect these investments to become accretive to adjusted EPS.

Putting this all together, we expect to achieve growth in consolidated adjusted EBITDA in the 3% to 4% range in 2026, improving to 5% or better in 2028. We expect adjusted EPS to be in the $2.25 to $2.35 range in 2026 with a double-digit 3-year CAGR through 2028. For 2026, our outlook for adjusted EPS includes approximately $0.05 of dilution from stand-up costs and higher interest expense related to our transactions with Lumen and EchoStar and an effective tax rate in the 22% range. We also expect depreciation and amortization expense of about $20 billion annually through 2028 as incremental depreciation from our growth investments is offset by the roll-off of depreciated assets that have reached the end of their useful lives. For 2026, we expect free cash flows of $18 billion plus, reflecting primarily growth in adjusted EBITDA, lower pension contributions and lower legal settlements, partially offset by higher capital investments and cash interest. We expect free cash flows to grow by $1 billion plus in 2027 and approximately $2 billion in 2028, driven primarily by growth in adjusted EBITDA.

As John discussed, we have plans to accelerate and scale the execution of our strategy this year, and we expect some upfront investments to drive this outcome will be reflected in our first quarter results. This includes incremental spending as we prepare to integrate and scale the retail operations we've agreed to acquire from Lumen and investments to drive acceleration in the pace of our fiber deployment. We are also lapping approximately $100 million of onetime benefits we disclosed in the first quarter of last year. So in the first quarter of this year, we expect adjusted EBITDA growth to be below the run rate we expect for the full year, with free cash flows in the $2 billion to $2.5 billion range.

Before we take your questions, I want to cover our outlook for capital allocation and capital returns. We ended 2025 with net debt to adjusted EBITDA of 2.53x and cash and cash equivalents of $18.2 billion. During the fourth quarter, we closed on a $17.5 billion delayed draw term facility. Based on our strong balance sheet, ability to draw on this facility and our outlook for $18 billion plus of free cash flow in 2026, we are in excellent liquidity position as we plan to close our acquisition of assets from Lumen and EchoStar early this year.

Immediately following the closing of these transactions, we expect our net debt to adjusted EBITDA to increase to approximately 3.2x and then to decline to approximately 3x by year-end as we grow adjusted EBITDA and free cash flow. We also expect to receive cash from an equity partner that will also co-invest in the acquired Lumen fiber assets. We continue to expect that our net leverage will return to a level consistent with our target in the 2.5x range within approximately 3 years following the closing of these acquisitions. And we continue to expect that we can achieve our deleveraging objectives by maintaining a consistent approach to capital returns.

In 2025, we returned over $12 billion to shareholders, including over $8 billion in dividends and over $4 billion in share repurchases. As we outlined in our earnings release, we expect to return $45 billion plus to shareholders during 2026 to 2028. Under this capital return plan, we expect to maintain our current common stock dividend with a consistent pace of share repurchases through 2028, including approximately $8 billion of buybacks in 2026. Our Board has authorized an additional $10 billion of share repurchases after we complete buybacks under the current authorization. This means we have the necessary Board approvals to execute our planned share repurchases through approximately the end of next year.

To wrap up, we executed well in 2025 and we're confident that we're positioned to drive improved growth and strong capital returns over the next 3 years. Thanks for listening to our extended presentation. Brett, we're now ready for the Q&A.

Thank you, Pascal. Operator, we are ready to take the first question.

[Operator Instructions]

And while you're assembling that, I want to point out to Jeff McElfresh, our Chief Operating Officer, is joining us for the Q&A portion of the call. Thanks, Rocco.

And our first question today comes from John Hodulik at UBS.

Two questions, if I could. First, on the fiber convergence rate, 42%, and increased by 200 basis points. John, where do you expect this level to get to over time, maybe over the course of the decade? And do you expect the sort of rate of penetration to continue to improve from here? And then a follow-up to that, do you think you can play catch-up in the Lumen territory and get to those numbers?

And then second, Consumer Wireline revenue growth looks like it slowed in the quarter. Could you just talk about some of the drivers of that slowdown? I think Pascal, you mentioned some of the discounting going on that side and just how you expect that to progress as we look through '26?

So first of all, I do expect the convergence rate to continue to improve. And we've, I think, shared that we have an objective when we were talking to you in our investor call -- on our investor conference last December that right now, we've got plans in place and we're going to drive that to 50% and feel very comfortable with that. I don't expect it to stop there. You've heard me say many times that I think we're in a structural realignment of the industry. And ultimately, this is going to be an industry of converged providers that operate assets that allow for consolidated services to businesses.

And if I think back, looking in the rearview mirror on history and you look at what bundle rates were when there were other compelling bundles in the market, we approach periods of time where 80% of consumers were bundling, and certainly I would expect that at some point in time, over the long haul, you might see something similar to that occur. Whether it's 75% or 80% or 70%, I don't know where it settles in, but our expectation is that you're going to continue to see improvement in that rate ratably over time.

And in fact, that's the realignment that we're dealing with here, which is as churn goes up on unbundled customers [indiscernible], we're dealing with that problem right now. Ultimately, the fix to that is to get to more consolidated customers that give us a better churn rate. And that, that realignment is what we're betting on in our financials moving forward. And simply put, if we finish this year at 32 -- finish 2025 at 32 million fiber passings and we're going to finish this year at 40 million, just do the math on it, and that's how we're basically driving our revenue growth and our share and controlling our service revenues and what we're doing moving forward.

In terms of our out of -- what I'll call the out of traditional out-of-region footprint, I'll throw Lumen into that right now. We have, traditionally, just like we did with Gigapower, have been more conservative in our business case expectations as to how we perform in those footprints. As I've shared with you previously, we started the Gigapower construct that way. And actually, we see ourselves in the early quarters of Gigapower performing very similarly what we do in region. And whether or not we can hold that dynamic all the way through the life cycle over 3 and 4 years remains to be seen, but I'm really optimistic right now that we've seen better performance than what we might have assumed as we kind of do our traditional financial modeling.

We expect Lumen to be derated a bit, in what I would call terminal penetration, when it's all said and done. But if it's not and we actually perform equal to what we do within our current footprint, that's going to be upside in terms of our business case and our financial modeling and how we think about our future projections that we shared with you in our guidance. So that one will play out over the course of the next couple of years. And I'm confident the team's demonstrated that they can be pretty fluid and creative in how they approach these things. And I'm sure we'll learn some new things and new tactics in how we operate in those markets and allow us to continue to get better.

On the Consumer Wireline side, we were -- I think part of it is if you kind of look at how we've ratably dealt with pricing over the year and try to be clear and, as I've said, look for opportunities where we can add value when we do price adjustments, so we manage the customer base effectively. That certainly has been one of the reasons that we've seen a little bit of a slowing on a comparative year-over-year basis. That doesn't mean that I think we're done with taking price opportunity. I think we're just being very careful and strategic when we do it in an intensely competitive market, and we'll continue to be that way.

Pascal in his comments clearly indicated to you, as we bundle more customers, we are making the decision at the front end to provide some better economics to customers to do that. We think that plays out effectively over time through the form of lower churn. But when you do that, you tend to slow some of your growth on ARPU at the front end as you're adding the second product into the household. Again, as I said on the call, I think last quarter, that's more of a feature, not a buck, and we're being pretty deliberate about it. And when you hear us being able to continue to improve margin structure, even though you're seeing some ARPU dynamics soften a bit, look, that's a good combination, and I'll take that, and I think we can continue to run the business that way given our opportunities for managing through the cost structure.

John, one other thing that I would add is when you think about just the cadence of the quarter, there were some pricing adjustments made probably in the November time frame that didn't have a full quarter effect that will have a full year effect going into 2026. And more importantly, we gave you our forward guide for our expectations of growth in advanced home internet. That's the combination of both our fiber and our fixed wireless products. We expect those to grow organically 20% plus, and that's all before the positive impact of the Lumen territories, which should bring it over 30%. So we feel really good about how we're performing there, and it is right in line with our strategy.

Our next question comes from Benjamin Swinburne at Morgan Stanley.

I guess 2 questions around your long-term outlook. One is whether you guys are saving any capacity for meaningful spectrum investments. There's a potential for a lot -- several auctions over the next couple of years under the current FCC. I know you guys obviously have the EchoStar transaction getting ready to close. But just any envelope for additional spectrum investments or just your view on any needs there would be helpful.

And then, I guess, similar kind of question, more near term, definitely getting more questions from investors about a foldable iPhone and what that might mean in terms of consumer demand and upgrade rates. Just curious if the '26 guidance incorporates any view at AT&T on sort of what that might mean for the business and the competitive environment?

Yes, Ben, let me maybe start and then I can have Jeff give you a little bit more color on the device. Yes, we have reserved capacity for other strategic options. My point of view on spectrum is -- I think I indicated this when we did the EchoStar transaction that by doing this transaction, I viewed it as preemptive and opportunistic for us, that allowed us to be a lot more strategic and judicious about what we do moving forward. And I still believe that's going to be the case.

My point of view right now is that the industry is lining up where there's particular spectrum bands that are most useful to particular players in the industry. And we should see a dynamic moving forward where it's less of a buffet rush with everybody moving for the exact same bands all at the same time. I think that, that could be good over time. And I think we can all pick our moments when it's appropriate to go visit the buffet. And that may not require us to be as aggressive all the time. And I also believe part of the reason that we're so bullish on fiber and why we're investing the way we are is we are getting to a point where networks are densifying and the technology is getting a lot better at price points and how we radiate more deeply in the networks. And we get dynamics of how we offload as we pick up more our combined customers. We have market share dynamics that play out.

One should conclude that given the depth of the networks that are out there today, when we're all hanging 300 megahertz off of the cell tower. This isn't the days where we're growing 10 megahertz at a time on these networks. We've put large swatches of capacity out there. We have a lot more flexibility in how we manage things. And that means that you maybe don't need to think it the same nationally about how you invest in spectrum assets as maybe you have done in the past, and that has a bit of an opportunity for you to think differently about returns in markets and investments as you move forward. But we'll be in a position to do what we need to do to sustain the business. You've heard me talk about how important the spectrum is to this company and our business model, and we pay a lot of attention to it and try to make sure we have the degrees of freedom.

On the foldable iPhone, I just offer a perspective and Jeff can maybe go into a little more color. There are foldable devices in the market today, and they are very capable devices, some really impressive ones. And if you look at the user base who is -- has a strong affinity for those manufacturers and you look at the conversion rate of those that have left nonfoldable devices to foldable, it's pretty predictable as to who sees a foldable device being a good form factor for them. And I think that's a good indicator that if you were to apply those same kind of acceptance factors and put it in and just say just because there's a different manufacturer making them is everybody suddenly going to be more in tune or desirous of a foldable device, the indications in the market would be that, that's not a broadly applicable form factor. It certainly has its place and there's a utility that it brings. But I don't think this is going to be the kind of thing where 80% of the base as they need that form factor. I have to move to it.

Jeff, do you have a point of view?

Not much to add to that, John, other than you should expect that AT&T will remain focused on the acquisition of quality customers. We're very disciplined in offering the right value proposition to the right customer segment. And then we're not anticipating any significant elevation, one way or another, as John just described.

Our next question comes from Peter Supino of Wolfe Research.

Two, if I may. The first -- both on broadband actually, first, regarding your comments on fiber ARPU. I think we all appreciated your point about mix and promotions and how those are accounted for in ARPU. At the same time, Comcast and Charter are behaving differently in terms of the way they price existing customer broadband rates. And so I'm wondering how you're thinking about the price of fiber for your existing subs, your retail rate outlook?

And then a question about FWA growth. Looking out 2 years, it looks like your DSL base will be gone if we just extrapolate the recent decline rates. And I wonder in that scenario, should we expect FWA sales to hold up? And if so, should we worry about a supply-demand problem in high-capacity broadband if that DSL demand goes away and 3 powerful carriers continue to try to grow DSL?

Peter, look, I've said it before, I think we're in a distinctly different place than cable. One is we currently sit under their pricing umbrella. We're not at their levels. So we have a lot more degrees of freedom in how we manage our ARPUs and our various offers in the market that they have. So it's one thing. I understand why they're having to make the changes they're making. They're priced higher and their product is inferior. And so they're the ones that's having to readjust to the market, not us. We've got the better product and we're priced lower. And that's why this is a problem for them.

And as a result of that, I think we've got all the actions we need. When you think about the fact that we have owner's economics on both our products, we can play with the value across and we don't have to run one product to [ 0 ] to make the other one worthwhile to somebody. I just think we're in a great place for us to be able to manage our value to the customer and what we bring out to them. And when you're doing it on the foundation of a better product, that's a good thing.

I made the point I made in my comments for a reason. How do we continue to win and grow and share. We continue to grow our footprint, 32 million fiber passings at the end of 2025, 40 million at the end of this year. That's a growth rate that is -- we've never had that. And it's going to be 5 million a year thereafter. And when we work on that base and you have a product that people love, they love it. It's #1. I said that for a reason. It's priced competitively in the market. It performs better. You put a great wireless product with it. You have all the tailwinds you need to be able to continue to do the right things in the market. And there's a structural advantage on how that technology works and performs as well as the cost of operating it once it's in service and what you do with it.

And then, yes, the DSL base is going to go away. That's by design and the plan. It probably can't happen fast enough. We're working really hard to try to make that done -- get that done in a graceful fashion. The fact that we have access to the EchoStar spectrum has helped us tremendously in managing a lot of those customers into the right place and allows us to preposition a bridge product in some cases before we have fiber deployed under this aggressive rate and pace that we're working through.

And I don't worry about a supplier demand problem. Market really isn't growing too much today, and it's pretty [ state ] given the lack of home movement. So it's a tough environment right now. It probably won't stay that way. At some point, I expect home switching to probably increase at some point, and that's going to be to our advantage when that happens because it will open up a whole bunch of choices and jump balls that don't occur today that we're going to win more than our fair share on.

And when I step back and think about the supply and demand, we win because we have a better product. And I'll take share as a result of that. And so no, I don't worry about it. We have -- if you've noticed, our conversion rate on our fiber customers have been dropping like rock. Most of our growth right now is in new accounts. So we know how to play in this market. We're giving you volume today, and we're going to continue to do it.

Jeff, you want to add anything?

No. You've nailed it.

Our next question today comes from Michael Rollins at Citi.

A couple of questions on wireless. So first, can you discuss the macro factors that you may be seeing that can influence postpaid phone growth for AT&T in 2026, whether it's population growth, including immigration, demographics, business and the prepaid to postpaid transfers?

And then second, how is AT&T responding to the promotional changes from your competitors to sustain your financial performance? And within this context, AT&T maintained the annual wireless service revenue growth guide of 2% to 3%. And as you look into that, I'm curious if there's different contributing factors with respect to price and volume relative to what you anticipated when you established the target during the Analyst Day.

Jeff, you want to pick that up? I want to take a sip of tea.

Yes, happy to. Thanks for the question, Mike. At a macro level, it's no surprise that the wireless industry itself is penetrated and very mature. And so you do see a lot of switching activity that's occurring between competitors. Are there macro factors that are slowing incremental new entrants into the traditional postpaid voice? Certainly, there is some aspect to that. But from our perspective, the plays that we've been running in this competitive environment have delivered not only growth in our margins, but overall growth in customers. And so we're able to withstand some of the competitive dynamics.

As we mentioned before, and John has alluded to earlier in his remarks, we still see incremental opportunity in underpenetrated segments for AT&T. And those segments are being served at a growing accelerated rate for us with the plays that we're running around convergence. We still don't have the share we aspire to have in some value-conscious price-sensitive segments, I think [ 55 plus ] 1 to 2 line accounts and as well in the small and medium business segment, both of which we're seeing some success, and interestingly enough, we're seeing success in those segments as a result of our go-to-market convergence strategy.

John kind of alluded to this a second ago, the actual number of accounts that we see that we're growing, it's not just adding wireless customers to existing fiber accounts, but we're actually pulling existing wireless counts adding fiber and the new accounts that we're establishing in the market are from many of these growth segments. So from that perspective, we plan for the competitive intensity to continue. It's not as though it's going to abate. And the playbook that we have proof points that we're winning in, we're going to continue to execute that.

John mentioned this expansion of growth opportunity. The funnel is going to grow incredibly here in 2026. A couple of points that he called out in his prepared remarks. We've got [ pen ] rates and fiber inside the Lumen footprint at 20 -- 20%, 25% and we've got attach rates of AT&T Mobility services in that base by our estimate, somewhere around 20%. So there's immediate opportunity for AT&T to continue to grow, to continue to provide value to customers with a superior set of products, and all of that is factored into the guidance that we've offered.

Our next question comes from Sebastiano Petti with JPMorgan.

I guess, Pascal, one quick clarification question. Does the year-end leverage target, does that assume some level of cash inflows from the Lumen JV and just, I guess, monetizing a portion of that with a network partner?

And then I guess second question for Jeff and or John, just helping us think about -- as I think about the shape of the fiber build [ taste ], John, you talked about going from 32 million to 40 million exiting the year, can you help us think about what does that mean from a seasonality perspective as we think about FWA and fiber over -- net additions over the course of the year? I mean, similar to prior years is 1.5. Look, the second half [indiscernible] higher than first half in terms of net additions there. And then I guess, what, if any, distribution changes should we be thinking about as it relates to fiber and FWA, whether it's may be training the stores, opening up distribution channels? Just help us maybe think about the shaping there as well.

Sebastiano, a couple of points I noted in my remarks. We have -- we expect to close on an equity partner later on this year, which will bring us some proceeds associated with the percentage of the assets that they acquire. And we also expect to grow our EBITDA during the course of the year, which should also help in our overall leverage target. So we feel really good about our ability to do both.

Sebastiano, I expect there's going to continue to be seasonality in our broadband dynamic. And I think that the consumer part of it, which is the bigger part, we'll probably always have that to some degree. And yes, there'll be better volumes in the second half of the year than the first half of the year. Third quarter will be better than fourth quarter.

And as I -- I think I tried to share all -- with all of you when I was at one of the conferences late in the fourth quarter that there would be some down seasonality in fixed wireless that would occur in the fourth quarter, but none of you listened in your estimate changes. But -- so I do think that's just going to be part of the dynamic that we're all going to work through. And that's perfectly okay.

Now offsetting some of that seasonality as we have footprint expansion. And so we have -- even though there's seasonality to it, when you have an opportunity to sell that increases, you're going to have some volume that comes in as a result of that. And that's going to be really hard for all of you to estimate this year because not only do you have footprint increases, but we have a ramping dynamic we're going to be working through.

We have closed the Lumen transaction in a record time or we will close it in a record time, I'm projecting. And as a result of that, that means we've had a more compressed time to be able to do the preplanning you would normally do at the day of close, to be able to operationally turn up those assets and move forward. And we have some things that we're going to have to continue to finish up and ramp and scale to get to be our best self.

We're going to execute on this asset in a way that we are normalizing products between the 2 operating companies. You're going to do all the things that you should do when you do a transaction like this, which is rationalize your information technology infrastructure, standardize positions on brands in the market, go to common ways of driving the supply chains and engineering and putting data into databases and all those things. And that's some hard and challenging stuff. We have all that planned out. In many cases, we're in pretty good shape. But I know that for the first quarter or 2, we're going to be on a learning curve on some of that stuff with people from a different company having to learn some new processes and new ways of doing things.

So that ramp dynamic on that footprint is going to take a little bit of time. And that will factor into clouding "seasonality" as you think about those things. You've got to ramp dynamics, you've got seasonality. You've got a larger footprint. You have offers that are going to be moved in the market, training that has to be done for individuals that are going to be distributing and selling those products. So I think it's going to be a little bit challenging for all of you to kind of just go back and look in the rearview mirror and come up with the dynamic around it, and we'll give you some updates. But you should expect we're going to be on probably a solid 2-quarter ramp here of getting ourselves up the learning curve and getting more effective.

And Jeff, why don't you make some comments on some of the distribution changes we have lined up?

And so our distribution assets that are in the Lumen footprint and territory are already there, and we've got a solid position just as we did with our Gigapower experiences in the markets out of footprint that we were building. And as you should expect that our product offers and our ability to service that base will be available in short order, akin to the commentary that John made.

I mean, the pace at which the team is moving to get this transaction closed is record setting. It's akin to the speed at which we lifted the initial tranche of the [ 3 4 5 ] EchoStar spectrum up on our wireless network. That, too, in terms of fixed wireless, we expect to sell more this year than we did last year. The ramping of that will occur nationwide as our AT&T Internet advertising and messaging to build top of funnel awareness hits the marketplace in full force, and you should expect that to continue to ramp as the year goes by.

At the end, we are focused on building a durable long-term sustainable build engine inside of the Lumen footprint just like we are in our organic footprint, and the distribution changes that we have to support activating that network in each of the footprints is a play that we know how to run. We don't anticipate many changes to our go-to-market distribution strategy from what's already proven to be a winning play.

Our next question comes from Michael Ng with Goldman Sachs.

I just have two. First, I was just wondering if you could talk a little bit more about the EBITDA growth inflection to 5% plus in 2028. What are the key drivers? Is it more on advanced EBITDA growth accelerating or the legacy declines improving? And then any thoughts on 2027 and just the linearity as we think about the next 3 years? And I just have a quick follow-up.

Sure thing, Michael. Here's the thing to think about that we are going through. This year, we're bringing in the Lumen assets. We're going to incur a pretty significant acquisition -- initial cost to integrate those assets and to build this -- and to add to the distribution behind them. We expect those to moderate as you look out the next 2, 3 years.

Plus, we've mentioned to you, we are -- those assets haven't been fully penetrated. And over time, more and more of those assets will become penetrated contributing to earnings growth. That, coupled with the fact that each year that goes by, you have less and less of a contribution or dilution from our legacy footprint. Those things in combination gives us great confidence we're going to be able to drive an acceleration of EBITDA growth as you work your way through each year of the plan.

Perfect. And -- yes, just on mobility service margins, really strong in the quarter. I think the fourth quarter was the first time this year it was up on a year-over-year basis, which seems positive just given all the concerns around competition. I was just wondering if there's anything you would call out from a cost perspective that may have been particularly impactful this quarter relative to the rest of 2025 and maybe some of the key cost initiatives as we go over time. You guys talked about AI and digital transactions, but just would love to hear about anything notable for the quarter and the next year.

Mike, look, across the board, we continue to do a really good job of managing all the costs that are not geared towards customer growth. This -- in 2025, we incurred a pretty significant step-up in customer acquisition costs along with advertising. And those -- if you strip those out and you look at the underlying business, it was pretty substantial cost savings. You can see some of those dynamics in our trending schedules, and it's across the board.

You look at where we -- what we are doing, whether it's in AI, shuttering legacy footprint and the underlying infrastructure, all those things are contributing. And we expect that to continue. In fact, we expect the next 3 years to say $4 billion -- more than $4 billion in cost, and it's a muscle we have built, and I feel really good about our ability to do so as you look ahead.

We promised we'd give you a little extra time because we went a little long on the prepared remarks. So operator, you can go ahead and take one more question here.

Absolutely. And our next question comes from Sam McHugh of BNP.

Two questions, if I can. First, on bad debt. I think it steps up a little bit in this quarter. I don't know if you could give us some color on what you're seeing amongst consumers at the moment?

And then secondly, the guidance and cost cutting and accelerated EBITDA growth. What are we thinking about in terms of cost reduction? Obviously, you've kind of stepped back from giving color on cost reductions. I don't know if you could talk about what you're seeing over the next few years and whether they just accelerate as we decommission copper through the outlook period?

Sam, a couple of things. On bad debt, what I would tell you is this. It's really -- we haven't seen any discernible changes in consumer payment patterns. The increase in bad debt is a function of the higher equipment sales that we have that come -- that often comes with long-term receivables and along with just higher service revenues. That's really what's driving the overall dynamics in bad debt.

And as it relates to our overall cost plan, as I mentioned in my commentary is we expect about over $4 billion over the next 3 years of cost savings. And I would tell you, it is across the board. Yes, legacy decommissioning will contribute pretty significantly to it. But other areas, we are garnering productivity gains through the use of digital, through the use of AI, and we expect that to continue. And it's a muscle we have built over the last several years and have a high degree of confidence we're going to be able to continue to execute on that.

Yes. I maybe add something to think about here, Sam, in terms of what we've been doing. We are investing at high levels, and I acknowledge that we're doing that. And we expect that we need to demonstrate returns and improvement as a result of those decisions to invest at a higher level. We talk a lot about what we're doing on the network side and how that's driving revenues and share and opportunity there. We haven't spent a lot of time.

We're investing at high levels in our software technology base in this business to improve our ability to face off against customers be more agile in the market, take advantage of some of the things that Pascal just talked about from a digital perspective that I think you're going to see a lot of movement on this year. But what's important to understand is we're investing at pretty high levels there. We're getting very large increases in our productivity for the software we're developing and writing right now.

So we haven't pulled back our investment because of the effectiveness or efficiency savings. We're getting more done and we intend to get more done because there's a lot of good opportunities to apply improvements in software and how we change our processes than what we've traditionally been able to fit through the funnel. And as a result of that increased capacity and improvements and effectiveness, we can see a lot more of these projects now start to drop through.

And so we did a nice job this year in managing our cost structure and business as an example, and I will tell you that, that's an artifact of us having been able to do some more work on software to improve our labor cost structure in that area than what we probably would have guessed we could have done 24 months ago. And so we kept investment levels up. We use that extra capacity to go do a few more things. We get benefits from cost on it. And I guess the good news is, and I think my team's tired of me hearing about it is, I keep turning over rocks and seeing more opportunities to go after things, and we go after things. And I'm not worried about running out of rocks to turn over. So I think it's just a matter of us executing around it.

Operator, we'll take one last question, and then we'll turn it back to John for a few final thoughts.

Absolutely. And our final question today comes from Michael Funk of Bank of America.

Yes. Great. John, a quick one for you and a quick follow-up for Pascal, if I could. So looking at your national advertising right now, the converged offering, very little differentiation provided between fiber and fixed wireless. So just wondering how you're thinking about maybe we're rifle shot targeting FWA for the remainder of 2026 and your view on the market opportunity there.

Mike, we didn't just fit you in. We had a plan to make sure you could be in. So it's good to hear from you.

The -- look, we spent a lot of time paying attention to where customers' understanding are of our products and our perceptions, and that's discrete for consumer and business. And we believe, and we've done a lot of AV testing on this and we know this, that actually we have more to gain right now from a broader, I'll call it, a generic Internet message than at the national level, a targeted message. We want to build awareness that AT&T is a capable national Internet provider across consumers and business broadly, and we have a lot of upside in the customer base to do that and our tracking of our advertising, our approach on that would suggest we've made some really good calls around that, and it's helping.

What we then do is we come underneath that with, as you refer to with the targeted rifle shot. There are other ways to go put the targeted rifle shot in front of the right customer in the right place. And this is fundamental and core to our strategy, which is right product, right customer, right place. And you can use digital means and you can use information on our customer base and third-party information to go and put the right offer in front of the right customer that matches up to the technology that we have in the particular geography that then comes in and builds and extends on that national message that you're referring to.

So we track a lot of things, as you might guess, and we're looking at -- do people have an awareness of AT&T as a leading fiber provider? Where are we -- where does it not match up against where we got inventory to go sell? You can do things on that given it's a very geographic and regionally centric business to do things below the national level to bolster those kinds of things that you may not see based on where your home residents is and what you do, and you should want us to do it that way because at the end of the day, capabilities like fiber are local, and you want to be very, very discreet about how you do things. Now having said that, when you get up to 60 million fiber footprint, your decisions on where you do certain things in the funnel are going to change than when you're at 30 million. So you'll see an evolution of this over time. I hope that gives you enough context on it.

Okay. And with that, I'd -- go ahead.

I'm sorry, Pascal, can I ask one of you as well. You mentioned you expect handset amortization to basically be flat year-over-year, I think, in 2026. Just curious what that says about your view of wireless competition in the marketplace or AT&T's willingness to compete?

Yes. A couple of things, Michael, to keep in mind. One, my commentary was that we expect about the same level of headwinds that we saw this year on a percentage basis. Overall, I think, John, laid this out in his remarks, our basis of competition is going to be a bit different than our peers. Ours is about using our broadening base of fiber customers to drive additional converged relationships. That's our priority when we are looking at our investment spend. And that -- we will be much more disciplined outside of those areas. Therefore, I think on balance, we are confident in our ability to manage the overall ARPU dynamic despite having to incur the additional promotional costs.

All right. With that, I really appreciate you all joining us this morning and maybe spending a few extra minutes, given we wanted to kind of refresh guidance and give you a little insight into what we're going to be doing after we bring on some of these additional assets. So we've now kind of shared that plan with you. And I think what we've outlined is a view of the future of how we're not only going to report in this business, but how we're going to operate it.

And I appreciate your patience and understanding in our segment adjustments. I know it's more work for all of you. We didn't take this lightly. We're going to try to assist you through it and make sure that we can get you through it in a way where you view it as being completely transparent and more insightful for how we're operating the business [indiscernible]. But look, I think the numbers speak for themselves when we start to talk to you about how we're generating profits in this business and how we're investing. The time has come for us to look at things differently. And the shift that's occurring in this industry is pretty significant. And as a result of that, it's time for us to adjust and make these changes.

We have the right assets in hand after we close these transactions in front of us, in my view. And frankly, it's up to us and it's entirely in our control as to how we deliver on this plan that we just laid out for you and shared with you today. And I feel really good about that. And I feel like we're entering the fund cycle here in what's been a bit of a slog over the last couple of years to get us in a position to do these kinds of things.

I believe that we have the right regulatory environment for us to operate this business in. I think the incentives to invest in this industry are strong and good right now. I think AT&T has put forward the right technical and technology direction, and our foundation in that regard sets us up with an ability to differentiate. I think we have the right position structurally in this industry as things are changing fairly dramatically and as we start to approach what's going to be a very, very clear increase in importance and connectivity with the dawn of AI.

And I believe strongly, we've got the right team in place to do this that is clear on their mission and their charter. And the combination of those things, I think, should give you a lot of confidence that we can deliver on this plan moving forward. And we look forward to coming back and reporting with you on our progress. So thank you very much for your time.

Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

We will get started. I'm John Hodulik, the media and telecom analyst here at UBS. And I'm pleased to announce our next speaker, John Stankey, the Chairman and CEO of AT&T. John, thanks for being here.

Always good to be here. It's always the mark of the end of the year approaching, so kind of right of passage. I enjoy it.

Yes. Great. We certainly have the Christmas weather for this week.

Yes, we do. And maybe I can just quickly reference you to our safe harbor statement. I think we're going to talk about some things that are oriented toward the future this morning. Some of them are subject to risk and uncertainty. Results may vary materially from what we discuss. And if you'd like more information, there's a lot of scintillating reading on our Investor Relations website that you're welcome to go and look at and research.

Perfect. A little over a year ago, you hosted an Analyst and Investor Day where you and the team detailed the strategy and provided long-term targets and capital return plans. How would you rate your progress executing against that strategy over the past year?

I'm really pleased, and I'm really pleased with what the team has done. I think it's been right on the mark and very consistent with what we laid out, not only in terms of what we set out on financial objectives for the business, but how the industry is taking shape and what we've seen happen and why we were doing the things we were doing to respond to kind of what we thought was an evolution in the communications sector. But if you went down and said where are we on our operating profits and revenues, you look at what we've done on cost control, all those things are very, very consistent with what we laid out.

You go down each of the guidance indicators we gave, most notably we said EBITDA at 3% or better, it will be better. So feel real good about that. And a lot of that is on the back of operating efficiency because we've had to compete more aggressively and do some things out in the market to maintain our growth, which I think we've done well, and the team has reacted incredibly well in terms of how we balance the portfolio, the things that we do to deliver on those results. Of course, where we are in cash, and we'll be doing very consistent with what we outlined on that.

So I would say from financial performance metrics, getting ourselves in a position where the balance sheet was where we said it was going to be at 2.5x adjusted net debt to EBITDA range, starting our return of capital to shareholders, we'll finish $4 billion of buybacks by the end of the year, which is probably a bit more accelerated than what we said at the Analyst Day. So I apologize for buying back more stock this year than we've kind of indicated we might do.

And look, I think some of the decisions we've made to position the company better, the decision to pick up the fiber assets from Lumen, what we did with EchoStar, those are all consistent with what we laid out at the Investor Day around what we would do if we had opportunity presented to us in capital. And I think we've executed them in a way that's consistent with the commitments we made back to the investor base to hold to the guidance and the direction that we set out while at the same time strengthening the business. So all in, I feel like it was a really good year for us and very consistent with what we laid out in terms of the direction of the company.

Great. That's a great overview. Why don't we start with wireless. There's some change in the wireless industry. We have 2 new CEOs in the space. How would you gauge the current sort of competitive operating environment? And just your thoughts on sort of Verizon's new focus on volume growth?

Yes, it's competitive. And I don't know if I would characterize it, John, as there's a new focus on volume growth. I think most of the competitors in our space have been focused on volume growth. Maybe there's a desire to try some new tactics or approaches to see if they can get different results. But I think whether it's a new CEO or the old CEO or anybody else, teams have been intensely focused on doing well and competing in the markets. And we've responded to that, and over the course of my 5-year tenure, a little over 5 years, there's been a number of different shifts and plays that have occurred, and we continue to adjust to those and you continue to see us deliver consistent performance.

I think more than maybe at any other time in the industry, as competitive as it is, it's not one-dimensional competition. So you can't just walk out into the market and say, my message is, I've got this, the best network, or my message is this, I got lowest prices or what have you. It's now about what you do across a spectrum of things. And so the company that executes in a more balanced fashion is able to deliver on a variety of things, I think has the opportunity to do well in the market, and we've been focused on that as a company for the last 5 years in improving our service levels.

I've shared with you in previous sessions how there's been a steady uptick in us improving what we're doing with customers. We're still not where we need to be. We're not the best yet, but we have dramatically closed the gaps to some of our competitors, and in some cases, caught them. And so we'll continue on that march. We have been doing things to make our network better in wireless. We made a demonstrative step in that direction here in the last couple of months with what we've done with EchoStar, and I think that's going to be the next big step that we're going to enjoy in 2026.

We have the best fixed broadband product out there, bar none unequivocally, and we built that franchise in an incredibly strong way. We have gotten to be much more effective in our cost structure that allows us to promote, compete and go after the right converged customers, and we're playing our strategy around that and starting to add benefits to a customer as to why they converge with AT&T. And all those things together are what makes you effective in the market. And it's not, okay, this week, we decided we're going to go pull this lever and that's going to fix everything. It just doesn't work that way right now. So I feel really comfortable with where we're at. And I don't necessarily see the CEO changes per se as being a catalyst. It's just another event that we're going to react to as we do every other time there's a competitive dynamic shift in the market.

It makes sense. I hate to ask about pulling those levers, but just -- we just came out of Black Friday, big holiday selling season starts. A lot of the adds in the quarter really start from sort of that selling period on. Just did you see anything that was unusual this season versus what we've seen in previous holiday?

Not really. I mean it was aggressive as we expected it would be. I don't think I saw anything that was dramatically out of pattern. It didn't cause us to go in and say, we picked the wrong strategy, or we had the wrong plan about how we were choosing to go to market during this period of time. I think, on the margin, you can see in some of the offers that are out there, there's adjustments that have been made on eligibility and those types of things to try to maybe attack certain cohorts differently, but those are tweaks around the edges. They are not fundamental shifts.

You saw us affirm our guidance last night that you should take that as an indication that we're comfortable in our performance and what's going on is consistent with what we expected. Is it chippy? Yes, it's chippy. And is it causing us to have to be really focused on getting the right customers that matter to our business over the long haul, invest heavier in converged customers, those who can buy multiple products from us, and make sure that we're putting our best investments against that as opposed to a net add for net adds sake and maybe a low-value wireless customer that doesn't ultimately bring back return to us over their life cycle? Of course, it is. But I think the team is getting better and better at doing that every quarter, and I'm confident we've learned a few things from last year that made us better this year, and we'll learn a few things this year that will make us better next year.

Great. AT&T's competitive focus appears to be evolving with new emphasis on the value segment and SMB and also leaning in on conversions. Can you explain sort of what led to this next stage, and how that sort of alters the sort of price/volume sort of equation for AT&T?

Yes. I said this on the call, I think I've used the phrase when we talked about last quarter earnings that it's a feature, not a bug that ARPU has moderated a bit. And that's partly because we have looked at particular cohorts of customers that we think we're underpenetrated in, including places where we can buy converged customers. Senior community is a good example. They typically buy both a fixed connection and a mobile connection. Our share wasn't where we wanted it to be. And when we found that we either had an underlying fixed subscriber that we could move mobile or didn't have anything, we wanted to be a little bit more aggressive than that. That decision, as an example, may drive a lower wireless ARPU. However, it may drive accretion and growth in the fixed component of the business. And I'm perfectly okay with that. And I think that's a good economic decision.

And so I think what everybody should think about in our business and what -- when we start talking about this shift to convergence, you want to look and say, all right, are we able to drive EBITDA and cash growth in the business? And are we able to do it with keeping the margin equation in check and be less focused on a discrete product number in this? And I believe that's going to be the play in this industry moving forward. And in fact, I believe strongly enough that as we finish out this year and go into discussion of fourth quarter earnings and what we're going to do in '26, I think you should expect us to come back and start talking about some different disclosures around how we run and operate our business so that you have the transparency to see what's happening in that. Because I believe in this dynamic of what's occurring and in the product portfolio we have and the way the margin structure is stacking up as these businesses scale, that not all net adds are created equal, and that actually looking at the base of customers and the service revenues they generate and the margin structure that puts in place on a converged basis will be a more important dynamic than what we've ever looked at.

And right or wrong, KPIs is how you value our companies and how you talk about our companies were built during a period of time when regulatory structures effectively kept industries separate. Wireless was pure play, fixed was pure play for a very long time. And we're now at this point where intermodal competition is healthy. It's robust. It's happening every day. And it's probably time for us to look at some of those KPIs and ask how are they going to evolve and start to think about them a little bit differently. So you're going to see some moderation in ARPU and wireless. You're going to see some of it is seasonal. The fourth quarter, there's always a seasonal slight moderation in ARPU and wireless. I don't expect that to be any different this year. But what you want to look at is our profit margins are very stable. Our EBITDA is growing. I just said we're going to be better than 3%. And as a result of that, the equation is working the right way. And some of that accretion you're seeing on the broadband side, it's that mix.

The last thing I'd say about this is the lead product in our portfolio on a converged basis, the one that has the highest brand affinity, has the most sticky characteristics of keeping the customer in the fold, has the most discretion that has to go on when somebody decides they want to shift is the fixed broadband component. It effectively has the highest value in the portfolio. We don't price and drive value that way today. And so kind of making sure we get that balance between those things right and making sure the value is on the highest value product and that customers see it that way and it's consistent with how they look at it is a really important thing for us to run to over time to make sure we set ourselves up for good customer retention, good customer perceptions.

And at the end of the day, what you guys are driving for as you guys fine-tune the equation is EBITDA and free cash flow growth. And if whether the results are seen more evident in the wireless business or the residential business, it doesn't matter to you as long as you're driving the EBITDA and free cash flow.

Unless you're going to tell me that after all the years of following this industry and our company, that you're not going to care about cash anymore, the answer to that question is yes.

Okay. Got it. Noted. All right. We'll be on the lookout for the new guidance. Maybe digitalization before we return to -- move to other parts of the business. That seems to be a new -- or not a new, but it's sort of a -- there's more emphasis on digitalization and T-Mobile has this new sort of switching, make it easier to switch. Can you talk about AT&T's efforts on the -- in terms of digitalizing the wireless business?

Yes. Apparently, the easier to switch part didn't work out too well on that. But I absolutely agree that the thrust and the direction that they were going with that is the right direction. It's consistent with what customers want to see and it's consistent with where the market is going and it's consistent with how we've kind of been trying to position ourselves over the last number of years as we've been retooling our distribution. Early in my tenure, I would be out here, and we'd be talking a lot about what are we doing, what's causing some of the rebound and how the business is operating? And we talk about we're retooling distribution quite a bit, where shifting how we're doing distribution, what's company owned, what we're doing through third parties, the emphasis we are putting on alternate channels. So we've been kind of working this distribution dynamic for many years, getting ready for this reality that when industry matures a little bit more, you're not going to be set up in the distribution structure that you have been when you're growing at the rate the wireless industry was growing 2 decades ago. It's not going to support the kind of models that were out there at that point.

And look, as I've said before, customers impart on us their experiences with other industries and services. And they like having digital experiences. Most of you in this room, if I said, okay, it's time to go through your 2-year cycle and get a new device, what's your choice? Do you want to sit at home and doing it -- or do it, and do you want to come into one of our stores, most of you would say, I'd rather stay at home. I don't relish going into the store to get that done. And there's no reason we shouldn't build processes to support that.

So what T-Mobile did is consistent with where we see the market is going, and we think it's consistent with what customers want. We're taking a little bit different attack as to how we're doing it. Some of that will start rolling out early next year. But we absolutely see this consistent trend that more and more of our transactions with customers will be fulfilled digitally and through a very well-integrated supply chain supporting that moving forward and that will give customers flexibility.

It doesn't mean they won't have physical points to go and satisfy their needs if they choose to do that. They may be different in how they get those physical points of distribution, but they will have far more choices about how they do things digitally. And I think that's good for our business. It will take friction out of things. It will end up allowing customers to do things in a way that they in view brand value back into the company when we meet them on their grounds is to how they want things done. And frankly, it will allow us to do the things that looking at data and the life cycle of a customer that we have probably more of on a converged basis than others, and how we really fine tune and customize the product life cycle, the service life cycle for a customer because digitally, you can touch them all the time. You don't have to necessarily wait for them to walk into the store.

Makes sense. All right. Now let's shift to broadband, maybe starting first with fixed wireless. As you said, greater emphasis on fixed wireless. And if you say that the Internet Air product is the best fixed wireless product in the market. Can you talk about sort of what's sort of driving the change? What should we expect maybe from a growth standpoint over the next year or 2? And then maybe what the 3.45 spectrum, which I think you've launched in most major markets, does for that business?

First, what hasn't changed is we're a fiber-first company, and we still are a fiber-first company, and that's our best broadband product and always will be the best broadband product in the market. And it's always going to perform better than any other broadband product in the market until somebody else decides to go out and overbuild our fiber with fiber, if that ever happens. And that's a big question. But we'll have an entrenched position. The brand is doing incredibly well. I'm not -- I never said that our Internet Air was the best in the market. I really don't have a way of benchmarking today where that is at this juncture, but it has certainly gotten dramatically better. We know -- I think we shared with you all publicly a couple of days ago, a couple of weeks ago, that we expect the 3.45 deployment of spectrum is going to up our fixed wireless speeds by over 50%. And we think that's a really good thing. And it will do even more for handsets. We'll probably be up in an 80% improvement speed range. And you've already seen the stuff flow in from not my sourcing and information, but if you go and look at other third-party test results, you see it flowing in as a result of our rapid deployment of that across over 60% of our footprint.

Part of the growth in fixed wireless is not only a factor of having more 3.45, which gives us some depth to go and make it available in places where maybe we haven't. But as I've shared before, we have other modernization going on in our wireless network that has been a gating factor for us to sell into that footprint. We needed to get some of this rework done and lift other spectrum we have, including C-band spectrum, get the right radios in place and not put ourselves in a position where we're going to be disrupting customers as we were doing a fairly substantial infrastructure change out on towers. 2025, as we shared with you in that work, was our peak investment year for that. So you should assume we've gotten through not only the peak of that, but we've gotten a lot of the really attractive locations done, not all of them, but many of them because that's how you front-load a wireless modernization effort.

And we're kind of now working through the downhill side. So you take that work that's been completed, that's increased the footprint. You take the 3.45, which is increased it. You take the natural scaling of us bringing the product to market where we're moving through the learning curve and fine-tuning the product, all those things have helped us get better. And finally, as I've said many times before, we love the product and business. We love the product and business for a number of ways, and I view it, it's profitability, it's longevity, it's ability to satisfy customer needs in segments of the business market much more malleable, sustainable than it is in the consumer space. And that's a distribution issue. And most of our distribution on fixed wireless has been owned and operated distribution.

We need more third-party distribution, and we've been building that up. And so we're getting some lift as we're getting better in the business market. And that play has not completely evolved. So I don't think you're going to see this ever-growing volume on fixed wireless from where we are today. You're going to see us getting better. You're going to see us do more business. You're going to see us move it into the right customers. But I'm not out here saying my goal is to double fixed wireless deployment in my footprint. That's not my goal. My goal is to be really good with fiber. My goal is to use AI to preload places where I'm going to build fiber. My goal is to use AI to get after business customers that are well suited to the product. And my goal is to converge the right consumer customers that have a chance to have sustainability with the product over the long haul with both mobile and fixed convergence in places where I don't have fiber.

Makes sense. Yes, let's shift to the fiber business and convergence. The way I think about convergence from a telco perspective is whether the fiber footprint drives wireless subscriber growth and share within the fiber footprint. So as we fast forward 3 years, you guys will be executing on the plan to hit 60 million-plus locations. Do you think your fiber footprint will have led to share gains on the wireless...

Absolutely. It's the bet we're making. That's what we shared with you at the Analyst Day. We told you that where we deploy fiber, our wireless share is 500 basis points higher than where it is in places where we don't. We've been giving you the march on convergence. We're approaching 42% converged in a wireless footprint and -- or excuse me, a fiber footprint. Where we have both fiber and wireless together, I just told you when we're doing promotions as we're moving through the holiday season, we're doing a lot more and giving a lot more to customers who put 2 together, and those that are buying 1 alone. And we get a lot more swings at the plate right now when we have a nationwide internet network that we can pitch where people are coming in, and it gives us a chance to pitch what we have to them and actually work them through the right product set to do that.

So we will do that, and we have other tailwinds moving in the direction on this. One is we've got the Lumen transaction, which is going to dramatically increase the size of our footprint. One ready-made the day we closed that footprint as an underpenetrated footprint that has 25% penetration on it, which is way below what we are able and have demonstrated that we can do in our own operating constructs with our own distribution. So we can walk into that ready-made footprint and get some growth out of just penetrating what's there, while we're ramping to growing probably another 1 million footprint per year in those territories that we're picking up. And in doing that, you're going to increase the size.

In addition, we told you we're redirecting investment in our traditional operating footprint that will have us up another 1 million a year by the time we get into 2027. So we're going to have an expanding footprint of new fiber coming in that's dramatically bigger than what we have today. Maybe it's 2.5 million a year today, and now you start thinking about -- I just gave you 2 numbers and you take that up above 4 million a year and you go to the converged dynamic, I think you're underestimating exactly where some of that newfound revenue and customers are coming from, and that's what we built our Analyst Day dynamic on that we shared with you why we had confidence in that 3-year view. And we have built that foundation to make that happen.

So we are orienting the business to doing that, being aggressive around that, being the first to do that, getting the most substantial best-performing footprint at 60 million plus with fiber, that is fundamental and foundational to this business.

And what should that -- while we are talking about the Lumen deal, what does that do to the -- maybe talk about your wireless business in that what did we bought, and I think of it as the U.S. West segment. I mean, where is it now? And how could that trend in that part of the country change with the Lumen transaction?

Look, the places that we picked up fiber footprint in, in Washington, in Colorado, in Arizona, in Utah, in Minnesota, they all happen to be our lowest penetration wireless markets. Why? Because we don't have the brand exposure and the foundational good experience of another product to kind of market to on. So we think this is probably the most underappreciated aspect of what we're doing. When we execute well against the fiber strategy here, and we bring the AT&T branding on top of it, and we bring the AT&T experience on top of it, and we bring the combined distribution on top of it, we're going to move both products. And this is really fundamental when we go into our discussions next year, early part of next year. I told you as we get close to closing, which we expect to happen early part of next year, we're going to sit down and have an extended session with you, and we're going to outline, not only because of the Lumen, but also what we've done with EchoStar, that you should expect to see some growth changes in our business. If we're going to invest this money, we're going to do these things and take this capital and put it in, we should be able to grow at a little better rate than what we're doing today.

And so we'll lay that out for you. We'll explain to you how that happens. But we fully expect the dynamics in these markets to change. And we expect to have a better brand and a better position in those markets as a result of what we're doing there.

Okay. Maybe lastly on fiber. Can we talk a little bit about build costs. I think there's a view out there that the sort of first layer of build-outs is the most efficient, maybe it's aerial, it's more dense. And then as we go into the sort of second cohort, third cohort and wherever we are now, that build costs automatically go up. Just what are you seeing in terms of your cost per home pass? And maybe just in general, the general economics of the fiber-to-the-home business?

I'd say that, that's generally correct, but it's not absolutely correct. We still have places in California, we have places in Chicago that are low-cost builds that are aerial, that, for whatever reason, we haven't worked through those yet. Sometimes it's permitting, sometimes it's other issues. So it's not like we're out of lower-cost homes to go build in places. But have we done more lower-cost homes than we've done higher cost homes? Yes. And as I've said many times up here before, but that's the plan. And the plan is to go invest more as we, I hope, gain confidence with all of you that when we build this infrastructure that we can get to 40% penetration pretty quickly, maybe we get to 50% in the next year or 2 around it.

You're seeing the returns and what it does and the profit margin improvement as we scale the business. And so you can all look at that and say, well, are they going to invest another $200 per passing to pick up some of these other areas that are actually even more attractive demographic areas than the ones they've built? And you go and say, well, of course, you would. And if you can bring wireless share on top of it, you'd say, well, of course, you would.

So the economic return is there even though those builds are a little bit more. And because we're scaling, I just told you we're talking about building another 1 million homes in our footprint. We're going to go and we're going to build more in the Lumen footprint. We already have the preferred position in the supply chain for this stuff. When we decide to build more, that doesn't come for free. It doesn't come for free to us because we've got to pay to invest to do it. But the vendors we work with because they're going to get more business from us are going to become more aggressive around what they do as we scale those things to get more volume.

And so we manage some of the cost increases and the dynamics are occurring by using that scale, that heavier build, that consistent investment in our supply chain base to manage those things. And finally, let's not just obsess on one aspect of the cost of running a fiber network. Let's look at the life cycle of running the fiber network. And so we're investing at the front end to put a superior technology and I'll acknowledge that. But customer acquisition costs because of the preferred position in the market are improving. The life cycle costs about supporting that customer are dramatically improving.

I used to do a lot of modeling earlier in my career, what it would look like to operate an all-fiber network? There was a lot of impressive numbers. They were theoretical at the time because there wasn't that much fiber deployed and it really hadn't been deployed in local loops for consumer customers. Well, we have that at scale now, and we are seeing that happen. And if you can drop long-term operating costs, and if you can leave broadband into a home where you don't have to dispatch a truck when that second and third service goes into a location over time, you got a really clean operating model.

And so the profitability, the return on those assets over time operating long term, that's what drives it. And we shouldn't just obsess on one thing, which is the first build cost.

Right. And since you touched on it, you guys have laid out the opportunity of saving sort of $6 billion in the copper decom, converting from sort of legacy networks to fiber. I think you guys are sort of really starting to gain some momentum with that initiative. What can you tell us in terms of the timing, which we'll see the savings, where we'll see it, and how much of it drops to the bottom line? And what -- in general, what it does for the business?

Yes, broadly speaking, I mean, by the end of the decade, I'd like out of that legacy TDM business in all shapes and forms. And we may have some stragglers that carry through, but there was a USA Today article today. I know there's media stuff out and people are like saying, "Well, AT&T says they're going to be out of the POTs business in this state by 2027." And the answer is yes, we are. And we've had our first complete office closure where we write down to the last service, not just the POT service, they're typically easier to get out right down to the last data circuit that's TDM, they're gone. Office is gone. It's finished. And now we got about 4,999 to go. But we are on a pace right now. As you've seen with our filings at the FCC that we have a process in place to do this. And generally, what happens with, we file. Once we file, we stop selling. During that period of time that we stop selling, we take a year to notice and ultimately transition customers and then we shut down. We have about 1/3 of our offices right now in that process. And we have a plan, a very deliberate plan of when the next third and the next third to come.

And some of it will require a little bit of development and work to be done. And we've got to finish building fiber to migrate some customers in places. We have to have some catch products in places in areas where we're not building fiber and supplement the wireless network with capacity and better transmission and those kinds of things to pick up certain services, but all those plans are underway. And we told you there's about $6 billion of cost left in these areas where we've got to shut down these legacy services. We told you about 40% of it is variable, 60% of it is largely fixed and shared. That 60% is harder to get at. It tends to come out at the end because you got to get rid of the last office, the last computer system, the last shared piece of infrastructure. But we are marching down that path right now, and it's happening.

And as we get out of this copper, the other thing we'll be doing is -- I don't know how many of you pay attention to copper prices, I actually do. And that copper has value and that copper is going to help us basically offset and neutralize all these migration costs to do these as we harvest it, take it out and sell in the secondary market. So this ecosystem of getting out of this business, we've created it. We've set up a regulatory structure. We've been successful in virtually all of our states. California still has work to do. And I feel really proud about the progress the team has made around that. And frankly, I see a lot in the industry starting to come behind and follow us.

Makes sense. Lastly, on broadband, there's a fair amount of angst in the market given recent activity by some of the LEO providers, the LEO systems, especially with the acquisition of mobile spectrum. Do you see LEO infrastructure as a complement or a substitute to terrestrial networks? And how do you expect that -- the business model of the LEO providers to evolve over time? And does it -- is it something that we should worry about as mobile -- terrestrial mobile investors?

I think I'd continue to watch it. I view it as a complement, largely a complement in the near to midterm. There's some places where if I was in the IoT space, that satellite might do a better job of picking up certain types of traffic at certain times than a terrestrial network will over time. And so I think, in the IoT space, it's going to open up probably growth and opportunity for perpetual connection in some places where maybe it does a better job. In the global nature of satellite, when you have assets that move all over the globe, like container ships and things like that, it might be a better way for certain things to get done. But in terms of replacing the bulk of what happens on your handset every day, it's a tough put. I've shared before, we invest a significant amount of our infrastructure inside buildings, not outside. And satellite doesn't do a good job of getting inside stadiums and inside office buildings and inside hospitals and inside schools. And there's a lot of traffic in those places, and you have to build infrastructure to get there.

It does an adequate job of getting to traffic that you have good line of sight in with no tree obstructions and things like that outside, but it also has other limitations. And as, for example, upstream bandwidth becomes more important in the AI dynamic, it's inherently going to be a more fragile upstream uplink than what you're going to get in a terrestrial network that gets on fiber really quickly. The faster you can get something on fiber, the more robust that upstream uplink is going to be. And the more low-band spectrum you have to do that, the more robust that upstream link is going to be.

Satellite doesn't have those things. And then you've got the pure engineering of it. We have typically over 300 megahertz on a particular stick that we have out there at cell site. And that's 300 megahertz times 3 carriers in a market. So if you think about it, you get 80 megahertz that you get to put on a spot beam that has a radius that is dramatically larger than a cell site, 2.5 miles, 2 miles for a cell site. You're talking about a spot beam right now that's probably close to 20 miles. And you're taking 80 megahertz and you're putting over that period, you have a weaker uplink, that's a hard put to be a like-for-like replacement.

And then finally, I'd say, if you're building the business model in a constellation, wouldn't the best thing be to attract traffic from everybody out there, not just have your own provider do it. And I think a wholesale model for them to be able to resell that capacity into people who have a lot of relationships with customers is probably fundamentally a better business model than going out trying to be a carrier do a like-for-like replacement and build an interior network and an outside network and have enough capacity to do all those.

That makes sense. All right. Just to wrap up here, brining it back to where we started. You currently have heightened capital investment levels. How does this sort of evolve over time? And you talked about the $4 billion in repurchases you've done. Can you remind us of the steps to get to the next $10 billion and sort of how that whole capital return model comes together?

Yes. We run the business so we grow it and we continue to manage costs on the trajectory we've been doing for the last several years that we laid out in December of last year for everybody is how we get to the next $10 billion. And we're doing that, and we feel really good and really confident about doing that. And I've already said we've got multiple large investment programs. We kind of hit peak on wireless. We're not going to hit peak on fiber yet for another year or 2. But we will -- once we're done building fiber, we won't be reinvesting that money somewhere else. That's the whole business case around it. And so we do start to get to a different capital profile after we finish building this infrastructure that's going to be great for the next 30 years. And it's been a little bit challenging and painful going to the front end of it. I've asked a lot of the investment base to stay with us as we go through it. But you are seeing the results of what this business looks like and what that franchise could look like. And it is a superior product. And everybody else who's competing against it now has some hard decisions to make.

The good thing about those hard decisions is; one, they're hard decisions; and two, they don't happen overnight. And so I feel like we're in a great position and a lead on it. And we will see as we start to get through that peak investment and we get to the latter part of this decade, and we start to ramp ourselves back down to mid-teens as a percent of capital invested in this business, that cash becomes available. That cash becomes available to return to investors, reinvest in the business, and we will do what is responsible at that point based on what's in front of us when that occurs. And that's why I'm so bullish on this business. We're building a franchise for the converged industry that is coming, that is going to be incredibly well positioned with fantastic wireless assets, fantastic fixed assets and a customer base that will be unparalleled.

Perfect. That's a great way to end it. John, thanks for being here.

Thanks for having me in, John.

Good morning, and welcome to AT&T's Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference call over to our host, Brett Feldman, Senior Vice President, Finance and Investor Relations. Please go ahead.

Thank you, and good morning. Welcome to our third 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 Desroches, our CFO.

Before we begin, I need to call your attention to our safe harbor statement. It says that some of our comments today may be forward-looking. As such, they are subject to risks and uncertainties described in AT&T's SEC filings. Results may differ materially. Additional information as well as our earnings materials are available on our Investor Relations website.