AT&T reports solid Q3 2024 results, plans fiber expansion

We are pleased with the growth of 5G subscribers in a sustainable manner, with 403,000 postpaid phone net adds in the third quarter. Our Mobility business has shown efficient growth, with lower churn rates and increased profitability. As we head into the fourth quarter, we anticipate continued growth in phone purchasing activity and upgrades. Our Consumer Wireline business has also shown positive growth, despite challenges from a work stoppage and hurricanes. Our frontline teams have shown exceptional dedication during these difficult times, and we are proud to recognize their efforts.

Our focus on 5G and fiber has positioned us well for the future, with strong returns on our investments. The convergence of mobility and broadband services has been well received by customers, driving growth in both areas. We are expanding our fiber footprint to reach more customers and provide the best internet experience available.

Financially, we are on track to meet our debt reduction targets and have announced the sale of our stake in DIRECTV to further strengthen our balance sheet. We remain committed to being a leader in 5G and fiber connectivity, providing high-quality services to customers across the country. The company is excited about the new opportunities that have emerged, such as leveraging their distribution to provide products and services that simplify and enhance customers’ lives. They plan to close the transaction after obtaining necessary approvals and considering financing and tax implications. The company’s transformation in recent years has positioned them well for continued organic growth, increased financial flexibility, and capacity to support investment and enhance shareholder returns. They look forward to sharing more details about the future of AT&T at the upcoming Analyst and Investor Day on December 3rd. Now, Pascal will delve into the quarter’s financial details. We are excited to share more details about our plans for expanding AT&T Fiber during our Analyst and Investor Day on December 3. We are pleased with the early performance of AT&T Internet Air and the successful migration of legacy copper-based Internet customers. We now have nearly 500,000 AT&T Internet Air consumer subscribers, with 135,000 added in the quarter. Broadband revenues grew by 6.4% in the third quarter, driven by strong fiber revenue growth of almost 17%. We expect broadband revenue growth of 7% or more for the full year. Fiber ARPU increased by 3.2% year-over-year, with intake ARPU around $75. We continue to see strong uptake in higher speed fiber tiers and positive pricing trends. Consumer Wireline EBITDA grew by 8.6%, driven by growth in broadband revenues and cost improvements. Business Wireline EBITDA declined by 20% due to industry-wide declines in legacy voice services. We continue to focus on balancing efficient growth, long-term investment, debt reduction, and shareholder value. We have made progress in reducing net debt, vendor financing, and interest expenses. We are committed to achieving our target net debt to adjusted EBITDA ratio and improving the quality of our cash flows. Despite challenges in legacy voice revenues, our 5G and wireless products offer growth opportunities in business solutions. We remain on track to meet our full year 2024 financial guidance. We are still waiting for the software release, and it remains to be seen whether it will drive interest in the consumer base to accelerate. Software releases often have a gradual ramp-up in consumer interest rather than a sudden surge. Consumers will ultimately decide the impact of the release. We have flexibility to adjust to any outcome. In the Business Wireline sector, we are repositioning to a connectivity-based business, which is showing green shoots of growth. We are confident in the long-term value of this transition. The partnership dynamics in the out-of-region fiber opportunity are important, and we have selected partners based on their capabilities. We will provide more details on this in December. We are not just moving products for someone; we are offering a comprehensive package with Gigapower and open access network capabilities. We are focused on constructing the product offer, working with partners, and providing distribution strength, OSS, BSS back offices, and opportunities to leverage our scale. We are also open to sharing technologies and evolving product capabilities. This strategic approach will help us expand our market share and serve a larger population over time. Our performance in partnership sales is similar to our in-region business, which is encouraging. While it’s still early, we expect to see positive results in terms of wireless share and churn dynamics. As for capital allocation, we are comfortable with our Internet Air strategy and do not expect to mimic our competitors in terms of volume. We are strategic in our approach and focus on markets where we can grow other products and services. In terms of M&A, we see potential in HFC assets that could complement our fiber strategy in certain regions. As we continue to scale our distribution in the mid-business market, you can expect to see growth in those numbers, which will be strategically used in the consumer market. We are using this expansion as a way to improve service levels for our customers who are waiting for fiber, as well as to migrate people off of copper to ultimately reduce costs and legacy infrastructure support. In markets where we have surplus spectrum, we are utilizing it to ensure long-term sustainability.

While our rate of growth may not match others in the industry, we are in line with our internal projections and do not anticipate a significant shift in the coming quarters. The decision to focus on our existing business model and organic opportunities, rather than transitioning to fiber, is based on the belief that our current strategy offers strong returns and long-term stability.

We see our fiber buildout as an opportunity to provide the best products and services to our customers, rather than as a closed-off network solely for our benefit. We believe that differentiation in the industry will come from offering unique and superior products and services, and we are focusing on maximizing our owned and operated assets to serve our customers effectively. I believe we will be very successful in attracting attractive customers who are interested in a simple value proposition. We will strive to dominate the market and gain the most share possible. I have been in this industry long enough to understand that it is high fixed cost, and wholesale has played a significant role in building infrastructure. There may come a time when we can reallocate growth or capacity in a wholesale structure that could be beneficial to our business. It is essential to consider how the industry is structured, especially as the industry evolves and federates products and services across a broader footprint. While the timing may not be right now, there may be an economic opportunity in the future.

I feel confident about the wireless competitive landscape and our ability to compete effectively. I am pleased with the growth in postpaid phone ARPU, and I believe that we can sustain this growth over the next few years. I see consumers integrating our products into their lives more, and I believe this trend will continue. In the business market, there is room for improvement, especially in segments where we can be more present and effective. As for ARPU, it is a combination of factors, and I am open to the idea of prioritizing growth in the value segment, even if it means plateauing ARPU. In terms of our ARPU growth, it is driven by our ability to upsell to our existing customer base, encouraging them to purchase additional products and services that add value to their relationship with us. This includes offerings such as insurance and upgraded plans for better wireless network performance and enhanced features. We have been focused on identifying areas where there is a value mismatch in our customer base and realigning pricing accordingly, which has been successful in driving growth. While we have been diligent in managing our customer returns and yields, we aim to improve our performance at the lower end of the market. As for our fiber net additions and broadband expansion, our build rate has been steady over the past few years, with no significant changes expected next year. We have been investing heavily in fiber expansion for the past four years, positioning us as a leading provider in the market. As for spectrum availability and pricing dynamics, we are well positioned with our current investments and do not anticipate any major changes in the near future. Overall, we are confident in our growth trajectory and strategic investments. I view the spectrum and portfolio spectrum of the 4.9 in a similar way to other spectrums that need development. It will take time for the FirstNet authority to deploy it in a manner similar to how they have deployed spectrum in the past. Infrastructure needs to be put in place, locations need to be determined, and deployment strategies need to be decided upon. Unlike the secondary spectrum market where you can acquire spectrum, flip a switch, and immediately increase capacity, developing the 4.9 spectrum will be a longer process.

I am interested in the secondary market and always on the lookout for opportunities to acquire spectrum that aligns with our current holdings to increase capacity without additional capital investment. We have worked hard to improve our cash flow and have the flexibility to strategically make these acquisitions. Working with the FirstNet authority presents win-win opportunities, as we can provide advanced 5G services while harmonizing the 4.9 spectrum for the development of unique public safety services.

Looking ahead to 2025, we expect to continue growing our business and driving EBITDA growth. We are pleased with the performance of our Mobility and Consumer broadband businesses and see opportunities to improve profit margins through cost optimization, technology utilization, and real estate footprint rationalization. As we pay down vendor financing balances over the next few years, we anticipate improved free cash flow. While higher cash taxes and the absence of DIRECTV may present challenges, we are confident in our ability to grow both top line and bottom line in the long term.