AT&T Inc. (T) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the second day of our Seventh Annual Moffettnathanson Media & Communications Summit. I'm delighted to start the morning with AT&T and with John Stephens. John is back for -- John, I think this is your third visit to our summit. I'm delighted to have you back. And I think before we start, I think you wanted to just make a couple of safe harbor comments.

Yes. Craig, thanks for having us. And thanks for everyone watching this and listening, and we appreciate your interest in AT&T. I'll make the safe harbor statement that today's conversations will include forward-looking statements. Those statements are subject to risks, and actual results may differ. We just ask that you refer to our SEC filings, our company website and other disclosures that we've made. With that being said, Craig, look forward to having our conversation.

All right. Well, thank you, John. John, I want to start with the big piece of news that came after your last earnings announcement and that was Randall's retirement. It came a little earlier than we had expected. What was it that made it clear that now was the right time for Randall to make the announcement?

Well, the Board had gone through a complete process. Succession planning is a long-term goal of ours at the company with all of the positions. And certainly, the Board takes a leadership with the CEO position. That process had ran its course. They had looked at internal candidates, external candidates, evaluated all those, and it became clear that John was the right candidate to succeed Randall. He had the experience and the skills. And so it was much more of, if we made that decision, if we know where that's going, why not get on with it now and why not look forward. It was more that than anything else. It was really just normal course of business.

And I wanted to see if -- because Randall obviously casts a long shadow, not just because he's 6 foot 6 or so, but besides all the deals that he did, which obviously sort of transformed AT&T into the modern media company vision, what do you think, for you personally, Randall leaves his part on the company with most? What's the legacy for you?

Well, I think, for me -- and there's a very long personal relationship there. It goes back 30 years, a genuine relationship. But I think of it as a way of -- the culture of commitment to employees, the culture of commitment to customers, culture of commitment to communities and when you put those together, your shareholders will win is really going to be Randall's legacy, whether it's his commitment to the retirees, made sure the pension plan has been well satisfied, whether it's his commitment to the FirstNet Authority subsequently providing quality FirstNet capabilities and service to our communities, whether it's his forward-thinking, looking on bringing together entertainment and media and technology. But quite frankly, for me, it's the personal side that I will miss dearly. We'll certainly stay close friends and stay in touch. But that's what I've respected, and that's what I hold dear.

Well, he's -- as I say, he leaves behind a tremendous legacy. John, you know John Stankey obviously very well. What do you think John's -- what's the biggest change that you expect with John now leading the company?

Oh, it's -- I would tell you, on a strategic viewpoint, I don't think there will be much change. There's always going to be some changes, as you might imagine. We can -- we could talk about the depth of their voice or their hairstyles or their clothing styles or what everyone wants to get, but quite frankly, the overall strategic view for the company is going to be very consistent. We've all been a part of that process for years. I think John's -- as I said, uniquely, he has experience in IT, he has experience in the strategy side of the business, he has experience with media now for the last few years. So he's got his views and he's got his thought processes. But I think they're going to be very consistent with what you've seen before. He is just as excited as anybody about HBO Max coming out.

Well, we'll talk about HBO Max in a second. I want to sort of zoom out now partly to sort of a macroeconomic picture because AT&T has, I think, more different touch points and insights into the economy than just about any other company. What are you seeing? I know it's only been a few weeks since you reported earnings, but what are you seeing that's changing now that some of the states that you operate in are starting to open up? And does what you're seeing make you more or less optimistic about the shape of the recovery for the country?

Yes. Craig, I don't know that I can give you any information over the last week or 2 from the states opening up that gives us any basis for our firm commitment on how things are going forward. As we've said before, we're still cautious about the visibility and limited in the visibility going forward. We are seeing -- we are having some of our stores open up. We are seeing some of the states ease their shelter-in-place restrictions. I saw a study this weekend, for example, in Dallas, where of the stores that were allowed to open, only about 35% of them actually opened. So what we're seeing is businesses, corporate headquarters, cross-drives, other businesses being careful, being slow to open. And I think that's a general statement that we're seeing. We'll see how it plays out. Whether the opening of some of our store retail doors generates more traffic, it could be transactions, if that gives us the opportunity to add customers, we'll see, whether our digital processes stay over. But I can't tell you that in just the last couple of weeks, there's any decisive information other than what I have seen is that it is people are being as careful as the government mandates for. In the sense that once the government mandates are up, the shelter-in-place order is over, we haven't seen this springing back to people's offices or retail stores or services. They're still a careful public, a careful consumer.

Well, retail stores are maybe a good place to start our discussion. Then we will -- as we tour through the business, we'll start with wireless. With retail stores being closed or nearly so, I think it's reasonable -- and you saw it in the first quarter already, it's reasonable to think we'll see continued very low churn, but also very low gross adds and probably fewer share shifts. How does all that add up to what you expect to see for the unit growth side of your wireless business over the balance of -- at least the next couple of quarters but over the balance of the year?

Yes. So Craig, yes, without giving any specific guidance on customer counts this year, what I would suggest is if you saw how we performed in the first quarter -- the results in the first quarter were really based on our ability to compete with our high-quality network, the improvements we've made there that were made in conjunction with our FirstNet build-out with our FirstNet customer net adds that have been very beneficial to us. I think as you saw, we had more postpaid voice net adds than Verizon and the combined Sprint/T-Mobile. So that could really -- that's done really well. That's the basis where we come from. As you look forward in the post corona, doors closed are going to reduce factor, whether as you saw, it was in the wireless equipment or whether it's in people's desire to promote or advertise without the retail outlet to close the transactions. We're certainly putting more into digital and enhancing that experience. But going forward, we'll have to see, as these stores open up, how much traffic comes back and what that means for net adds and whether we can continue that extremely low churn level that we achieved in the first quarter.

You came into the year expecting that this was going to be a big 5G upgrade cycle year. I think you indicated on your conference call that, obviously, the expectations are somewhat diminished. But as you now think about the level of unemployment and your best information now about the rate at which unemployment will start to ease in the back part of the year, what's your outlook for the strength of the handset cycle in the back part of this year? Does low disposable income and high unemployment push out the handset cycle by a couple of years?

Yes. So Craig, once again, I don't want to give guidance this year, but I would tell you this. As we made those comments in the beginning of the year, we did think that the consumer would have a relatively good year throughout the year. We were not expecting COVID, we were not expecting the unemployment levels that we're seeing. And certainly, we're expecting that March drop-off of gross -- of equipment sales at 25% level. So yes, the factors have all changed. And yes, a consumer may consider putting off the purchase of many consumer devices, appliances, cars, phones, other things in an effort to retain their resources. As we said before, that may happen, but it doesn't affect our profitability. And quite frankly, the way we're building towards 5G in an evolutionary basis, we are dramatically improving our LTE coverage and speeds along the way. So the customers we have, get the benefit of what we've done with the equipment that's in their hands today. They don't need to buy a new device, although we do expect 5G to provide new opportunities and new applications.

We talked about your unit expectations a little bit. I want to talk about ARPU because you saw in the first quarter sort of sustained up-tiering into unlimited plans. That obviously is good for ARPU. Strong demand for business wireless and wireless services, also good for ARPU. On the other hand, you start to pull back virtually all of your international roaming and a lot of your roaming revenues. If I understood your commentary on the first quarter call, you sort of suggested that those headwinds would be bigger, perhaps in the second quarter than the tailwinds. I just want to make sure I understand that as we think about the outlook for ARPU.

Yes. So the real point on that, I think, Craig, you referred to, is we mentioned that we lost about -- or international roaming revenue was down about $50 million compared to what we expected in the first quarter. And most of that was in the second half of March as international travel really reduced, really shut down. So our customers weren't traveling into Europe and roaming there. And on some of our carrier partners, customers from Europe coming to the United States and roaming on our network were not traveling here. We don't know how long that travel reduction is going to last. It could last throughout the whole year so it would be a bigger impact when it's a full quarter as opposed to just part of a month. That was that point of it. With regard to the customers' abilities to buy into and move up from Mobile Share Value to unlimited and to the highest level unlimited, we expect that to continue. The opportunity with HBO Max being launched and moving people into that Unlimited Elite is there. We'll see how the consumer reacts, and we'll see how that progress goes forward more. I believe there's a good opportunity here, but we're not giving any predictions on what those amounts might be.

And what are you seeing with respect to the latest on either bad debt or delinquencies related to the FCC pledge, for example? I know these are -- things are happening fairly quickly and it's still fairly fresh, but what's your latest insight?

Yes. And I'd speak about it this way. We did get some money built up, so to speak, on the receivables side from a decision to continue to provide service, but we also shifted some of our resources in customer repair in the end of March and early April. We're now bringing those service capabilities back to start working with customers on bringing down their balances. That's all going okay. It's all -- it's not a concern. We're continuing to work through that. But I would tell you I don't have any predictions on whether we'll exceed our expectations or go to the other side.

And so if I put it all together, what's -- can you say anything about the growth outlook, revenue and/or EBITDA growth outlook for the mobility business overall for the balance of the year?

I mean you saw what we did in the first quarter. You saw that 7% EBITDA growth. You saw $350 million of service revenue growth. I mean it all dropped to the bottom line. So we feel really good about the momentum in our business. We've seen the 80% build-out on FirstNet and a national footprint in 5G by mid-summer, 120 million today. And our customers' phones that are in their hands today are getting the benefit of this build-out. Whether it's the 5G or the evolution of 5G, the quality, the speeds, the coverage is working for the customers today. So we feel really good about that. We'll see how corona impacts us, but we'll also, quite frankly, see how HBO Max and the ability to bundle that with Unlimited Elite will play out in this environment. We're real positive about our wireless business. The team's done a really good job, 160,000 net adds on the postpaid voice while the rest of the industry -- you go through the numbers, whereas the industry was basically 0 or negative. So we feel really good about that ability to compete and go forward, and I'm confident we'll continue but don't have specific guidance for it.

Well, before we leave the mobility business, I want to just touch on 2 last topics. One is 5G. The -- with the pressure on consumers but also the pressure on both enterprises, financially, and municipalities, does it change your expectation for how quickly 5G happens as a commercial proposition? Are the potential buyers and users going to be or likely to be more cautious going forward just because of the financial pressures they're facing in their own businesses or, as I say, as government entities, what they're going to be facing?

Yes. Craig, it's a good question. I think about it this way. Technologies often bring cost efficiencies. So when you're in those businesses that are going through this, you do have solid balance sheet, solid capabilities, good technology, they may want to move quicker to 5G to wring out the cost savings and efficiencies. So we'll see how that plays out, but we still think that's one side of it. Certainly, some opportunities will go away because of restrictions people have on spending. Consumers, we were not expecting -- other than the handset sales side at the end of the year, no one was suggesting or expecting that it would be a big service revenue this year. We think that will come over time and that will follow the developments of the business section. Those applications will be turned into consumer applications over time. So we feel really good about getting the network out there before the significant or the growing demand for 5G on the consumer side. But we believe -- I believe that the -- we'll see what happens with business, but this could, in some cases, accelerate the demand for cost efficiencies that 5G will provide.

T-Mobile has made a strong claim about real network advantage for the first time in 5G because of that enormous amount of mid-band spectrum that they have gotten from the Sprint transaction. Verizon is at least widely expected to acquire a large amount of mid-band spectrum in the C-band auction. How do you think about your own positioning with respect to the block widths in mid-band spectrum to compete long term in 5G?

Yes. So we're close to the CBRS auction so I've got to stay away from that. No comment on that. But our position on low and mid-band spectrum, getting 150 megahertz out into service, this dramatic increase we've got over the last 3 years with adding Band 14 and getting AWS-3 and the WCS we've had in inventory in service has put us dramatically ahead of everyone with spectrum in the low and mid-band that's in service and usable by our customers today. You can have spectrum, but if it's not in service, it doesn't provide help to customers. You could have a technology out there, but if customers don't have handsets in their hands to use it, there is a different perspective. For us, this evolutionary process we've gone through with FirstNet, and we think, is providing our -- today's customers real value and the opportunity to attract customers going through FirstNet than other means. We think it's showing up in the numbers, and so we feel very good about that. Would we be interested -- do we have a significant amount of millimeter wave spectrum that we can put into service? Yes. With -- combined with auction we just closed, that 37-39 and the 24 megahertz spectrum that we own, we have a significant block of that, have what we need to build out the millimeter wave and have that going forward. Certainly, going forward on -- whenever the C-band auction might take place, it'd be an interesting band to participate in and have. But we feel very good about where we're at today. And it's different than others because it's not a spectrum that hasn't been placed in service or a spectrum that isn't in our customers' hands today as far as the equipment that they're using today. That benefit, I think, is really important.

All right. I want to turn, John, to the Entertainment Group, and we'll start with the video business. Last year, I think there were reasons to think that maybe the worst of the video subscriber losses were behind you and particularly in the traditional satellite side of the business. And then, obviously, COVID sort of scrambled the deck again. What's your expectation now just given what you see with respect to cord-cutting industry-wide? With sports at least temporarily off the air, how do we think about the picture for subscribership on the video side -- traditional video side of your Entertainment Group?

I expect it will continue to be -- the trends that we're seeing will continue to some extent. What I'd tell you is we've gotten through the 24-month price lots that we talked about last year. And -- but then when COVID came up, we saw consumers, if you will, being very careful and trying to conserve money. We also saw those either putting in temporary status or turning off, hotels, bars, restaurants, where we sell a lot of connectivity and a lot of television capabilities, as they've shut down during the shelter-in-place orders. The uncertainty is how those come back when they come back. What we have seen is a really good offering with AT&T TV. And it came out as we expected, and it's working well. And we'll see how that goes forward. But COVID has certainly thrown a wrench into our plans with regard to customer adds and with regard to that overall business. But if you look at it overall, we're continuing to do well with offsetting it with broadband revenue growth and continued cost-cutting on an overall basis.

I want to talk about the ARPU side of video for a second because you are still at that point in the cycle where you've got extremely high video ARPU growth because of the runoff of the promotions that you had started 1 to 2 years ago and those customers now resetting. If I'm doing the math right for the timing of those, though, I think you have about 1/4 left of those -- of that kind of supernormal ARPU growth, and then you start to lap the period where most of those customers were already stepped up. Is that right? And if so, what's the outlook for the ARPU side of that business? And what does that mean for the overall revenue growth outlook for -- especially the pay TV side, as you talked about units, but now we don't have that giant offset from ARPU growth?

Yes. So Craig, I want to make sure we're thinking about the ARPU changes correctly. If you have a customer who's deeply discounted, highly promotional and you're not making any money off that customer necessarily and they leave, their ARPUs may be much lower. You take that out of the base and you take that out of the calculation, and your average ARPU goes up, even though your customers didn't get a price increase. So we are seeing that impact, but I don't want to leave it with everyone's perspective that it's an additional pressure on the customer in total. Some of it is just this -- what were very promotional, very aggressive customers deciding to pursue other choices, and as such, the mathematics of the overall ARPU go up. Secondly, we are seeing some improvement in advertising. Our database of directed advertising really went well, and we saw those benefits. And that helps with ARPU. That's another improvement in the revenue streams, but it doesn't come out of the consumers' pocket. So I'd just balance that. But yes, as we get through this next quarter, we'll lap this full year of activity that was in the beginning of -- around the summer last year where we decided to get out of the heavily promotional business and just focus on long-term value customers and our sales restarts and promotions and that focus on the heavily promotionals. That's when the gross adds were adjusted for really the high-quality gross adds. The percentages went way up. When you'll see that, that will be the annualization rate that you'll see. And that will be a complete turn, if you will, of these promotional rates being migrated into more natural full-time rates. But the advertising revenues and the mathematics are as much as anything -- yes, we have had price increases. With regard to sports, losing -- March Madness being canceled, it had an impact certainly on revenues and on expenses on the Warner Media side absolutely. But we're still optimistic that some of those sports will be back and customers will look forward to watching and enjoying it on all of our sources, whether it's the NBA, whether it's what we do with March Madness, whether it's what we do with Major League Baseball or football. So we're looking forward to that. It's -- we'll have to see how that comes -- how that plays out with the leagues.

Do you have any update on -- there's been a lot of discussion in the industry for the last few months about whether rebates are due to the distributors like AT&T from, for example, regional sports networks or even ESPN if games don't play, and therefore, those rebates being back -- due back to customers where you've seen a lot of pressure from state AGs, for example. Any update on those negotiations with your programmers as you try to figure out this kind of mess of who owes what to whom for sports?

Yes. No, we don't have any -- I don't have any update for it. We just continue to work in a collaborative fashion with our partners in the business as we try to always do. We'll leave it at that. The biggest update I have for you though is be ready to watch the match as we bring out Phil Mickelson, Tiger Woods and a couple of quarterbacks, Tom Brady and Peyton Manning, to a golf match to raise some money for charity. We're really excited about that, and we're really excited about those live sports coming back to AT&T and the world maybe. So look forward to that.

I'm sure you're going to get amazing ratings. Last thing on the Entertainment Group is broadband. You've obviously had very good demand for your fiber offerings and good ARPU growth, partly because of those high speeds. But the -- you've been sort of stuck in that "broadband growth from fiber being offset by declines elsewhere" mode where you're kind of bumping along at just below the flat line for unit growth. Is that still the picture that we should expect? Or is there a point at which the growth for fiber really starts to offset more than just the declines on the rest of the portfolio?

Yes. Craig, you're right. We have a -- we still have a big opportunity in fiber, where we still have 14 million or so built-out. We sold about 4 million. So you're absolutely appropriate to point to that. And we've come out with new offers at the end of March on GigaPower as we're calling it and doing some new giga offerings. What I will tell you is that we're really focused on increasing add. I will tell you some of the corona activity and the virus with the need, in some cases, to go into people's homes to help install, we're navigating that. But yes, we do believe we still have other opportunities. We do believe that fiber has got a real role in our company going forward. You'll see us continuing to focus on that, but the guidance I'd give for you is that we're going to continue to sell and focus on it, but we're also doing new promotional and new advertising with regard to offers there that we're very hopeful will help us improve our results in this environment.

And if I put it all together, can I goad you into giving us some guidance for the Entertainment Group then when I put the broadband and video pieces together?

So as we were pretty clear in the first quarter announcement, we're just -- with respect to our guidance, visibility on the overall business, we're just being really careful. And we'll keep everybody updated as we learn more, certainly with every quarterly release and whether we could do it before that, but I don't have any specific guidance right now.

All right. Well, then let's turn to WarnerMedia for a minute. I think you're now just, what, 2 weeks away from the big launch of HBO Max. It's launching into certainly a very different environment than you would have imagined when you were planning it, where consumption of streaming media is much higher than anybody would have imagined a couple of months ago. But on the other hand, customers have less money available than anybody would have imagined a few months ago. How do you think about how you're positioned, where quality of the content is tremendous, but you're higher priced than some of your -- some of the alternatives at a time when customers are strapped? Does it change the way you think about going to market at all?

No. I mean, certainly, you take everything into account and the environment. We did an offering of some of the content on a free trial basis this last month just to help customers out who may have been more [indiscernible] other video offerings from other people and were looking for something fresh, new and engaging. So that was one of the steps we took to try to respond in the environment and also, quite frankly, to try to show people the quality that could be included. I'll say this, Craig. We know the depth -- and customers today, with our base customers for HBO, know the quality of the entertainment and the content and have established -- long time established a price war that they're willing to pay. You got HBO Max and you realize that it's thousands of more hours, more titles and, quite frankly, attracts many different demographics. So from that perspective, I think it's going to be something that's going to be accepted as you mentioned, very high quality and significant content that goes across the whole family unit or multiple individuals as opposed to just one demographic. As such, I think it's at the right price point, and we'll see how that plays out. And we'll try to do things differently with regard to bundling and so forth. We'll do things differently as we roll out more content and, of course, see how the launch goes. But I feel real comfortable that we've had a tremendous market study in the last 4 years on HBO on what prices could be and what people want and what people look at. And now we're just taking that up multiple levels to include the demographics of millennials and children, much more female-orientated content, all of those kinds of things, such that -- I think something like that at the same price is a real bargain. But we're going to be smart about it. We're going to follow it. And I'm sure we'll make adjustments and add things in or subtract things out, whatever the case might be. We'll make adjustments as we go through it.

Production has been shut down across all of Hollywood, in fact, globally, for about 3 months now. Has that affected significantly the slate of what you launched the service with? Are there things that you would hope to have ready for the May launch that now you're going to have to wait and finish once the production capabilities resume?

Certainly, there'll be some impacts over the year and potentially -- depending on how long the production shutdown lasts, potentially in the next year. What I would suggest is something that they were in production generally, something that there is production in April or early May would -- I would not have expected to be out on any service for some months, if not longer. So I wouldn't suggest that it has a big impact necessarily on the launch, but as we go through the year and depending upon how long those production activities are impacted, there's 2 big impacts. One is that slate that comes out, not only for us but others. But two, those production activities consume a lot of cash. And as those things are shut down, a lot of cash is preserved in the interim. So we'll see what that balance is.

I want to think about -- you said the bulk of the WarnerMedia business is still Turner. And you've seen, on the one hand, very good ratings, including at CNN, as people are sort of now voracious news consumers. But the ad market has collapsed. And you're also -- especially the scatter. And you're also seeing now faster pressure on the affiliate side from faster cord-cutting industry-wide. What's the outlook for Turner for the balance of this year and into 2021?

Yes. As you say, there's cord-cutting, but there's also in the over-the-top services that have live programming that are picking up Turner or they are picking up CNN, and the cnn.com and CNNgo capabilities are all there. So those properties, we have a focused content, not a plethora of channels but a focused, really high-quality content channels like we do in TNT, in TBS and CNN and Cartoon Network and so forth, the CW. You'll see those have greater tinnitus not only on the traditional TV side, but on the over-the-top and the package side. You're right, ratings on CNN have more than doubled over the last few months, and it's doing very well. And ratings in TV for TNT and TBS and the Nat's Sports area are up double digits -- more than double digits. So we're doing very well there. Your point though with regard to our airlines, hotels, auto manufacturers, restaurants, advertising, the way they were not during the shutdown, but as we move forward, we would see some rebound of that. And we can't predict that, but we'll see some rebound of that. I feel really good about the Turner piece because of the quality of the networks and what we're seeing in the ratings. When you look at HBO, it continues to do well. And with the launch of HBO Max, I feel really good about where it's going. That is more than 2/3 of WarnerMedia. That's more than 80% of the profitability of WarnerMedia. Warner Brothers, we'll have to see how that goes. But with that really dramatic inventory of IP and the capability to be one of those studios that continues to produce not only internally but from external sources, we'll come out of this. We need to see what happens with the theatrical side and how we work with our partners in the theater industry and so forth, the movie houses, but I feel good about that. But I will tell you there's some strength with regard to HBO, the launch of HBO Max, with regard to Turner and its quality and what's proven to be an inherent IP or historical content inventory at Warner Brothers. It's a challenging time, but Warner in a better shape than many of the media companies because our mix of assets relies on that really high quality as opposed to some of the other -- consumers, consumables, theme parks, other things that others are facing. We're much different than that and we have the ability to utilize our assets with wireless. And it's going to be -- give us owner's economics that's much different than any wireless carrier or, quite frankly, any of the media companies.

Is there any appetite to follow the path that -- for example, Universal talked about going much more heavily direct to consumer with especially children's titles, in that case, from the film studio and bypassing the traditional theatrical window? Is that something that you'd be inclined to experiment with even after this crisis is over?

Yes. So I'll say this, we'll continue to work with the theater owners in that. It's an important part of the industry, and with respect to all of them, we'll continue to work with them. Our launch of Scooby-Doo movie took a different path only because of the virus. And we'll learn from that, too. But we understand the importance, particularly on these tent pole, these big theatrical releases, of the theater industry. And we'll just -- we'll continue to work with them. But we're not -- we're interested in new ideas, whatever is best for the consumer and the customer, but we're going to work with our partners.

Let's turn to the commercial wireline business as the last one we talk about. That's always been a very cyclical business in past recessions. You can make a good argument, maybe that it should be less cyclical now as it's less dependent on voice and sort of seats, which used to be the way we thought about it back in the old days. How do you think about the cyclicality of that business today? And in the event that there's a significant downturn in revenue for that business, how flexible are the costs as you think about how to manage that business to preserve profitability?

Yes. And I think, Craig, you've seen over the last few quarters or the last few years, quite frankly, that ability to maintain margins and to maintain profitability. So we've done a great job of doing -- putting software and virtualizing our network functions, putting software into the network to make things very efficient. So we have made it much more flexible on the cost and have done a really good job in that. Certainly, as you point out, our revenue's gone away from traditional voice as we got into strategic services, managed services and those capabilities which are much more resilient. Meaning, as of today's situation is that is -- businesses tend to shift from providing those communications services in their office buildings or inside their physical 4 walls and then connected with all their employees in their homes. We saw a lot of demand for the kind of quality security and connectivity, other big pipe services that we have. So this may be a little bit different than some of the past recessions. We'll see how the unemployment levels go, and we'll see what happens with that traditional number of seats, as you referred to it goes. But I feel good about the business. I will tell you we have some -- we'll see some changes with regard to small business, but we're not the market share and -- it's not the leading piece of our overall business revenues. So it's something we can manage through. The other piece I'll tell you is if you put together what they sell for wireless and put into wireless solutions, we saw growth on both the revenue side and the EBITDA side out of that business. So it's been a good partner in the wireline side, but a good partner with selling our wireless products. And so that's been important. And that's unique for us to have that extensive relationship. I think that really helps. It's -- a lot of people do a lot of good hard work, thoughtful, innovative work to keep our stand, but we're doing pretty well if you compare us to others in the industry on margins and cash flows, productivity on that side. It's a pretty good subscription business. It's a pretty good regular business for us. In that sense, I think it's done well.

I know it's hard to say still because you're sort of projecting not just the business but also the success of government stimulus plans and that sort of thing, but what are you seeing with respect to bad debt and ability to pay for some of your business customers, especially in your small and medium business segments?

Yes. Craig, I think about it in the same way you -- we referred to this a little bit earlier on the consumer wireless side. But in the last few weeks, unemployment checks of $1,000 a week have kicked in and people started getting those onetime checks from the federal government, stimulus for the consumers we have in the PPP loans have begun to be funded and kicked in. So we're still going through that. We're optimistic that our necessary services, our connectivity, which is booked just a necessity for families and businesses, will then be paid appropriately. We don't have any reason to believe that, that thought process isn't appropriate. We haven't proven that wrong, but it will take time to prove out. But yes, I do believe there should be a different process this time than maybe in prior recessions or prior employment cycles because the government has done some extraordinary steps early to get money in the hands of the unemployed and to get money in the hands of the small business to keep them operating.

So John, if I pull back now to -- back to a consolidated view of the company for a minute. It sounds like what you've described as a wireless business that is, as you would expect, much less exposed to cyclical pressures than most businesses and generally operating pretty well, but then 3 businesses that are pretty cyclical in pay TV, at least within the Entertainment Group and then at WarnerMedia and at commercial wireline. And then much smaller, but Xandr and even International faced some pressures as well, obviously small pieces. How does all that roll up into the consolidated picture of AT&T? And in particular, I'm thinking about the -- your projections for cash flow and for dividend coverage.

Yes. I'm thinking about it this way. I'd characterize them differently. I think wireless is very strong, generating good results, improvement in margins, improvement in EBITDA. My view of broadband is an opportunity to continue to grow and improve and the strength of subscription business like wireless. And I believe -- and I view our business wireline has hit us steady, reliable level and with it, a real opportunity to help the wireless business. So I think if you put those 3 together, you've got the vast majority of our revenues, our profitability and our cash flows. When you add in -- what I'll look at is Turner and HBO and the resiliency of those markets. If you look at their performance, I think you've seen that there is resilience. There's challenges in the advertising space for them with regard to the economy, but they are very good properties and they're the vast majority of WarnerMedia. Warner Brothers is going through some challenges, and we'll see what happens when we get back to work, which we hope to safely or hope to soon, and we get back on -- back to more of a normalcy or a new normal for that. Likewise, we're going to continue to plow through with the more card on our entertainment. But the entertainment piece being video is different than the strength of the broadband piece and the strength -- and then the strength that we have in that business wireline that goes to the communications group. All of those together, those -- particularly those 3 subscription businesses, really generate reliable, strong cash flows and are really necessary services for all those customers, whether it be broadband at home, broadband at business, connectivity for the consumer or the small or large businesses. That's where the strength of that business is, along with that strength of Turner and HBO. So really, really understand -- we pressure tested -- we always do pressure testing of our plans, and we had done this 2 years ago as part of the normal process of going through the Time Warner acquisition. So we knew what we could withstand, and we feel very good about it. And the numbers we've given are a wide range, in the 60%-ish, but it encompasses some pretty harsh economic results in those. And we still feel good about it. So I think about it that way. I don't focus on just the negative. I think you have to really understand the strength of our broadband, the strength of our business wireline business, tremendous strength of our wireless business and the strength of currently what's going on, if you will, in Turner and CNN in ratings, TNT and TBS but also HBO. I think about it that way, and I think it's a different perspective than what you laid out.

And so wondered -- if I think about your sort of walk to your free cash flow guide for this year, what are the big changes that we should expect in free cash flow, whether -- even things like what your expectations are for cash tax payments this year but also with respect to financing of entertainment production and handset receivables and things like that?

Yes. So I think -- we hit on -- what we hit on before, the major things that have an effect are things like the International roaming revenues, wireless and the impact of that wireless revenue. And in fact, as I mentioned, service revenue growth in the first quarter dropped to the bottom line on EBITDA. And likewise, it would drop to the cash line. And so when there's pressure, that will be an item. When you think about potential deferrals, and we've already had some of productions or selling our television shows to customers or what happens with our slate of movies, the timing of those things, all that will have some impact on cash. And then if you look at -- see what happens, which is the overall perspective, that's -- those are the things that we're taking into account, collections expanding from 35 to 45 days on outstanding receivables, those kinds of things adjusting for what you'd expect to be changes of any kind of that. You take all of those normal types of things that we have. The one thing we have said and we'll continue to say is we expect to continue to invest. Our cash flow numbers that we've talked about in the 60s, we have not talked about any kind of reduction in CapEx when we gave guidance on it as we pulled that on against. But the commentary hasn't been about that. We'd expect to use -- really scrub our CapEx this year, but have it available as we have new investment opportunities, whether that be fiber, as we've talked about before or whether that be something that's going to be required out of post-COVID-19 events.

Or -- and presumably spectrum as well. I know you can't talk about the CBRS auction, but with a C-band auction also planned for this calendar year, do you feel comfortable with your ability to fund whatever spectrum acquisitions that you might want to make or your wireless business might want to make?

Yes. We feel very comfortable with our ability to fund those things. Quite frankly the -- my concerns aren't -- or my issues aren't on the ability to fund that. We're confident of that. It's more about the timing of does it really get done this year and what happens to the satellite industry, what happens with the FCC, what happens with the ability to get an auction done and so on and so forth. I think there is especially the question of ability to fund, ability to participate. Is that a concern for me? I'm confident on that and expect we'll -- we'd be interested. We're of a different view than others because we've got a strong active in-use spectrum position today, but we'd certainly be interested.

John, we've sort of walked through all the different parts of the business. Are -- is there anything that we haven't talked about? I realize I may have been remiss in not talking more about FirstNet, for example. Is there anything we haven't talked about that you think you want to make sure investors hear before we wrap up today's call?

Yes. I mean you mentioned FirstNet. That's been a really shining star and we take real pride. And to the point about Randall earlier, this is kind of the thing -- doing it right for the business, doing it right for the community, doing it right for our country. We're really proud to be a part of that FirstNet effort and supporting the real heroes on the front lines of COVID. From a business perspective, really, it's just our ability to generate cash flows from our subscription business, and sort of strength of broadband and strength of the business wireline, the strength of wireless is really impressive and ongoing. And that's going to leave us with the opportunity to continue to invest in the business and continue to build out these great networks but also to manage our debt and to pay a really solid dividend and continue to pay it long into the future. So I think that message sometimes gets lost. We really do have a lot of flexibility and feel good about where we're at. It's a difficult time, but the team has responded well. Our liquidity is strong. The markets are operating very effectively now -- much more effectively, I should say, than they were in late March, early April. So I feel good about those aspects. We're just trying to take care of our employees, our customers and continue to do the right thing, and I think we'll come out of it like we always do and move really into the future. Really excited about the match, myself, and really excited about HBO Max coming out. And we'll see how that goes, but we're real pumped about that.

Well, John, I really thank you for spending the time with us this morning. I think on behalf of everybody on the call, we wish you and all the employees of AT&T to be safe. And again, thank you for being here. We look forward to having you back next year.

Thanks. Everybody, take care, and as Craig said, everybody, be safe.

Thanks, John.

Thank you.