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

Great. Good morning, everybody. Welcome to our 21st (sic) [ 23rd ] annual tech, communications and Internet conference, our first virtual one, obviously. I kind of still think of it as being in Boston even though we're virtual. And the last 17 years, we've had AT&T kick off this conference. And it's my pleasure to have John Stephens, the CFO of AT&T, which has become basically the largest communications and media company in the world and kind of really on cutting edge of integrating and changing the world to much more of an OTT- and wireless-oriented communications and media world. With that, I think John is going to start out with the safe harbor, and then we're going to go into some Q&A. And at the very end, last 10 minutes, if you want to send questions, you can do that online. And I will be able to review them, and I'll fire away to John with them. Go ahead, John.

Thanks, Tim. And I hope everybody's staying safe out there. Let me start off with our safe harbor. Today, we're going to talk about some forward-looking comments that are subject to risks. Actual results may differ materially. So I just suggest you check out our SEC filings and the information on the AT&T website. In addition, I just want to point out that we're in the quiet period for the spectrum auction 105 so we'll have to refrain from commenting on that. With that, Tim, thanks for having us here. Always enjoy coming, and let's -- I'll let you take the lead. We'll get on with the questions.

Well, this year, we have 40 minutes. Normally, we have 35. So we're going to have an extra 5 minutes for Q&A from everybody. And I could talk to you for hours, given the size of the company and how many different businesses you're in. But I guess maybe we'll just start off -- there's a couple of, obviously, very topical issues, but just the second quarter, can you review the results and what you felt were real important out of the second quarter?

Yes. So really, a couple of things. Pretty solid results in light of the COVID pressures that we faced, in light of the pressures on wireless roaming and the pressures on theatricals and sports. But a good solid quarter, really solid free cash flow not only for the quarter, a 50% dividend payout ratio, but also, quite frankly, an ability to bring our year-to-date right in line with our -- with what our guidance has been on dividend coverage. So feel really good about that. I think if you look at what happened, we had some really good performance across the board in our like demand, whether it be wireless broadband customers or business wireline. We did take a step to be very conservative with our Keep Americans Connected customers. And if you look at that with regard to impacts on fiber, on postpaid net adds and on broadband, you'd see our numbers were even more impressive. So in short, wireless continues to do really well. The media business -- the WarnerMedia business is still slugging it out in a tough environment. Business did well. Entertainment is -- continues to slug it out. But overall, great cash generation, good margins, and we're going to continue to bounce through what we see as some headwinds from COVID, but something that we certainly have been able to handle and continue to generate great cash flows.

Great. You've had some big changes in AT&T after a long period with one of the best and nicest CEOs that I've known for a very long time in Randall. You have a brand-new CEO and a new boss. Can you talk about maybe what you expect from the new boss? And any changes in kind of strategy or style?

Yes. I think John's been -- I've worked with John a long time. He's been part of the leadership team here for years. And so from that standpoint, the continued investment in connectivity, whether it be wireless or 5G, whether it be in FirstNet, whether it be in fiber, whether it be in IT simplification, transformation and whether it be in content and providing people the information and the stories that they want, those things will all stay consistent. Those are the things we're going to do and we're going to continue to do those. The biggest things we're seeing today versus, say, a year ago is really COVID and coming out of that and facing those new challenges. And then suddenly -- part and parcel to that, in relation to that, taking these transformation activities that have been ongoing, but taking them to a new level and getting more efficient, building off the software defined networks, building off the network function virtualization and really taking it to the next level of efficiency in our retail stores, in our digital delivery, in our IT infrastructure, products and services, in our tech -- deploying tech and serving customers. All of that is -- we're ready for those next steps. We've got to do those next steps. We're -- quite frankly, we're very confident we can do them. But those challenges -- or those are the forward-looking things we're dealing with. I would just suggest the commitment to 5G and wireless connectivity, the commitment to fiber and wireline connectivity, the commitment to providing stories that people want anywhere they want and the commitment to transformation is all there, and we're going to continue to work hard to achieve those goals.

Great. And maybe just stepping back on to the quarter, but I guess a little bit more short term. How has COVID really impacted you guys so far? Do you think it's a long-term positive or negative? Is it short term? Obviously, what are the challenges? And what do you kind of expect the next year?

Yes. So overall, the resiliency of our broadband, the resiliency of our wireless business, the resiliency of our business -- largely as these business wireline services are showing up, and they're really supporting not only our margins and our profitability, but quite frankly, our cash flows. And so from that standpoint, our wireless business continues to do well and continues to compete in a very competitive environment but is doing well. You see our churn levels get down lower and lower even with some of our conservative accruals, different than some of our competitors. So I feel really good about our wireless business. When you think about the network being covered 80% of the FirstNet build, national 5G, wireless is really doing well, and we look forward to future gains. Broadband continues to grow. We need to grow it faster. We need to get more fiber out there. But we are seeing customers buy up greater speeds, and that's gone well. COVID has had some challenges there with letting technicians get into the home or having some slowdown in that aspect for safety purposes, such that we have further optimistic expectations for that. COVID affected business wireline. I really -- what we're doing today, Tim, the working community, as you're working from home, as people are working remotely for this conference, that connectivity to people's homes is really important, not only on the consumer side of the home but for the business. That really was a tailwind for us. And it's really helped, and you saw those margins grow. In the media side, COVID really shut things down, not only production, defer -- canceled the NCAA tournament, deferred or delayed the NBA tournament. We'll see that flip of the sports cost from the second quarter to the third quarter this year. And so it's forcing us to look at new ways to distribute content, whether it's like the Scoob! that we did or what do we do with some of our other movies going forward. I still think there's a role for theater, but we need to relook at how we do things. So there's challenges across the board. COVID's provided some challenges. It really has. But I think the team is fighting through rather well and the resiliency of our networks, I think, has been a testament to people being able to work from home, commerce being able to continue and, quite frankly, the capital that we've invested over the last decade in really making sure we've got great networks is really paying off for us. So it's -- COVID provides real challenges. And we, as everybody else, are still working through it, but feel really good about the job the team is doing and continue to be optimistic about our future going forward because of the quality we've built and the opportunities for HBO Max going forward.

And this might be an unfair question, but COVID, do you think the worst is behind you in terms of revenue and EBITDA impact, I mean absent a major second wave? I know no one can really call that at this point, but yes, just your expectations.

So Tim, I'd say it this way. The service revenues in mobility, the rolling revenues, it's really going to come back when travel comes back. And we really haven't seen a big pickup in travel, specifically international travel. We monitor it all the time. With regard to theater releases, I'm not sure where those are going to go and when the theater is going to open up. So it may be further delays in some of the titles that we release through the big theatrical activity. Those are 2 of the, if you will, bigger things that are going on out there. We do, as I say, continue to see healthy demand for our wireless products or broadband products or business. So I can't tell you that the worst is behind us. I will say we are sensitive to following what the states do with regard to opening orders or variations from that. But I will tell you I do feel better about us having our, if you will, experience with getting through this and knowing how to handle it and taking the steps necessary to come out of this in a very strong position.

And good luck. And maybe related to that, I know it's not really clear what's going to happen with COVID obviously, but what are your priorities for the second half of the year? And I guess the -- I know you have HBO Now launching. You have pretty ambitious goals on expense reductions over the next kind of 3 years. But -- not to put words in your mouth, but what do you -- what's the organization primarily going to focus on in the next 6 months?

Well, it's kind of a lot of things. I mean certainly, transformation is a huge effort. We've got to take a lot -- you saw us take some accruals with regard to adjustments in our force. You've seen us announce some programs. We've been real judicious about reopening the stores. So all of that is going on, continue to reshape our IT infrastructure. Quite frankly, the biggest thing and the most exciting for us is HBO Max. The launch of that is really successful. As you saw, we've actually grown -- in this challenging environment, we've actually grown HBO customers in total. That was on -- that was -- it is certainly because of HBO Max and its success. And so we feel very good about that. We're seeing great engagement by the viewers, almost 70% improvement compared to -- growth compared to HBO Now. So it's going well, and I'm really excited about it going forward, not only for HBO, not only for HBO Max, not only for our digital platforms and abilities, but quite frankly, what it will do for our ability to grow fiber, grow wireless, take our existing wireless customers from -- up to the kind of elite packages that include HBO Max. All of that is really exciting. So we're going to be focused on that. We're trying to just focus on making sure our networks continue to work. Whether it's through the COVID impact, whether it's through the storms that just went up through the East Coast, whether it's some of the activity that's going on last night through the Midwest, out of Nebraska through Iowa and the storms there, we're always focused on making sure we continue to provide connectivity to our customers. And our teams are doing a great job and great job supporting first responders. So it's kind of all that, Tim. But I would tell you HBO Max certainly, continuing to grow that wireless business and those expanding margins and staying competitive with the marketplace there, certainly continue the transformation but putting it on a faster track because of the impacts of COVID, all of those kinds of things are really front and center with us.

And somewhat related to this, I saw over the weekend, you guys had a bit of a reorganization at Time Warner. Maybe can you discuss what that was and what the aim and goals are for that reorganization?

Yes. It's an actual progression of getting real focus, as I said, on our D2C business, on our HBO Max business. And what we've done really is taken all the content and put it under one leader, the content for the theatrical, the TV, but -- for the channels and taking all those skill sets and using them to benefit everybody. Now we've got one leader for the direct to consumer. We're going to get super hyper-focused on that, build off of this great launch and a great buildup to this, real positive. And the team has done a great job over the last year and specifically in the second quarter. Now we want to build on it even further. A combined focus on all our international activities. Don't go international with Turner who suffered from Warner Bros., separate from other things. Let's go to a consolidated international and then key news and sports. And so we'll go through that, and then we'll have a domestic commercial relationship distribution. And all of these groups are to focus, speak with one voice and, quite frankly, allow for some streamlining of support services, back office and G&A services so we can take out and invest that money into continuing to provide the best content out there. So I view it as more of a refocusing of the company and a real strong focus on it. Jason is a really good leader. He knows his business. He's got a lot of experience on both the technology and the media side. And so I feel really good about it. It's -- these transitions are tough, and there's a lot of good people that have been involved in this. This is not -- this is a transformation of making things better, not to -- not because we needed to adjust anything, but rather because we're aspiring to get even better than the launch was, to get even better than Warner Media has traditionally performed.

Well, you're obviously in a really unique position to see where the technology is going, both for 5G, for fiber, for cloud. I mean it does feel like everything is going to be moving over the top pretty quickly, and that process has probably accelerated here. And it sounds like you're trying to get out in front of it at this point, but not to put words in your mouth. Wireless, really the core business. And you said it's doing very well, and it is doing extremely well. I guess maybe can you talk about the fundamentals there? Have they kind of improved with COVID, worsened? And maybe just any updates with companies -- customers' ability to pay their bills there?

Yes. So quite frankly, first and foremost, if you saw the cash flows in the second quarter, $7.5-plus billion, and cash collections were really solid. We paid attention to the unemployment benefits. We paid attention to the stimulus packages and all of those programs. So quite frankly, cash collections on the consumer side have been really solid. Secondly, we saw churn was down on postpaid voice in total, and that's with accruing for these Keep Americans Connected customers. If you have adjusted for that, churn would have been down significantly. Part of that's, I'm sure, attributed to COVID. People don't want to make changes. But part of it's got to be related to the quality of our network, 80% of FirstNet build done, 5G on national footprint today. The 5G rollout that we did not only benefits people with 5G devices, but the way we did it benefits all our existing customers with really better service today just by turning on their phone because of what we've invested. So we're seeing better churn. We're seeing ability to compete on both the prepaid and the postpaid side, really great network quality and network awards. So that business feels good. It's competitive. And it's not -- we haven't seen any easing of competition, but the most recent activity we've seen has been more of some similar competitive offers that we've seen. So we continue to feel real good about competing. And the FirstNet Authority authorization that we have and the ability to sell into that is a significant opportunity for us. We have 1.5 million customers in that space -- or 1.5 million connections in that space right now and feel really good about it. A lot further way to grow. As the economy changes, with our Cricket brand and our AT&T prepaid brand, we believe we have an ability to cover both sides of an economic situation, and that gives us a different position than others. And as I say, we've been real clear about our customer caps. So feel really, really good about wireless. If you look at the margins, you can understand we have some ability to be competitive in the marketplace because of the cost savings, the transformation that's occurred and the ability to do some more. So on the wireless side, Tim, feel -- just feel really good about where we're at. It's going to be a challenging environment, it's competitive. But feel real good about our ability to compete in -- particularly not only in the second half of this year but going forward.

Can we delve into FirstNet a little bit? It's been obviously very transformational for you as a wireless company. But you've had some markets up now for quite a while over a year. Can you talk about what you're seeing in terms of speeds, maybe latency, what you've seen the churn in those markets for some of these more mature markets and maybe just some even usage pattern? Or any kind of color you can give around FirstNet?

Yes. So first of all, we do a separate -- we do our own separate laddering of speed tests on our FirstNet network, and it's by far the fastest of anybody's network. It's faster than our core network. The separate core that we have for FirstNet, it is significantly faster, and we're proud of that. The first responders deserve that. A, it works. So that's one. So we've got about 1.5 million connections. And our build is 80%, as I mentioned, about 9 months ahead. We have about 13,000 governmental agencies that have authorized us, and that's really important. You got to get that done before you can start selling into the groups, selling it to individuals. And so that continues to be really positive. We're seeing somewhere between 2 and 3, generally almost 3 connections that we sell per person. So when we -- Tim, the firefighter in New York City, we sell you a phone, and generally you buy 2 other devices at the same time, whether it's a phone for your spouse, family or whether it's a tablet or whether -- in some cases, whether it's a body camera or some other device. So the ability to get that first sale is really important because of its multiple. I would say it's too early to start talking about churn because it is still new, but we're very satisfied with the quality of service these individuals are getting. Probably some of the more important things is the ability to expand the first responder sales opportunity better than what some may think. In fact, when I talk about it, I talk about police officers, firemen and EMTs, but being able to expand it into nurses and doctors as certainly they're the first responders of COVID or thinking about the electric company repairman who's going into these hurricanes and restoring power. Being able to take that first responder definitely should imply why it gives us the better opportunity to sell even further. And that's been real, real successful. Quality side, people have been really pleased and we've got high marks. Customer satisfaction is high. Network is high. It's a matter, Tim, of keeping the momentum going. I am really pleased about it. And like I said, the other piece of it which I think is really important is the way we built this network is, yes, it's going to be 5G-enabled and that's really important, but the evolutionary aspect of the build-out allowed us to improve customer service and customer network quality for all our customers on the phones they have in their pockets today. And I think that's been a real strong point towards our lowering of churn and our retention of customers and, quite frankly, our growth in margins.

So outside the first -- well, first off, back on FirstNet. How did you hold up in hurricane and some of the events here in the Midwest in terms of the network? Did you have many outages?

Certainly, we had some sites down temporarily, but I would say I think the network guys did phenomenal with redundant cell sites and the ability to transfer the traffic around; quite frankly, with the ability to distribute generators, to have the emergency generators on site, in some cases they have portable generators; and then quite frankly, in terms of where we have both what I call COWs, cell on wheels, COLTs, cell on light trucks. And then, quite frankly, in some cases and depending upon the situation, we have some dirigibles that we can actually fly into locations. You don't necessarily do that in a hurricane, but in some situations, emergency situations, those things -- and we've made those investments. In fact, the FirstNet Authority has just authorized reimbursement to us for some expenditures for those kinds of things in the last year. So the network has done great. I think the customers I've talked to, the information I've gotten, they've been very pleased about the way it just works, and that's what they need in those situations. They need it just to work. And so we continue to get high marks there. And as I said, the speeds are by far the fastest that we've seen of any network and even ours. It's much faster than our core network.

And then obviously, you're laying 5G on top of this. Can you -- I think you mentioned 5G is nationwide now. Can you talk about a little bit more where you are in that process and what it's meant for speeds and quality of the network?

Yes. So we've got 200 million POPs covered -- with about 200 million POPs covered with 5G today. We want to really make sure we have that. Unlike other builds, we wanted to make sure that 5G was available widely on devices that would be sold in the near future. So as those devices come out and popular devices come out, we're already there. And that's a flip of what you may have seen in the 3G conversion or the 4G conversion. We've got the network available for devices already there. We want it to be available on kind of not the special devices or not new devices, but kind of the normal roll-up of devices, and that's the critical piece. We've seen tremendous speeds, but we'll see speeds improve as we go through the year, in the next year. And we'll see speeds get better, quite frankly, as devices get out. I mean we're getting good speeds on the LTE devices, but we'll see it improve more. You'll see us do some dynamic spectrum sharing. That's -- we're doing some of that testing right now and using that. I think it's going to roll out further. That will help in the utilization of the spectrum, being able to -- so to speak, being able to have multiple use of the same spectrum as opposed to dedicating it to one and having significant differences in traffic levels. It makes it much more efficient and more reliant. So 5G is going well. Now when you go to millimeter wave, we're already in, 5G millimeter wave, 35, almost 40 cities. And we're getting gig speeds. Depending upon where we're at, we've had 2 gig speeds. We've got a really -- very good inventory of millimeter wave spectrum out of the prior auctions, have a footprint that will satisfy our needs on a national basis. Feel very good about that. So -- and that is getting built out. So all of that combined, the millimeter wave side and the expansion of that 5G and then 5G for, if you will, the regular phone customers, tablet customers, is on a national basis. So we'll see how it rolls out and see what the appetite for new devices is. Quite frankly, in the end of June, we saw a big pickup in the appetite for devices. We saw our equipment revenues were actually up in the second quarter, even though our stores were closed for a good part of April and May. So we feel good about having this network ready as new devices come out.

And any early indication of what people are doing with the better networks, the faster speed, the lower latency? I know it's very, very early.

Tim, most of these applications, as I think you're aware, are really on the business side. And we're seeing those things on utilization of information on campuses, if you will, corporate campuses. You're seeing it in -- you've seen the stuff in the factories and the health care. I think all of those kind of applications are continuing to evolve. What we'll see -- do I expect that there'll be more gaming and more entertainment and more individual application uses, whether it's watching Wonder Woman or Tenet and some of our great movies or whether it's just getting into HBO Max and downloading it and watching Love Life or -- I watched last week the American Pickle movie, any of that? You'll see that all come about. And I believe that, and the quality will be there. But I think that's going to evolve more over time, and I think we'll see business take the lead. That's what we're doing. That's what we're seeing from that perspective. I will say, when we get back into the venues and the arenas, I think we'll be really excited on what we'll be able to do there. But we're at sports on a little bit of a hiatus for fans. We're not there yet. I think you'll see things like sports-related activity, wagering and so forth also be interesting applications. But we'll wait and see how that all comes about.

Well, you said HBO Max, I know it's not related to this, but 70% increase in viewership or -- which is pretty phenomenal. Just staying on the wireless front. Any surprises on the T-Mobile/Sprint merger for you guys, at this point, what they've kind of accomplished, what they're accomplishing?

No. I mean -- no. No, I wouldn't say any surprises. I mean we're used to some of the announcements and some of the offers and -- but quite frankly, a lot of those we've seen before. A lot of those issues have been dealt with in the industry. So no surprises in a sense of the marketing activity or so forth. As I say, we feel good about our competitive position to them and feel good about the quality we're doing. We'll go into the -- we'll get through this customer cap noise as people restate things and reclassify. Some people count migrations from prepaid to postpaid as net adds, some don't. We don't. We'll get through the Keep Americans Connected Pledge, and that will wash out. So we feel really good about where we're at. There's a lot of noise out there, but that's kind of common for some of the participants in our industry.

Absolutely. And maybe just on new competitors. Do you think DISH, when can they -- would you expect them to become a significant competitor? And if so, when? And then related to that, the cable companies, do you think they're going to build out wireless capabilities?

Yes. First of all, on the -- on DISH, I don't know when they're going to become one. I know they hired a -- or at least I saw an announcement with a sort of partnership with a retailer. But as you know, Tim, it's hard to operate a retail wireless operationally when you haven't had that experience and you don't have that in your, so to speak, DNA with engineers and people and staff and so forth. So it's a difficult lift, and we'll see how it goes for them. We respect them. We respect all our competitors. We'll watch it. But I don't -- if you will, I think it will be a tough lift for them. So I'll say cable, I think, is continuing to focus really on the bundling aspect of -- with their broadband, with their video. And that's what we've seen. Once again, the geographic footprint of having an ability to cover a nation, that people want the whole country, they want to be able to roll and they want to be able to use network wherever, and cable footprints aren't set up that way. So when you get into those roaming costs, are they competing? Yes. Do they have any established customers yet? Have they been extremely -- are they hitting the industry marks on margins and profitability? No, I don't think they are. So I think it's more of a defensive measure for them. We'll see that. We'll see their participation in activities to further their footprint or not. So far, we haven't seen any of that. So we pay attention to them, but I'm not -- but it's not the #1 competitor out there.

Great color. I have another 10 questions. I have 10 from the audience, but there's 2 I want to ask before we get to the audience. And once again, the audience on Wall Street webcasting, you can now ask questions. But to me, it's really -- obviously, the business and the fundamentals are really, really important. But from a financial perspective, you're generating $25 billion a year in free cash flow. I know pre COVID, you kind of had a goal to grow that by $6 billion, a slightly higher base. But do you still have the ability to kind of grow that free cash flow in the $6 billion range over the next 5 years or so?

Certainly, we have the ability to grow it off that $25 billion. I mean last year, we did $29 billion. And certainly, we have an ability to grow it off the $25 billion, and I don't doubt that. I would tell you, Tim, with regard to all of COVID, as with anything, situations like this, we do -- we had an urgency before and we were focused before. But for example, you had to shut down all your stores because there's state orders to shut down your retail stores. Well, that gives you an event to say do you open them all back up or not. And so when you have a situation like this, it wasn't like we weren't acting with urgency before, but it does give you a different opportunity to make decisions and sometimes force decisions to be made. I'd just add as an example, because we were really thoughtful about opening stores back up, and we didn't open all the stores back. And we had a digital presence before, but we were really thoughtful during COVID in the second quarter to really make sure it was -- we focused even more intently in making sure it was effective. So what I'd suggest to you is that's an example of what you'll see us and what you are seeing us doing. And so from that perspective, yes, we can get cash savings, we can drive costs out. And we can certainly continue to generate strong free cash flows. The other point I'd mention to you, Tim, is our 10-year bond is trading below 2%, 1.9%, somewhere around there in the last few days. I know the market rates are low. But quite frankly, that's the lowest it's traded since I joined the company in the early '90s. So the bond market, not only is interest rates low, but they have faith. They are convinced that we are a good credit risk. And you've seen that in the last 3 debt offerings we've done, over $30 billion in the last 2 months, all at very long terms, all very good rates. So quite frankly, there's a big section of the bond market that believes in our ability to generate cash year in and year out for a very long time. And so I'm appreciative of that. I should think it's very accurate. If anything, I think I'm more optimistic about our ability to generate more cash than I think the market would understand right now.

Well, the great thing about this system, it's the first time I've used it, on Wall Street webcasting is, I think, Amir is next to you there probably answering all these questions online that people have. So this is great. So it gives me a little bit more time. So I guess related to this -- and that's a great point you just brought up on the 1.9% 10-year. And congratulations, it's unbelievable. I think when you and I started in the business, we were kind of talking about 7%, 8% rates. So yes, below 2%, it kind of suggests -- you've gotten your debt -- the last, I think, 3 years, even actually 2 years, you've gotten it down from $180 billion to $150 billion. I mean it kind of begs the question, is $150 billion the right range? Or are we going to go down? Would $120 billion be too low if you did another $30 billion in the next 2, 3 years? Where do you think is the right level of debt? And maybe at these interest rates, the stock is looking very, very inexpensive.

So Tim, a couple of things. One, we're going to continue to pay down debt. It's not a cost of debt issue. As you mentioned, the rates are really low. And quite frankly, the interest expense compared to EBITDA today is very favorable, compares very well to back in the days when we had much less debt at 7%. If you think about it that way, the interest was -- the interest costs compared to our EBITDA are in really good shape historically as well as today. The issue is really the quantity of debt. $150 billion is a large number. And so getting that down into a more comfortable number to where the marketplace is more comfortable and has widened. We've expanded our borrowing into Europe, in pound sterling, went to a variety of different sources. And that's kept us with this ability to borrow and get very good rates. But bringing the quantum of debt down is still important. It's not so much the rate or the ability to manage it. Those are both -- the rate's great and our ability to manage it -- we have great flexibility in managing it. So I would tell you that. But with that being said, with interest rates at today's level, it gives you a whole different view of how much debt -- you have to analyze how much debt you carry. It's not the same as when, as you mentioned, we used to be looking at 7% or 6% 10-year rates. It's 1/3 of that. It doesn't mean you immediately multiply that by the amount of debt, but it does mean you have to look at things differently, just from a total cash cost of capital as well as -- just simply cash cost of capital, dividend versus deductible, interest expense versus total cost of capital, the share of earnings. And so we look at that all the time, and that's top of the list. We're going to continue to pay down some debt because we need the quantum of debt down. We think that's an important message to continue to send to our -- the people who show faith that's invested in the bonds.

Yes. No, I completely get that. But do you think like $120 billion is the right level of debt, $130 billion that -- and then we can maybe more refocus on the buyback? Or do you have any target in mind?

Well, certainly, I'm not going to -- I don't have a target to announce to you today. But certainly, $130 billion is better than $150 billion and $120 billion is better than $130 billion. But I'll go back to, though, if you just do the simple math on the rate differential, 6% to 2% -- for example, 6% 10-year versus 2%, you can understand that going down to those historic levels of debt may not be appropriate in this environment. I mean just -- I know it's -- I know you're thinking, "John, that's the math." And that's right. But I don't have any guidance for you today, but we are certainly well aware of that and thinking about it. And we think about it on all aspects, including what's going to happen on the legislative front in Texas and other things and whether that adds benefits to one side of it or another.

Well, it seems like we've gone -- as we get through COVID, you get a little bit of growth and you pay down another $10 billion the next year. And people feel more comfortable about the dividend. It should be well below 5% dividend yield really. People -- we get asked the question a lot. At [ 60% ], people are worried that you might cut the dividend or not committed to the dividend. So I guess related to this, how committed are you to the dividend growing?

Yes, we're -- I mean we're -- just 2 points. We remain committed to the dividend. Clearly, I think you've heard me say that time and time again. But I'll give you the other mathematical point, is even if -- and I'll use your number, Tim, $25 billion of free cash flow. If you take that, that's a 60%, so to speak, dividend coverage. That means there's -- after the dividend, there's 40% or in your math, $10 billion of extra cash around. So there's plenty of free cash flow after dividends, plenty of flexibility to pay down debt, plenty of flexibility to invest in spectrum. And that's after investing significantly in the networks. So my point is, if you got to do the payout ratio in the 60s, our strength of free cash flow in our core wireless broadband and business wireline cash-generating machines, it's really a very manageable situation. It is very manageable. And now quite frankly, most recently, over the last few months, being able to term out our debt and do $30 billion of issuances at an average of 20, 20-plus average -- weighted average life of that debt at extremely low rates, the flexibility just gets even stronger even more. Near-term maturity towers are all well below free cash flow after dividends. So we don't even have to go to the market. The market has been real friendly to us. But we can continue to pay down debt without issuing any more debt just out of the numbers that you used, Tim. So we feel really good about -- that should strengthen people's view of our ability to pay and continue to give the Board the chance to adjust the dividend upwards as they've done for 35 years with caution.

And we believe you and you kind of said that -- well, you have said that you have a huge amount of ability to kind of improve productivity throughout the organization, with virtualization-based technologies. And we didn't get into AI and a whole bunch of other things that you can do and just improving and how much you've improved the basic infrastructure with fiber and 5G. And as I said when we started out, we could talk for another hour pretty easily. I didn't get so much into the video and entertainment group questions that I would have liked to. But we're basically out of time, John. And as usual, we really, really thank you for kicking off our conference again and kind of setting the stage for what we think is going to be an excellent 2 days and a lot of great questions. And thank you so much for your time. And I guess we have like 20 seconds left. If there was anything you wanted to say that I didn't ask.

Just thanks, Tim. Thanks, everybody, for your interest in AT&T. Please understand we are a strong cash-generating machine that has great opportunities in video and entertainment with direct to consumer and HBO Max, great wireless, great broadband. And most importantly, folks please be safe out there. Please be careful. Take care yourselves and your families. And that's it, Tim. Thank you very much.

Thank you, John. And thanks, Amir. Bye.