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

Hi. My name is Phil Cusick. I cover the comm services and infrastructure space here at JPMorgan. Welcome again to the AT&T TMC conference. Thanks for joining us. I want to welcome John Stankey, the President and CEO of AT&T since June of last year. John, thanks for joining us.

Good morning, Phil. It's good to be here with you.

Great. Did you want to hit the safe harbor first before we jump in?

Sure. Can I? Before we begin, as always, we're going to talk about some things today that may be forward-looking. As such, there are going to be risks and uncertainties with what I share this morning, and our results may actually differ materially. There's a lot of additional information available to all of you on our Investor Relations website, if you'd like to check it out.

Great. All right. Well...

As Amir does it every quarter, but that's good enough.

He's got more practice.

So you had a pretty big announcement last week. Help us think about what changed that media went from being such an important part of AT&T when you've spoken recently to it being a better decision to partner going forward.

Well, obviously, it was a busy week last week and a noisy week. I'm hoping for a little quieter week this week, if we can figure it out. I think the most fundamental thing, as I shared last week is, when you think about when we started down this journey, probably in '16/'15 time frame, as we were thinking about whether or not we should actually vertically integrate into content, we had a strong belief that we can help our domestic connectivity business significantly. And that started us down the path of the direct-to-consumer evolution. And I think, frankly, we got a long way down that path and made a lot of good progress. And we're, in fact, seeing the benefits of what happens with lower churn. Our distribution muscle, that distribution muscle helps the media assets that we have, and we ultimately get the economic benefit of owning and operating that as we push it through. I think realistically, HBO Max would not be where it is today if not for the strength of the 2 combined companies, what AT&T was able to bring both in distribution as well as some of the economic clout and market clout to be able to normalize agreements and get the product and service off the mark, and of course, what WarnerMedia brought in, in terms of a great library and wonderful skills in media and content development, storytelling. But having said that, what's become clear is that the opportunity for our direct relationships with customers and media is truly going to be a global opportunity. And our connectivity business, as you know, has kind of capped into the United States for the most part. And as a result of that, when you start looking at the opportunity to grow a fantastic subscriber base, we kind of looked at this and say that it's time to unleash the media assets to go and seize multi-hundred billion-dollar opportunity to become one of the premier assets for distributing content. And in order to do that, it's a little bit of a different shareholder base and investor base than what we might typically have within the communications company. And as a result of that, structuring this asset in a way that: number one, aligns the shareholder base; and of course, number two, it gets us in a position where that asset is even better positioned to be successful moving forward on a global basis with the combination with Discovery. It's really attractive in that there's some synergies that can be brought back from the 2 businesses that can help fund this growth in the new business. It's a deeper content library that can carry forward. And it brings exactly, as I said, some of that heft in the international side of things that's going to be necessary to scale up. And at the same time, the media company, ultimately, as you know, we did some changes in the capital structure there. I not only expect a little bit of value unlock to occur in the media asset. But I think in the communications asset, we should expect the same type of thing to occur. There's been concerns about the balance sheet. When $43 billion comes back on to the balance sheet to pay down debt, I think a little bit of that overhang starts to ease. And I would expect our multiples to start to improve relative to the peer group. Maybe as we demonstrate operationally that we can be consistent, ultimately match the peer group over time. And I think that's going to be good for shareholders. And as you know, we made a decision that we were going to size the dividend to the reality that the company was going to be a little over 35%, about 35% smaller after the WarnerMedia spin out and the DIRECTV spinout. And we won't do that until we close the WarnerMedia transaction. But when we do that, that's going to allow us to take some of that cash and reinvest it back in the business at really attractive returns, both in our wireless business and pushing further in our broadband business, but still paying of what I believe is a very, very attractive dividend. I think it's really important to understand that we'll probably be in the $8 billion to $9 billion of cash a year put out to the dividend. We expect that's going to put us in the upper 95 percentile of -- the 95 percentile of yield for dividend yield investors. We think that's a really comfortable place for us to be, in the 40% to 43% payout ratio over the long haul. We think that's sustainable and secure and allows us to invest in the business. And I think net debt, it's a good thing for the investor all the way around. If they want to stay in media, they can take the appreciation. If they want to rotate out of it and go back into a higher-yield offering, they can ultimately sell it and choose to do that, but they will prepay several years of dividend on the value we unlock. So I think this is probably a good thing.

Okay. Yes. You said a couple of things in there I want to follow up on. First, you talked about the global opportunity. Can you give us your view on the dynamic between programmers and distributors over time, given the sort of regional or hemispheric coverage of distributors versus what needs to be global in content, it sounds like? Is it inevitable that content continues to scale over time? And do you think distribution needs to as well?

I think what's going to happen is, effectively, you're going to have platforms that ultimately have enough scale to distribute. This is -- this was kind of the long haul and the long play that we viewed, ultimately investing in a large scalable platform could be beneficial. I think there's going to be a select number of them, whether it be a Netflix or a Disney+ or an HBO Max over time that ultimately gain that global scale. And if you have one of those platforms, why wouldn't you be stepping back and asking what else you could use to aggregate and distribute on it? I think it's entirely possible that those platforms that have very attractive customer bases and a large number of hours of engagement a day can ultimately aggregate other types of content and distribute them. Now do they ultimately move into access downscale on a global basis? The bet we're making right now is probably not. It's -- access continues to be a pretty capital-intensive game, and it's a little bit harder to aggregate global assets on an access basis. Do access platforms themselves ultimately become an aggregation point of multiple entertainment-based services: music, video, high-caliber video entertainment, possibly gaming? I could see that occurring. It is yet one other form of distribution. I don't think it will be the only form of access to them, but I think it will be a natural point if you have a wireless subscription to possibly get some things aggregated at a discount in the new form of bundling moving forward. But I think we should also understand that these platforms that have direct relationships with customers and are able to aggregate content will become far more diverse over time and far more attractive subscriber bases. And that's why WarnerMedia spun out with Discovery is an attractive thing to look at, because I do believe they will get over the hump, they will build one of those scalable bases, and they will have opportunities to think about how they distribute other things on that platform.

Okay. Okay. You also mentioned resizing the dividend. What does that free you up to do? What's the highest priority for that extra capital? And you talked about higher CapEx after the deal is over. What's the highest priority there?

Well, first of all, we've had great progress over the last several quarters in our wireless business. And I think you saw last quarter that the formula that we're putting out there is really coming together. We're being aggressive in the market. We're ensuring that we can gain customers every quarter. That's one reason our confidence level around that dynamic is a contribution or contributor to why we think our cash flow characteristics will change post close. And in order to make sure that we can maintain that market momentum, we need to invest at the right level in the wireless business. And one of the things that gave me the confidence to make this move that we made last week is freeing up that additional cash flow to make sure our spectrum position in our network is literally one of the best wireless broadband networks in the United States. And we need to invest at that level to do that. And I think we have the wherewithal and the intellectual capabilities and the people in this company to make that happen. So first and foremost, I want to make sure that we have the cash flows necessary to bring out a great broadband wireless product to our customer base. Secondly, and you've heard us talk about this pretty consistently, while I believe wireless is an incredibly powerful technology and is going to continue to evolve over time and do more and more and more, I also just think the connectivity business is an incredible place to be over the next decade. And the pandemic showed that in many, many ways. And when I start thinking about what's going to happen in the distributed nature of work going forward and how corporations and businesses are going to want to be able to have, let's call it, enterprise-grade networks into your home, so we can do things like what we're doing today and employees can work all day long in more virtualized environments or hybrid environments, I think that's a great opportunity moving forward. And when we look at what's occurring in new technologies that are coming out, that 5G will enable, it will pick up things like important in automotive and health care and the amount of bandwidth that's going to be created on that, that would truly need to be mobile, we still think there's a big role for highly scalable, fixed broadband capabilities, and that's only done through fiber. And we think there are segments that the best way to serve the customer is to not only give them a fantastic wireless service, but also really scaled, fixed connection to go along with it. And it's not that every customer will need that, but many will. And many of the types of segments we serve, our largest enterprise customers that we've had great success bringing wireless services into, where we started out on complex fixed networking, and what we do in the mid-market as we start to gain our momentum there, we think that investing in fiber is really important moving forward. And we're going to take a portion of that additional cash flow and put it toward more aggressive deployment of fiber infrastructure.

Okay. Is that 5G investment and fiber investment, is that key to the guidance for revenue and EBITDA growth that [ you're offering ]?

100%. We want this business to grow. I want 3 businesses growing when this is all said and done. I want a consumer fixed business growing. I want an enterprise business that's growing. And I want a wireless business that's growing. And so the investment levels we're talking about here is to reposition all 3 segments to be able to grow and grow EBITDA. And just like you saw last quarter in wireless, where we're able to be aggressive in the market, bring customers in, but at the same time start showing growth in service revenues and growth in EBITDA, improvement in margins, that's the formula we're working toward. And so some of this investment that we started last year, when you think about when I came into the role in July, the purpose behind that stepped-up investment internally was to improve our operating profile; start making some of those hard decisions on the infrastructure that we needed to reengineer in this company; shutting down long-held systems that were serving products that were at the mature end of their stage and needed to ultimately be brought and cleaned from the portfolio that ultimately, over time, while maybe in the short term might put some pressure on cash, would improve our agility and improve our cost structure. And we've started to demonstrate some momentum there. We've got a couple of years of work to finish up and really make sure we complete and do it effectively, but that's all part of the formula.

Got it. Let's back up for a minute. You took over as President and CEO at almost the depths of COVID. But lately, it seems like the U.S. is getting better almost every week. Since AT&T touches so much of the economy, can you give us an update on your different businesses and what you've seen in the last few weeks?

Yes. I'd be happy to maybe give you what I would call as a macro view of what we're seeing. First, there's been incredibly strong demand on the connectivity side of the business. I think that's something you all -- you know and you see and you've seen it in the results. It's both fiber and wireless. And I think there's no doubt that some of that has been driven by the fact that connectivity is important in conjunction with the fact that the government has put some stimulus in. And if connectivity is important, the government puts a couple of extra dollars in your pocket, you may make that decision to say, "I need a little bit better equipment," or "I want to invest in better connectivity in my home in order for me to cope with this moment." And so I think there has clearly been some help just because of this dynamic. But you know what, I think that, that's probably not going to tail off. As I said, I don't think this collapses. I think we've got all businesses right now asking the question, "What is the new work environment?" And most that I'm hearing, it's not going back to the way they were. It's a hybrid. It's going to be couple of days a week in the traditional workplace and some flexibility of working outside of the workplace. And I think that's going to be good for a business like ours and what we're investing in. As a result of that, we're seeing revenues continue to strengthen in our connectivity business. And I don't see anything right now in the economic outlook and what's occurring that would suggest what we're going to see going forward for the balance of this year is off of our expectations in terms of the guide that we gave. In fact, if anything, it could be a little bit hotter than what we expected. We're seeing advertising revenue starting to recover. Part of that is economic growth. But the other part of it is we're seeing sports get back to what I would call as the normal cycle. And as it gets into the normal cycle in a normal period of time, there's a lot of advertising revenues that back that up. And as you're able to sell into that dynamic, that certainly demonstrates some strength. And as I've mentioned previously, on the media side, our content production is now back in full swing. We're starting to see things drop through the end of the funnel. I think we'll call the May the end of the dearth, and we'll start to see the new content coming about, moving into production, moving into our schedules. And I think that will be really strong, because the way you acquire new customers in direct-to-consumer is you offer new content. As some of these new shows and new series start to come back up, that's going to help our customer acquisition. And it couldn't come at a better time as we're starting to think about a launch of the AVOD service and our international launch. I think that's going to help us dramatically. And then finally, if there's anything that I kind of sit back in and worry about a little bit, I've mentioned it before, supply chains are stressed in a way I've never ever seen. And it doesn't matter whether you need pool equipment for your home, broadband routers for your customers or connectors, everything seems to be in short supply and kind of hand to mouth. And that worries me at times because as we're stepping up investment and we're doing things like going to a new air interface on 5G, just like a particular chip that needs to be in a dashboard of a car needs to show up on time, we need the same thing. And I think it maybe still a little bit rocky on parts and places. I'm a little worried about overstimulus from the government, frankly. It's so strong, but I think, in many instances, getting people back into the workforce has been a bit of a challenge because there's just not a motivation necessarily to balance what needs to be done to make the hard decisions on child care and other things to come back and earn the incremental money that you might earn by working a full 40-hour week. And if you think about what happens possibly with the inflation, given some of the signs we've seen, that's troubling to any person that runs a business. And then finally, can the rest of the globe get their arms around COVID so that we can really get off of the kind of benefit we're seeing in the United States and start to see travel and other things come back, that will help a business like ours over time? And those are the only watchouts, but I'd tell you that's just part of the recovery right now.

We're certainly seeing consumer respond really well. Have you seen the big enterprises spending to ramp that side of your business?

My point of view is that the big enterprise has spent quite a bit at the front end of COVID to reengineer their businesses to deal with the moment and the dynamic that was occurring. That kind of had a really nice lift this time last year. So as we start to lap that, some of those new circuits that went in and a little bit of the growth, I'm not seeing as much of that right now. But I am seeing, as I mentioned, projects of businesses now trying to say, "How can I take my consistent enterprise-grade LAN, LAN infrastructure and distribute it more broadly, both into people's homes and into the new capabilities of 5G?" So I expect as those deployments and that infrastructure starts to deploy, we're going to see opportunities begin to ramp up because of the nature of how the workforce is shifting. But I wouldn't tell you that right now, as I sit here in second quarter, that I see a bunch of folks upticking on spend by 10%. But we do see business formation at the low end starting to come back. I mean it's really interesting to watch the number of small businesses that are starting to reopen and reform.

Okay. Okay. Let's stick with Mobility for a minute. So you had a really strong fourth and first quarter and as you pushed harder on customer growth. And the overall industry is showing record adds, and you talked about stimulus. Talk about the retention effort that started in the fall. What drove that shift? And is that the right thing to continue to do over time? If your competitors push harder, does it still make sense?

Well, I would expect our competitors are going to push hard, especially when we're enjoying the success that we are. As I've said several quarters ago, I'm not of the mindset that my job is to be a share donor and make their life easier. And we're demonstrating that in our position in the market. I think what we've shown in results still is sustainable. As I told you, the formula that you saw start to emerge last quarter when we reported is the formula we're working toward, and we have confidence that we can not only attain but sustain. And that's a combination of being aggressive in the market, but at the same time minding our own manners internally and ensuring we're running our business better and more effectively. And we've shared, when you kind of look at what we're doing on our efficiency and effectiveness on our cost per gross add and what we're able to do right now because of this consistent approach that we're using quarter after quarter, day after day, week after week with our employees knowing what the deal is, knowing how to approach our customers, our customers knowing they can depend on that given the results have been really, really strong and we're satisfied with them. We're now achieving record-low churn. And I would tell you, we're kind of in the mid innings of this. We're not even at the point where we have addressed and improved all the things we want to do in the customer experience. And those are now rolling out each quarter. We haven't gotten the brand and the positioning of the brand and the place that I wanted in the market. We're still a little obtuse as to what the AT&T brand stands for. And we are about ready to do some things that are going to improve that. We're going to step up some investment in the network that's going to take a network that's performing incredibly well, one of the best 4G LTE networks that are out there, and extend it further into 5G. So look, I think we've got more to run on this. And when you think about our cash flow guidance, we have confidence that we can carry forward on this, and that's why we're stepping up to that. And I do believe it's sustainable. I do believe the team has the right formula. And in our case, when I think about customer adds, we're saving customers that are already paying us good money. And that's far better than being out in the market doing things like add on a free line, bring somebody in that ultimately looks like it's a net add but it's pretty dilutive to ARPU in aggregate. And so I think our play is a little different one. We've got great customers. They're already paying us wonderful, profitable revenues. They've had long relationships with us. We should sustain that, not just throw it away and let somebody else kind of earn it back into their portfolio. And that's kind of my mindset around it.

Okay. Let's switch over to fiber a little bit, that second initiative that you talked about. You talked about 3 million this year, 4 million next year, headed to 30 million over time. That makes a lot of sense. Can you put that target in context for us versus your historical footprint? And what type of homes do you expect to target with this new investment?

Historical footprint is in the typical, what used to be the ILEC operating footprint?

Yes.

Yes. It's not all of it. So -- and I don't expect that fiber will ever be the solution for all of the ILEC footprint, but that's where being a great wireless provider comes in and part of our strategy around how we're operating the business more effectively. We've -- we're not as robust in our point of view on what fixed broadband can do in urban and highly attractive suburban areas. But what we do believe is that fixed wireless plays a role in other parts of our footprint. And there's no question where we've had lower-speed DSL offers in the market, that a fixed wireless solution that outdoor reaches what used to be ILEC footprint, could be a good solution for us and for those customers. And we'll, with our spectrum investments and what we've done, what we've been doing with FirstNet to densify the network in less populated areas, we believe that, that's a really nice replacement for some percentage of the data customers that are out there, and we'll continue to pursue that. And more importantly, it allows us to shut down some infrastructure over time. We have a voice replacement service now that can be in there. And so that allows us to look at our options around footprint that used to be in place and fixed costs that used to be there and begin the work of starting to shed some of that footprint and reduce the number of square miles that have that fixed infrastructure in place that really you're never going to have an incentive to ultimately upgrade to fiber. I shouldn't say never, but the next several years, during the time frame you're talking about. And the best way to serve them is really with robust wireless infrastructure and stepped-up investment in that case, and we'll do that. So look, I think when it's all said and done, we'll use our assets in the way they should be used. And it will allow us to still meet the needs of all of our customers and be really competitive but have a different cost structure and have greater agility in the market and have more flexibility as to how we go forward. And I've said this before, technology continues to get better. Costs go down. While we're talking about 30 million locations passed right now, we're going to get up the learning curve further and we're going to see vendor costs improve and we're going to see the demand for connectivity to continue to increase. And we may do what we need to do to build a vertical service that goes on top of our fiber connections that ultimately brings incremental revenues in. And we go, "oh, that opens up the next 10 million homes, because it's not just connectivity, it's something else that goes on top of it." We should expect that this is going to continue to evolve over time.

You talked about picking up 20 points of penetration on the 12 million to 14 million homes you built a few years ago. Can you do the same on this new round of homes? Or are you starting from a much higher penetration already?

No, we can do the same. It's -- and I feel really confident about where we are. And when I talk about what needs to change at AT&T in truly becoming the best broadband provider, that doesn't matter whether it's fixed or wireless, I mean, becoming the best broadband provider. And what we are deploying from a technology perspective allows us to put an infrastructure in place that is the best relative to the technical aspects of the product. And now we need to marry the top of it with the best customer experience and the best combined experience, and we have the opportunity to extend fixed assets with wireless assets. And we believe that combination can be a really powerful combination. And I don't want to undersell the fact that our -- if you look at our customer satisfaction levels of a combined wireless and fiber customer, they're off the charts good. And churn is even better than what you see us reporting in the macro wireless environment. And when you get that kind of loyalty in place and you think about what occurs in our stand-alone fiber product versus stand-alone cable, 10 points on customer satisfaction levels. And we're not even doing our best work right now. When we finished some of this investment I talked about, in terms of rationalizing our infrastructure, making our IT abilities more agile and our ability to deal with the customer in a more effective fashion, we're going to get even better. And I absolutely believe we are going to be a share taker where we build.

You talked about the better customer experience for a fixed and wireless customer. And that makes me think about convergence, which we've been hearing about quite a bit lately. I've been hearing about convergence between fixed and mobile for 20 years and no one's ever done it really well. What's different now?

Yes. It is hard. And I think we're now starting to see some of the early signs. For example, I just think at some level, as a management team, we probably haven't sat back and thought about if this is a connectivity-driven world, are there opportunities now to do this? I'm now using one of our early prototypes and pilots of a router that has 5G backup on it for my broadband, fixed broadband services in my home. And you all saw the recent issues that occurred in Texas and we took some power hits and some things. And it was really interesting as I lost some power on my infrastructure for what I would call the stuff that runs off of AC in the house. The router continued to work on its battery backup and continued to pull the 5G network, and that was a really nice seamless experience during some of those spikes that were occurring. There's a lot more to be done, as I mentioned. When we start thinking about what businesses are looking at for their employees that are out-distributed, I think we're going to start seeing this. And I think when you look at the fact that we've invested so much in spectrum right now and chip technology is getting more affordable, that there is going to be a dynamic of wanting to lever the fact that you have a lot of licensed spectrum that could offer just an incredible service in the home in conjunction with a fixed connection, I do believe you're going to start to see this occur. And more importantly, I think the networking needs of customers are getting more complex, whether it's on their wireless device or in their home devices. And if a company can step up to solve that problem for a customer, aside from the technical integration, just the ability of a service provider to be able to begin addressing that and making it simpler for a customer, I think, is an opportunity now moving forward. And frankly, that's a place where AT&T should be able to go and play, and I expect that the company is going to invest to play there.

Okay. You've talked about -- mentioned a couple of times, removing legacy products that are sort of out of date. And I think old homes that used to get DSL and can't buy that anymore is something that we see headlines about. At what point do you think the fixed wireless product is really ubiquitous across your footprint, and people can get broadband from you regardless of whether there's a fixed or fiber network there?

Yes. I would expect with our stepped-up investment, you'll see that happen in what I would call more ubiquitous fashion. Starting in '23s, you get into the majority of the U.S. population. And I think it's going to take into '24 and '25 to start delivering the kind of speeds nationwide, that probably the FCC and the government will ultimately end up defining as the new standard of broadband. But I think we're going to see -- it's just -- when you step back and you think about this from a policy perspective and the amount of money that's going into infrastructure right now, not only what my company is committing to this, but I think what the entire industry is bringing forward, the next 3 to 4 years, it's going to be pretty impressive to see what happens to infrastructure in this country and what the enabling capabilities are going to be, not just because of what AT&T is doing, but what everybody is doing. So I think by the time we get out to '25, this notion that we have ubiquitous connectivity that's operating in a way that we can achieve, let's call it, 98%, 95% of the economic benefits of everybody being on the Internet, if we get policy right for affordability, I think the infrastructure is going to be there. It's a question of do we do things to reform the Universal Service Fund and get policy right on affordability? So those that maybe need a little bit of help to get on that robust infrastructure that's being built, in fact, get a little bit of the help they need.

A sustained plan, not just the $3 billion Emergency Broadband Benefit?

Yes. We really need to go back and relook this. And we had great success as a country with a good universal service policy to get everybody on voice service decades ago, and we set that up right. And it's time we do the very same thing now for getting on with robust and scaled-enough broadband, whether that's coming through fixed wireless, fiber or -- and maybe even in some instances, through low-earth orbiting satellite.

Okay. And you mentioned 95% or 98%. Is that contingent on the -- some type of infrastructure bill from the federal government? Or do you think that's coming regardless?

I think there's going to need to be some incentives to get that done in some of the most rural areas. We've probably got about 15 million homes that, absent the government wanting to look at and put a little bit of subsidy in place. But the interesting thing is, Phil, I think it's not the government having to build the entire first cost, it's about cutting the delta of the return to get in and say, look, I'll go in and I'll continue to invest $1,100, $1,500 per house. But if it's a high-cost serving area, we need another $800 and the government can subsidize that, then I think it can get done. But the taxpayer doesn't need to pay the full boat on that with the right kind of incentive auctions and reverse structures in place. And frankly, with the mapping work that's underway right now that the government finally funded, we will get good insights as to what's available where and what the speeds are. I think they're set up right now to make some really informed policy choices on where that subsidy should come in and how you should get everybody in the industry that's willing to invest that does this as part of their core job every day to come in and finish that build, and I think it can get done.

Good. Coming down to the end of our time, I wanted to hit free cash flow quickly. You provided free cash flow guidance of $20 billion-plus post the transaction. What type of expectations are in that outlook that you can provide us some color on what it will take to get from where you are today to that level of cash generation?

Yes. It's not all that complicated when you kind of get down to it. I'd say, here are the elements. One is, obviously, we have to be cognizant of the fact that there's a debate around tax policy and does it change? And if that changes, then that's going to have an impact on cash flows for all businesses and we'll be no different than that. We're expecting a relatively stable tax environment. We'll see where that plays out. Two, I mentioned it earlier, we're enjoying good market momentum. We're enjoying market momentum in broadband. We're enjoying market momentum in wireless. We have to sustain that. We have to continue to grow this business in the way I described it. If we're investing at a heavier clip after we complete this transaction, we should be able to sustain it. I don't think it's fair for shareholders to see us make a decision like reallocate capital into investing in the company and not actually deliver returns and growth on it. So we're expecting that we're going to sustain this market momentum. Part of the equation of the transaction we announced is getting the cash back on the balance sheet, taking $43 billion of debt down and continuing to use some of our free cash flow to improve the balance sheet, getting down below 2.5x, around 2.5x at the end of 2023. That lowers interest costs. So we have a profile change that occurs because of our interest cost reducing. And then finally, as I mentioned earlier, we're doing a lot of work in reengineering the cost structure of this business. We're pulling out probably somewhere in the range of $1.75 billion to $2 billion a year right now. Some of that we're reinvesting back in the business. Most of what we've been able to glean in '20 and '21, we've been putting back into our market performance. And you're seeing that occur with our momentum in the market, while we're keeping cash flow -- EBITDA growth starting to come in and starting to see the margins stay in check. But we're going to get to a point in that journey where we're able to take some of that to the bottom line as well. And that will contribute ultimately to where we think we'll come out on the cash flow side as we get out past the close of the transaction and a full operating year after the transaction closes. And that's really the fundamental assumptions of what goes on in our cash flow projections.

Good. Good. Okay. So finishing up, you've reversed nearly 6 years of strategic change at AT&T in 3 months. What's the vision now for AT&T over the next 2 or 3 years?

First of all, I might contest your characterization that we did it in 3 months. I would tell you there's been a probably more deliberate process and activity going on in this. We don't wake up one day and say, "Hey, today is the day I think we ought to go. Let's go find a transaction." There's been a fair amount of deliberate work that's gone on, probably even predating maybe a little bit of my entry into the CEO role, but certainly since July when I've come in. And look, the first thing is we need to be the best core connectivity provider in the market for both fixed and mobile. That's just where we need to be. We have to have the best products out there. And I don't want to underestimate the work that has to be done to make that happen, and I'm not naive that, that means we have to change our brand position, that, that means we have some work to do on our customer support processes and we need to thin down this business to be more focused and agile in that regard. And that is the job that's at hand for this management team right now as we go through completing the transaction and really getting focused. But at the same time that's occurring, and part of what I'm doing with my management team over the next 3 days, is we're focused on what can we do to build on top of this connectivity franchise that actually can drive more incremental growth for our business. And as I mentioned earlier, what are some of those verticals that are close to our knitting that we can, in fact, grow on, on the top of that, that we think can add for accelerated revenue growth over what we've already given you in the guide that we shared last week. And I do believe there are places that we can do that. And I also believe that in AT&T, that does not think about the United States as a former ILEC construct, which I would tell you we've kind of been captive to doing that, maybe because of regulation to some degree, maybe because that's a mindset that have been ingrained in management for a very long period of time in our thought process and maybe because of how technology has evolved. It's time to think about an AT&T that can truly be a scale broadband provider for all customers everywhere in the United States where it makes sense to do that. And I think as we start to get our head around that and we start to think about the importance of connectivity, we have geographic growth that can be attractive growth for us and maybe some partnerships that we can do that with that makes sense, that lower the risks in the capital infrastructure that's necessary to make some of that happen that can benefit maybe one side of our business more than the other. And I believe the management team has some interesting work to do in that area.

It is unfortunate we can't continue. I would love to follow up. But John, thanks very much for your time. Thanks, everybody, for joining us, and we'll see you later.

Thanks for having me. And Phil, I appreciate the time.

Thank you.