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

All right. With those disclaimers out of the way, welcome to the next keynote at the 23rd Annual Crédit Suisse Communications Conference. I'm Doug Mitchelson, the Crédit Suisse analyst covering media and the cable satellite and telecom sector. Thrilled to have with us today Pascal Desroches, the Chief Financial Officer of AT&T, and part of an intriguing change over management -- senior management across the company. Format here is fireside chat. I've got questions that will run the full length of the session. Pascal, thanks so much for spending some time with us today.

Thank you, Doug, and good morning, everybody. It's a pleasure to be here. Hey, Doug, maybe before you jump into questions, let me just give just a couple of high-level overviews to try putting into context some of the actions that you've seen from us. Just as a reminder, John Stankey has not quite made the 1-year anniversary as CEO of AT&T. But during that time, you've seen a lot of action from us. Overall, it may be hard to interpret what those actions are doing. But the thing that I would tell you to be focused on is we are committed to delivering shareholder value. I think it's really important each and every day that, that is the #1 goal, and our actions are guided by that. For us, what does that look like? I think it starts by investing fully in our businesses. We believe the best returns long term are through investing fully in the businesses we choose to compete, running those businesses well. And we have a long history of if we invest fully, we can execute and deliver returns well in excess of our cost of capital. As part of that, we have to keep working in the middle of the P&L to drive cost out of our financial statements and really drive margin improvement. Two, it also means delivering an attractive dividend. Yes, we've resized our dividend. But when I look at our dividend, our projected dividend post separation, it is still very attractive, among the most attractive. So we're committed to continuing to deliver that. And three, we're committed to driving an optimal capital structure. It involves putting the different businesses in the right capital structure. As an example, WarnerMedia, given the different characteristics, different investor base, we felt this transaction helped put WarnerMedia in a position to accelerate its global rollout of HBO Max. And for the connectivity business, what that meant is really providing the company -- the remaining company with plenty of investment capacity to fully invest in the businesses while also paying a dividend. Overall, I would ask you, as you move forward, judge us based on our ability to drive shareholder return. I think from the actions that you've seen from John Stankey in not quite a year, we are committed to that. That is the guiding principle that we're operating under.

And we're going to talk about some of those investments and some of those sort of drivers that you're working on as we go through this. I mean, what's interesting, this has all happened when you had just come over from the media side to become CFO of the entire company not that long ago. What surprised you in your new role? Where have you found opportunities to bring a fresh perspective?

Here is, I would say, the biggest contribution that I've made is this company has been really active in M&A for the last several years. I think what I'm bringing is a different perspective and one that's reminding the organization that real value creation is oftentimes the best opportunities are right in front of us in the businesses that we operate well. If we focus on investing in those fully and we execute well, those returns, in vast majority of situations, will exceed what we can do through M&A. And so to me, reminding everybody, "Let's get back to the basics. Let's run our businesses really well. Leave it to me and Stankey to figure out how to get through the capital you need to operate. Also, we're going to hold you accountable for driving efficiencies in those businesses, delivering world-class margins." So I think it's really getting back to the basics, making sure that people are focused on delivering on the core operations. And look, we are at a very critical juncture in the evolution of not only media but fiber and 5G wireless. So the ability to get the teams the ammunition to invest but holding them accountable for delivering on that, that's I think what I brought to the table saying, "Hey, this is how we create value. This is how we drive the share price. Let's not get distracted by outside noise."

So another area you brought a fresh perspective was offering guidance from 2022 to 2024 for mid-single-digit EBITDA growth for the Communications businesses, post media sale. So can you walk through the drivers of that growth? What are you seeing that give you the confidence to go out with that level of growth in that time frame?

Sure thing. Just as a reminder for everyone, our guidance was low single-digit revenue growth or GDP-plus-type growth, mid-single-digit EBITDA growth. And the formula there is simply if we deliver on our transformation efforts, we can create operating leverage to get -- to expand margins and go from single-digit revenue growth down to mid-single-digit EBITDA growth. So how do we get there? Let's start first with Mobility, which is our biggest business. As you've seen in the last several quarters, we have added subscribers, we have record-low churn, we are competing well, we're executing well. And our subscriber additions, contrary to the narrative out there, these are profitable additions, and we're really pleased. So we expect that we're going to hold ourselves accountable to continuing to do that. That's one piece of the equation. Two, on the Consumer Wireline side, we are at a point where we are -- we're creating nice momentum in fiber additions. As we make our way through the back half of the year, we expect fiber-related revenues to grow faster than declines in legacy voice and copper. So that business is expected to have revenue growth. On the Business Wireline side, we're -- you saw in the first quarter, we had revenue declines -- modest revenue declines of 3.5%. But importantly, we drove our margins. And on an absolute level, our profitability remains strong in that business. When you put all that together, we believe that those expectations of low single-digit revenue growth are very achievable. And we have to continue to execute on our transformation. And we have every confidence that we will. And that should drive operating leverage and margin improvements, which should result in top line growth. So that's the formula. We feel really good about it. And it's really about focus and execution from here.

You just mentioned continue to do what you're doing in wireless, and John Stankey has emphasized the importance of sort of staying on a simple marketing message. And he's also talked about an operational focus of acquiring customers this year, and you mentioned that. The company's advertising is centered on that free device promotion, including upgrade promotion for the base. Is that dynamic becoming a core part of the AT&T message? I've certainly seen a lot of advertising around that. I'd note some competitors at certain points have suggested that sort of upgrade to the base is a pretty expensive way of operating the business. I think you just sort of suggested that it's something that's working well for you. So I guess the first part of the question is, is this sort of here to stay? And secondly, are the economics what you hope, given some competitors are sort of casting some arrows your way?

Yes. Look, here is what I would say on that. The economics are very attractive to us. That's why we introduced it. That's why we're doing it. And interestingly, the same competitors that criticized, saying that the offer was unsustainable, are now replicating the offers because, I guess, they figured out that this is actually a good idea to give your best customers your best offer and keep them for a number of years on your devices. So I think it's a good business. It's something that I would say for the foreseeable future. We're going to keep it in place. It's a good play for us. And as always, we're going to react to the market dynamics. But we really think this -- what you're seeing here is a simplicity in our offer and great execution. Just having these three basic offers really in the market allows our sales team to understand the offer and to sell better. It also allows our consumers to understand and buy into the offer. So simplicity and really good execution, decentralizing decision-making, allowing people who are close to the customer make decisions, all are part of the equation that's driving success here. Another thing that I think is worth noting and underscoring is the use of technology has greatly improved our ability to have visibility to the customer. No matter where the access point is for the customer, we now have the ability for one view of the customer, which we didn't have a few years ago. So all these things are part of the equation in why we're driving success and why we believe it's sustainable.

Great. And it's interesting, seeing sort of the new ad copy and how it positions AT&T, I'm just sort of curious, as you emerge as a communications pure play, is there a rebirth moment for the culture or the operational strategy or the consumer-facing brand? And I ask in part because John Stankey recently mentioned the opportunity for a brand refresh but didn't really provide any details as to what that might entail.

Yes. Look, I think what we have to do as an organization, when somebody thinks of AT&T, we have to make sure that what comes to mind is great service, great product, great value proposition, just really making sure that we are being sharp, not only in our messaging, but that the execution marries that in a very real, substantive way. And I think it's really that simple, Doug. It's trying to make sure that we are executing well. We are creating an impression that is then reinforced through our marketing efforts. As we know, ultimately, real change in culture and perception is driven by consumer satisfaction, consumers being pleased with the product that you're offering.

Let me look a little bit short term for a moment. Anything you want to call out for 2Q and how is the quarter going? You're halfway through the year. How do you feel about sort of set up into the second half of the year? And I feel like a lot of us coming out of 1Q felt like there was a little bit of upside to your full year guidance and you had some momentum there. So whether it's sort of progress in the short term, any unusuals with all the odd comparisons with the pandemic and now the recovery, second half of the year setup, anything to offer there?

Look, obviously, I can't talk about the second quarter. A couple of things I would call out. Last year, in Q2, we bore the brunt of the pandemic. And we saw that in advertising demand. We saw that in having no movies in the theaters. So the comps in Q2 are, from a top line perspective, are much easier. And so you have the return of sports advertising, you have the return of movies being released theatrically. Now with sports advertising comes discrete losses. So that's another thing to keep in mind for Q2. And the other factor at play to be mindful of is WarnerMedia had significant restructurings in the back half of last year, and some of those savings should be coming through throughout the year. So those are some of the variables at play. And just on your broader point, one of the things I really want to help emphasize is, as an organization, we are running the business not to deliver any specific earnings target in a year. It is really to try to deliver, to create value that is sustainable long term. And so you will find, and it may be a source of frustration to you, but as I'm -- I hope my tenure is marked by a focus on long-term value creation, meaning investing in the businesses, even if sometimes it results in the sacrifice of near-term profits. Because longer term, that's really where value is created. And so I know in the first quarter, there were a lot of questions over what does the profit trajectory look like, given the strong start. Over time, I really want to shift that narrative. Because more than anything, creating flexibility to invest in the businesses is the priority right now.

So I might ask some more short-term questions, but let's shift the narrative right now. Let's talk about some of those long-term investments. So look, I mean, it's a remarkable and very important break from the past to adjust the dividend, reposition the company to have the flexibility to really invest in its Communications businesses. And John Stankey talked about recently freeing up cash flow to make sure your spectrum position, your network is, "Literally one of the best broadband networks." And so one of the interesting debates on the investor side is how much of that investment is defensive, catching up to where competitors are, how much of that is offensive, drive growth, improve returns. So I guess, my question to you is what investments are necessary to fulfill the vision John has laid out? And how would you characterize those investments?

I actually really appreciate the question. There's been a lot of talk about our investment is catch-up. I would point to a couple of things to be mindful of. One, our network has never been better. Two, we have record-low churn. So if there was real issue with the network, I'm not sure you would see the churn profile that you are seeing. And three, I don't know that there are any use cases that we're not satisfying with our current network. Yes, 5G will -- there will be new use cases created in the next couple of years. But we feel really good that our network will continue to improve, and we will be able to satisfy every use case out there. With all that said, we think now is the time to really lean into our connectivity businesses. Think about what we learned during the pandemic. The importance of high-speed but importantly both downlink and uplink speed is really critical. And over time, we think the demands will only grow, in particular demand for symmetrical speed. And we think by having an integrated strategy, where we're focused on both broadband and spectrum, 5G spectrum, we're going to be better positioned than anyone in the U.S. So we feel really good about it. And we've identified -- we've planned as we get through 2020, the close of the transaction, that our CapEx annually will be around $24 billion. So feel really good about the returns we can generate on that. And look, at our core, we are capitalists. If those investments don't -- are not producing returns, we'll have to figure out whether we're investing the appropriate amount. Maybe we dial it back if we're not able to drive returns on that. So we are -- look, I have every confidence that this team will continue to execute and execute well.

So sort of sticking with the wireless side of that investment, maybe we should talk about fixed wireless for a little bit. And it feels like a rich topic of discussion. And on sort of the gross side of that, what's the opportunity longer term for fixed wireless? And does that look different outside the AT&T footprint than inside the AT&T footprint? And what's changed recently that's made the management team more interested in pursuing fixed wireless, post media sale?

Yes. Okay. I don't know that I'd say anything has changed per se. Fixed wireless has a place in the set of tools that we have to execute on. There are places that are out of footprint, whether it be rural communities or even those that are not that are adjacent to our footprint, where fixed wireless may be a fine solution. But in instances where we have existing fiber wireline, we believe that the demand for symmetrical speed is going to increase significantly. Demand for excellent performance in the home will increase significantly. And so the only product that provides the capabilities that we're going to need going forward is fiber. And that's why we're really, really energized and are increasing our investment in fiber. So yes, there is a place for fixed wireless. Some customers, it will have to satisfy. But for many customers, it's not going to be good enough, and we want to be able to satisfy both sets of customers.

Yes. And it's interesting you positioned that way. Because one of the places I was going to go on the challenge side was if you could do well outside your footprint with fixed wireless because that suggests others can do well inside your footprint with their fixed wireless since we'll have several providers of that. Notwithstanding your answer about the importance of fiber, any thoughts on sort of the balance between the opportunity for you in fixed wireless versus sort of the competitive threat within your footprint?

Look, our calculus is simply this, and I think -- and I feel really good about how we're positioned. In a world where you're going to have increased demand from gaming, increased demand from online education, increased demand from telehealth services, remote work, I'm just not sure that the fixed wireless is going to satisfy consumers that are using more and more connectivity to -- in their day-to-day lives. Performance in the home needs to be excellent. And I think fiber is the only product out there that delivers that.

So we should talk about that fiber a little bit then. It's interesting, AT&T Fiber sort of already boasts the leading user satisfaction scores in both Crédit Suisse and external surveys. How do you look to evolve that offering from here? Is there a business case for more speed, a special offer for AT&T Mobility customers, more bundled content, something else entirely? And how do you think about evolving your go-to-market strategy on fiber?

Yes. Look, I think it is -- we need to press up on the opportunities. I think if looking back and being a little critical, we probably allowed the cable companies to execute and to take share in that market in a significant way. And without much challenge in recent years, things have started to improve. In instances where we have fiber and cable incumbent in the market, we feel really comfortable about our ability to perform, and we have outperformed and gained shares in those markets. So it's really pressing up on those opportunities, focusing on small businesses to ensure that we are taking advantage of the opportunities. Because today, the lines are very blurred between what is considered a consumer offering and a small business offering. Oftentimes, people start businesses out of their homes, so they are using home broadband. So identifying opportunities to really provide a better solution set, a better toolkit for those who are interested in starting small businesses, all are opportunities that I think we are really excited about, and we're looking forward to leaning into. Because especially with the added capital we're putting to work behind it, we believe we're going to be incredibly successful.

Now you talked about mid-teens returns on fiber build-outs. And one thing I was sort of interested in, in terms of the business cases, how much of that is underwritten by OpEx reductions, cheaper operator network? How much of that is revenue increases from customers taking faster speeds, better service? And I guess, I ask in part and sort of throw it back to you in this, AT&T built out 14 million homes over the last, call it, 5 years or so and is at about 1 million sort of broadband customers net. So I'm trying to understand, is the mid-teen returns on an isolated basis just for fiber? Or is that net of any customers that are coming over to AT&T -- from U-verse over to fiber within AT&T, excuse me?

Here's the way to think about how we are approaching the market in that regard. You look at fiber deployment, what's really attractive about it, it supports not only consumer needs, it supports needs for our enterprise businesses as well as needs for potentially our reseller business. So being able to look across and integrate the planning for fiber deployment such that it not only serves consumer needs, but it serves these other market adjacencies as well is something that we haven't been very good at historically. And now it is part of the toolkit. And that's why we're really bullish and we believe we're going to be able to execute really well here.

So the -- it's interesting, you talked about having the industry's biggest fiber-to-the-home sort of building machine. Any opportunities for DSL tuck-ins where you look at those regions and say, "Well, we can just go in and roll some fiber there and take those customers over to a better service, maybe attract some new customers"? Any sort of edge-outs versus tuck-ins versus just building an end market? Any thoughts there?

Yes. Look, we're clearly looking -- the focus is in-market and adjacent markets. And we think that is -- that provides our best returns. But we are also seeing, are there opportunities to partner with others to potentially see if we can come up with a formula, where out of footprint, we're able to deliver attractive returns? But the priority near term is let's build out and execute better in-region or adjacent to region. Let's extend out from where we already have wireline to make sure that we are taking advantage of the adjacencies. And importantly, when looking at that, we're not only looking at consumer adjacencies. Are there business opportunities adjacent that we can go after? So...

Yes. That will be interesting to see as you pursue it. Maybe I'll ask a few questions to have you help me with my model, even though you suggested there will be longer-term answers rather than shorter-term answers. When you think about growth sort of algorithm for your wireless business, and we're building up to this mid-teens EBITDA growth, right, how much of that is driven by...

Mid-single digits.

Mid-single digits. Yes, excuse me. How much of that's driven by subscriber growth, ARPU growth, cost savings? And I guess, as part of that, if you wouldn't mind, it feels like the wireless marketplace is sort of incrementally more competitive every sort of quarter that goes by. And your sort of promotion of the base with free phones is part of that as sort of evidence of that. What gave you the comfort to build up to this guidance relative to what you think wireless -- how you think wireless competition is going to evolve over time?

The market has been, and we expect it to remain, really competitive. And as I said, look, we look at our offer side-by-side with others. And I will tell you an objective look at it will show that we are -- our offers are no richer than others. And the onus is on us to execute. And what that looks like is -- look, remember, our ARPUs are at the top of the industry. So that's one thing to be mindful of. I expect we will hold ourselves accountable for gaining share in the marketplace. And we will know -- as John Stankey says we're out of the business of being shared owners. We're going to fight for our customers. We're going to retain customers. And we're going to add customers where we think we can do so profitably. And it's really about execution. The market is -- we expect it to remain really competitive. But we think there is room in the market for the three vibrant competitors that there are. And we each need to fight for our share and we feel really good about our ability to get our fair share.

So help us sharpen our pencil on the consumer side. Beyond the build-out of fiber, is there anything else that we should think about driving profitability in the consumer segment over time?

Look, here is the thing that you have to keep in mind, a couple of things. One, on the consumer side -- and you're talking about Consumer Wireline?

Yes.

Second quarter of last year, we began to bundle HBO Max. So as we make our way through the back half of the year, those -- we begin to lap some of those costs of first starting to bundle. While we're adding subscribers, the year-over-year impact will diminish versus what it's been the last few quarters. So we -- in order to improve customer service, we took back some of our customer service. We previously have outsourced it. We took some of that back in-house towards the latter part of last year. As we make our way through the back half of the year, we'll begin to lap those comps. And you think about that, coupled with beginning to have growth overall, we feel really good about the trajectory of that business. And the transformation efforts we've talked about are going to be a journey, and we're going to continue to work to take cost out and to drive efficiency in that business. When you look at our margins versus some of our cable peers that are more deeply penetrated, we think there's plenty of opportunity for us to improve.

Makes sense. On the Business Wireline side, we're currently forecasting that business maintains high 30s margins and revenue sort of maintain secular decline, maybe a few percentage points a year. Should we be thinking about Business Wireline and the outlook there differently?

Here is going to be the key. I think the Business Wireline team is focused on, okay, what is the -- what are the capabilities and products that consumers need, not only have they needed historically, but they will likely need -- our consumers' businesses, what the businesses need and what they will likely need going forward, given the connectivity trends we're likely to see? And so I think the evolution of the products' offerings is something that we are really excited about. It's going to take some time to evolve those products to a point where they are at scale and contribute significantly. In the meantime, some of the dynamics that we've seen historically will persist, like decline in legacy voice products. But with all that said, we feel really good about this business being able to generate an absolute level of profits that are meaningful because the team continues to transform the business to take cost out.

So media still matters. Your old home, probably near and dear to your heart, but it's also...

Indeed, it is.

Call it, $7 a share of value for the company, so it's not nothing. NBC yesterday said their upfront was done. And we've had Fox and Disney and Discovery say sort of almost done. A lot of discussion about record upfront. How is the upfront going for Turner? Any thoughts on CPM pricing and sell-out loads?

Look, we're not quite done. But the context to keep in mind is the marketplace is really healthy right now. Relative to last year's upfront, CPMs are up high single digit. Advertisers have really high demand for not only the traditional linear inventory but as well digital, including AVOD inventory. So we feel really good about how we're positioned. And as this finalizes, we'll be happy to share the details with you. But we feel really good that we are progressing very well and the market is extremely healthy right now.

HBO Max is about to launch in LatAm in just a couple of weeks and then Europe. Can you talk about the pricing decision for Latin America? I think if we're trying here properly, it's about $1 or so cheaper than -- for HBO Max than HBO traditional service in those areas. Any thoughts around pricing?

In the U.S., we had an existing business that largely we drove through wholesalers, and there was a pricing construct there that limited our flexibility in pricing to consumers. We don't face the same hurdles when we get outside the U.S. And our ability to deliver a really good product at an attractive price point gives us a lot of confidence that we will succeed and drive a lot of customer adoption as we roll out in international territories. With that said, I'd be remiss if I didn't say, notwithstanding the price point in the U.S., we have added more subscribers in the last year in the U.S. than any other distributor -- any other consumer service. So think about the ARPU and the revenue growth that comes from that business. In the first quarter, we generated over 30% revenue -- subscription revenue growth related to HBO. So not only are we driving subscribers, we are driving top line. And I would look at our competitors, other than Netflix, I'm not sure that there is a lot of meaningful revenue being driven in the -- revenue growth being driven in the U.S. by the launch of D2Cs. And I would compare us not only in the number of subscribers, but also the absolute level of revenues that we are driving.

Any chance you're willing to share or offer some construct around what pricing might look like for HBO Max in Europe as you launch in the second half of the year? And what should you expect to invest for initial sub growth? I know we're thinking longer term. But you're launching a new service and how it does in the short term is certainly reflective of a long-term opportunity. These next 60 markets you're launching in the next 6 months or so, what -- how would you define success?

Look, we have guidance in terms of where we expect to be this year. The guidance out there is 67 million to 70 million subscribers globally. And we feel really good about that guidance. And obviously, I'm not going to make news by announcing here what our pricing strategy is going to be in Europe. I'll leave that to Jason and Andy Forssell and team to do. But I think the guiding principle you should expect is we understand this is a global game. We understand that we are great at curating the best content in the world. And if we price appropriately and we execute well, there is no doubt in our minds we're going to be able to execute, we're going to be able to succeed across the globe with our product offering.

So I'm trying to figure out how to ask this question in a way that you're actually able to answer constructively. But I'm just sort of curious the long poles in the tent for deal timing on the regulatory process. I know you said middle of next year. Anything that has happened significantly that might shift that forward or backwards?

No. Look, here are the factors at play. And Doug, you know this and the audience is probably sensitive to those. Given the structuring of this transaction, our intention is for it to be tax-free. That process evolves because of the magnitude of the transaction. We are working through to get a private letter ruling from the Internal Revenue Service. So that's one item. And we know typically how long that takes. But beyond that, getting through the U.S. and international different market and regulatory regimes, it just takes some time. We're hopeful that we are conservative in our outlook in terms of the time that it's going to take to get it approved. But we don't know. I mean, you see Washington. Look, I'm not confident that we're going to be able to get something done very quickly through the DOJ. It's just -- so those are the -- that's why we gave the 1-year time table. We're not concerned at all about the regulatory that this could be challenged from a regulatory standpoint, but it's just -- we believe it's just going to take some time.

So let's talk about that $24 billion of CapEx, a big number. You talked through what some of that spending is for. Any long-term vision for capital intensity and any time frame to consider as to sort of when you sort of come off that $24 billion as part of this investment cycle that you're pursuing?

I'm going to give you another very unsatisfying answer. It depends. I think, clearly, what the guidance was given for the next few years, we think the opportunities are enormous and we want to have, as John Stankey said, the absolute best network, integrated network in the U.S. So we're going to lean into that opportunity. Longer term, what that looks like beyond the next few years, I would say, what sort of returns is it generating? What's our market position? What do we think we can -- what are the adjacent revenue streams we think we can drive from that CapEx? And does it merit more capital to be put behind it? So those are the factors at play. But look, in the near term, we feel that, that investment will give us a really, really good competitive position. And then the rest is really up to us to execute.

So next sort of modeling question for you, Pascal, we get a lot of investor questions about the new company's $20 billion free cash flow guidance for 2023, first full year post deal. Can you help investors understand the path from EBITDA to free cash flow and the sustainability of that free cash flow generation beyond 2023?

Sure thing. The thing to keep in mind is we're holding ourselves accountable to grow EBITDA for the connectivity business over the next few years. And so the guidance, first and foremost, is related to 2023. This year's guidance of $26 billion includes WarnerMedia and DIRECTV. With that said, when you think about DTV as an example, the profile of that business would suggest that the free cash flows are going to decline over time. So whatever you thought it generated last year, it will generate less this year. WarnerMedia, last year, there was a shutdown of production. And that started to dissipate as you got through the latter part of the year. But still, we are ramping up content investment, cash spent on content this year. And so the working capital drag that you're going to see on EBITDA is going to be much higher than normal. So the -- whatever you think the EBITDA for WarnerMedia will be, you put against that a significant increase in content spend. This year, we've -- we are expecting to spend significant amounts. And so when you look at WarnerMedia less that drag, that's one thing to keep in mind, too. Another factor is this, when you look at the proceeds we expect to get from asset dispositions over the course of the next year, that amount is going to -- we estimate will exceed $50 billion. At an interest rate of about 4%, you have over $2 billion of interest savings. And you look beyond that, it's really continuing to manage taxes and working capital well. So those are the things I would remind everybody to look at. And we feel really good about the ability to hit that. But I'd be remiss if I didn't go back to the comment I made earlier. Over time, what's really important is not -- to me and to this leadership team is not the absolute level of free cash flow we deliver in any year. Because that's not value creation. It is really how we're positioning our businesses to succeed. Are we seeing top line growth and margin improvement? So the other factor to keep in mind when there's all the dialogue on our free cash flows, when you look at our dividend obligation, you have -- we've resized it to between $8 billion and $9 billion. Whether you think free cash flow is $20 billion or $18 billion, there is plenty of flex to cover the dividend and to capitalize on opportunities that present themselves.

So that takes us to the balance sheet. I think this is the first time I'm saying this, so I appreciate how you're starting your tenure here as CFO. Your target -- your leverage target seems conservative. So I personally think the upcoming spectrum auction probably fills that gap. But is there a flexibility built in that guide for other purposes that we've not discussed yet?

So clearly, when you do NAFTA, you'll figure it out, Doug. We have put a placeholder in for incremental investments, so -- because we want to make sure we're preserving flexibility. As you look beyond 2023, where we fall on the spectrum, where we fall on the -- in terms of the absolute level of leverage, I think it's really going to depend upon what is the interest rate environment, what do we think the investment opportunities are, the returns on those investments. So yes, in the near term, we do have a placeholder for uncertainties. Over time, where we fall on the leverage scale will really depend upon what the operating environment that we find ourselves operating in. The thing that I want to -- the message I want to underscore is this, we are committed to managing down our leverage. And before we start to consider things like share repurchases, we have to get our leverage below 2.5x.

I think I've run us out of time at this point, Pascal. Any sort of closing thoughts? What did we miss? Anything you want to leave us with?

Look, one, thank you for the time. What I would tell you is this, this is an organization now that is focused on execution, willing to make hard decisions, even if it means turning the page on prior actions. Judge us on the path forward on how we are executing and how we are -- the actions we're taking to deliver value to shareholders.

Great. Thank you so much for sharing your time today. Thanks, everyone, for listening.

Thank you. I really enjoyed the time, Doug. Take care.

Thank you.