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

Good afternoon, everyone. I'm John Hodulik, the media and telecom analyst here at UBS. I am here to welcome you to our keynote presentation. We are lucky enough this year to have the CEO of AT&T, John Stankey, as our keynote presenter. John, thanks for being here.

Thanks for having me in, John. I appreciate it.

So we've got about 45 minutes of time here. I've got a bunch of questions that I've written down. [Operator Instructions] So John, anything you want to begin with this morning?

Probably ought to get through the obligatory safe harbor, which indicates that, of course, some of the comments I'll make are obviously forward leaning in nature, results may differ materially. If you'd like to get additional information, you can go to our Investor Relations website. And I will also remind everybody that at this juncture, we are still in the middle of Auction 110 with the FCC, so I'm going to steer clear of anything relative to spectrum or spectrum policy.

Perfect. Sounds like a good idea. So let's dive right in. Obviously, 2021 was an eventful year for AT&T. Can you give us a sense for what your priorities are as we start to look out into 2022?

Sure. The priorities for '22 remain the same as they were in '21. And if I step back and think about at the point in time when I entered into this role, in July of last year, we said growing customer relationships was absolutely critical and important. And I step back and I think about where we are today after about 5 quarters in the role, and we've got 4 million additional postpaid subscribers in the wireless business, 1.4 million more fiber broadband customers, nearly 14 million HBO Max direct-to-consumer customers. And in that regard, I think the team has done a really nice job in working through and understanding what we needed to do to be effective in the market and realizing that, and we're going to continue on that path as we move into '22. In addition, we said we wanted to be effective and efficient in everything that we did. And if I go back and look at what our objectives were in trying to manage through the cost dynamics of the business and reposition the company, I feel really good about the progress we've made on that. In fact, a lot of the progress that we've had in the market has come on the back of us being able to take cost out of other parts of our business and reinvest it in our market effectiveness. So we set out a goal of about $6 billion of expense savings. As you know, we're probably about a little over halfway through that as we close out this year. We've got a really solid plan in place to work through over the next 12 to 18 months to work the balance of that. And some of the momentum we're seeing, frankly, is so strong. I think we're going to continue to push and drive forward on some of these things, even after we hit that $6 billion objective and it will be the benefit that we have to continue to drive our momentum in the market. Third, I laid out that we really wanted to be diligent about what we're doing in our capital allocation. And it's hard to suggest that we didn't go after that pretty aggressively in terms of what we've done to restructure the business from an asset perspective and while not all of these things are done, I will tell you it's not insignificant that we have the DIRECTV restructuring behind us at this point. I'm really pleased at how that's gone. I'm really pleased with the new management team that's in place and the focus into Christmas of what's going on there. And of course, we've set a path for the media assets and what there to occur. But let's also not forget there have been a handful of other transactions, some asset monetization in our gaming business, what we've done in Latin America to shed assets and refocus the business and a couple of other smaller things that we've done that ultimately have brought cash into the business to allow us to refocus into the core part of our business. So '21 was, I think, a really important year for the team to first set out its objectives and then deliver on them. I think '22 will be more of the same in the markets, but we're not going to have a lot of this restructuring issue going on. We should get the media transaction behind us in the first half of the year. And then we have a management team that can focus on what we want AT&T to be moving forward. And I expect sitting here this time next year that we'll be talking about having concluded that, and hopefully, our attention will be entirely on the future and not on what we need to do to reposition or restructure the business.

Perfect. Great overview, and we're going to dig into each one of those initiatives and each one of the segments. But before we do, just to follow up on that last comment. Can you give us an update on the -- either the -- both the regulatory process and maybe how you think about the sort of deal structure as it relates to the WarnerMedia transaction? There were some news, I think, this morning about some congressmen pushing for DOJ review of the public transaction. Is there anything you can tell us about the process or how it's unfolded thus far?

Sure. I don't have a lot of new news to give you, but I will tell you, John, obviously, any time you walk into a complex transaction like this, you spend a lot of time at the front end thinking about how the approval process will go. And there's a lot of different branches of that, whether it's the international dynamics or domestically in the U.S., et cetera. And I think I'm really pleased to say that if you kind of went down the most likely case scenario that we laid out, we've been tracking on that most likely case scenario across every aspect of the transaction approval. Everything that we've had to do operationally to get the business ready, to be in a position to restructure it, what we've had to do with domestic regulators, what we've been doing outside the U.S. where we are from a tax perspective, et cetera, I feel like it's all gone largely to script at this point. And of course, we recently filed with our S-4, as you know, give you a lot of insight as to how we're thinking about this business. That's a significant milestone that we know we needed to have in place to get done. It was done on schedule. That allows for the additional approval work that needs to be done with the Discovery shareholders and the schedule and the time frame that we expected for that to occur. Now admittedly, as we get into the first quarter, the milestones are significant from a regulatory perspective and the real acid test as to how we're progressing. Will, of course, be about working through those processes with the regulators and those who have the say in this. But I will tell you, I've seen nothing that's gone on in that process up to this point in time that's out of pattern or out of SKU, and it's going as expected, and we continue to have really good and constructive discussions with folks as a result of that. So I feel good about the process, is the net of it. And I think as we get into first quarter, we'll be able to demonstrate back to the market and to many of you, the natural progress that you would see occur in a complex transaction like this, I think will provide better visibility to ultimately when that close will be. Now having been through a number of these at different times in my career, getting letters from members of Congress is not unusual. I think it happens with virtually every transaction, I think, we've ever filed, and we're a big company. We work in big industries. We have large consumer bases. And I think when you have a lot of members of Congress, there's always going to be those that have a different lens they want to put on something. And certainly, that maybe happened last week, where a particular segment of the congressional population decided to write a letter back. Not to say that we won't get the dialogue and have a constructive conversation for people to understand that I think what's been articulated in those letters is really unfounded. And I believe the context of our discussion with regulators up to this point have centered around those issues, and we feel very good about the data we've put on the table that it's clearly indicated that there's nothing unusual about this transaction. And we'll do the same with other constituents as a result of that. But I would also tell you that those letters that I'm looking at relative to maybe some that have occurred in past transactions are not very strong in the foundation of their concerns, nor do I have concerns about what they're articulating in terms of our ability to navigate through that.

Makes sense. And just in terms of the deal structure, more clarity, you think, first quarter time frame?

Yes. As you know, when we filed, we kept our options open. And I think we had indicated to everybody that, that was our intent, that we would file the documents in a way that would allow us to either spin or split. But as we've said, this is something that we want to evaluate as we get close to the close of the transaction and certainly, look at how the equities are performing and what we're hearing back from the investment community and what we choose to do. And I would tell you, there is no decision at this juncture made. The AT&T Board continues to evaluate and discuss this as more information becomes available and as we move through this. And I would expect that final decision to be a little bit closer to the close. And at that point in time, we'll, of course, let you know what we decide to do there.

Now let's go deeper into the segments and some of the issues you've enumerated in your first comments. First, wireless. I mean, how would you characterize the state of competition in the U.S. today? And how do you feel about your ability to continue to drive the sub momentum that you've seen over the past year?

Look, I'd characterize the competitive environment as being no different than it ever is. It's competitive. And sometimes I read through commentary and thought processes around things, and I kind of live this every day and have to go through it. And I certainly don't walk home at night saying, "Oh my gosh, something just fundamentally changed and the world is about ready to fall off a cliff." I mean we go through cycles and dynamics in this industry that have been around since the start of time, and I don't think they're much different right now. Yes, we had a competitive launch of an Apple device, and yes, we had a competitive Black Friday weekend. But we always have a competitive launch of an iPhone device, and we always have competitive Black Friday weekends, and I frankly don't see anything going on that's at a pattern or out of the norm of anything that's occurring. If I step back and I think about maybe what is different right now, I think all players in the industry, the 3 primaries that are there right now, are all about ready to invest at record levels. If you kind of look at what's going to occur in '21 once the history is written there and going into 2022, my suspicion is we're going to see that through a combination of investment in spectrum and new era interfaces that this is going to be a phenomenal year in terms of reinvestment back into infrastructure in the United States on behalf of the industry in total. And I can speak for myself, I try to be a responsible operator and a responsible steward of what we need to do for our shareholders, and we're all mindful of the fact we want to return on those substantial investments. And I think we're willing to make them, because we have a point of view that the future of mobile connectivity is going to be really strong and really important. And we have some new venues that are opening up. When I look at the dynamic of how the government is going to subsidize, getting broadband into every home in the United States and what that does to open up more robust wireless networks in previous rural areas. I think that's an exciting opportunity for growth for many people to bring more folks on the network and also bring them on to higher-value products and services that drive revenue growth. When I think about what's starting to happen with private networks in the enterprise, the reason the private 5G networks are starting to appear in the enterprise is because people are realizing that the infrastructure of 5G is, in fact, very unique and performs better in many instances than a WiFi network does. And the capabilities that have built into the software and the infrastructure allow for unique opportunities to grow these businesses. So look, I step back and I feel pretty good about the industry, and I feel pretty good about our position in it. I think that we are in no more or no less competitive dynamic than we've traditionally seen, other than we're at the front end of an investment cycle that I think everybody is mindful of. And do I feel good about AT&T's position in that regard? I do. I think we're coming off a unique year in terms of volumes, partly because of the pandemic changing some behaviors, a little bit of government stimulus. We've been conservative in guidance we've given moving forward. We kind of expect the industry maybe on a net add and gross add basis to get back to a little bit more of its normal pattern. But look, there's opportunities for us to still meet our guidance and our growth in that regard. And we're playing a game that's good for AT&T, which is we're playing broadly across all market segments. We're using our distribution in both business and consumer to be able to grow. We're using our improved operation to be able to grow. And sometimes, when I read what the characterization is and people trying to figure out what's going on, I would say we're earning that growth, but we're not earning it in what I would call an easy sound bite. You can't just say, well, the network is better or the pricing is lower. We're earning it because we're doing things right across a number of different fronts. We invested heavily in FirstNet, and we're getting great new market share in the public sector that we've never had. We've invested into fiber and where we've got an opportunity now to co-market and sell our products and services in the consumer space. We're having really good success at penetrating that. We've tweaked our distribution, and we're doing very well at the top end of the business market in driving affinity into some of our large business accounts that help not only our business growth, but how that carries forward into the consumer space. And that's really good. We've lowered our churn and we've improved our customer service, and that's helped. And the network is performing incredibly well. So what I would tell you is we're doing all those things, and I think we're doing the basic blocking and tackling much better than we have in a long time, which is what drives that 4 million growth that we haven't seen in the decade that I alluded to earlier, over the last 5 quarters. And as I think about what we have still in front of us, boy, when we start getting the 5G network where we wanted it, bring the new spectrum into position and the network starts to perform in a way that I think will be at parity with others in the market, and when we start to see the dynamic occurring when we get the brand position and the way that we want, supported with the right product offers, the right service and the right messaging, I think we've still got really strong growth in front of us.

Just lastly on competition in wireless. You've got -- you said you have a lot of deployment going on right now. And it's not just the 3 major carriers, cable is going to do some incremental build in '22, maybe more beyond that. DISH is, last we heard, building in 60 markets. Do you worry that as we look over that period, where that you've just laid out where the network gets where it needs to be, that the competitive environment is fundamentally different because of the facilities that both of these sort of entities are deploying?

I don't. In fact, I think our network is where it needs to be today. I think we can make it better. As I go back and I look at customer sentiment, John, around what's happening in the market right now, and I look at our customer base, both intending gross adds that we bring in and why customers are making the decision to come in and why customers are choosing to stay with AT&T, we perform -- we're performing at all-time high levels on network sentiment right now. So we've got a really strong position as we sit here today. And then when you start to look at the reality that we're seeing customer service metrics perform at all-time highs in our wireless segment, that's certainly helping. So when I start thinking about cable, I don't worry about cable doing something different on network that's going to be better than a company that's been in this industry for decades and has the kind of scaled infrastructure that we have. And when I start talking about what we're seeing happen in private networks and what the capabilities of 5G are, I don't think somebody building around a network with CBRS spectrum and a thin spectrum portfolio and regionally-oriented networks is going to be good enough over time. I really believe we are seeing the reason you need a strong national network. You need strong fiber capillaries to be able to pair it with. I really like the position we're in as a result of that relative to all of our competitors, cable or otherwise. And that's the card we need to play over the next couple of years, and I think we can win as a result of that.

There's been a lot of focus on the handset promotions in the market for the last year or so. Can you give us a sense of what percentage of net leverage gross adds or existing customers are taking those promotions or who's turning in a phone? And I guess -- and this is putting a lot of questions I have together, what's your visibility regarding sort of future ARPU trends in light of those promotions? Do you feel you have enough sort of tailwinds in terms of moving people to higher tier plans to offset the pressure you may see from amortization of those promotions?

I think our visibility is good, John. I mean we've -- and I hope our track record over the course of this past year of how we've given guidance, and we've been able to be consistent with what we've provided, is an indication of that. And doing an annual business plan where you're contemplating what your ARPUs are going to be for customers, is something we do every year. I think we have some pretty good insights on how to actually work through that dynamic. And since we're the one calling the plays on what we choose to do around pricing and how we choose to go about investing in customer acquisition, we should have some good visibility into that. And when I talk about our confidence level relative to our guidance for next year, even with a little bit more subdued gross ad marketplace, it's built on that set of assumptions. And we expect that we're going to see very stable ARPUs as we move forward. And there's a couple of moving parts on that. Yes, we do have a degree of dilution that we've seen because of some of the promotions, which we've factored and accounted for. We also have some growth in ARPU that's occurring. Part of that is we start to see roaming recover that hasn't been in the numbers for a period of time, which will offset a portion of that. And to your point earlier, first of all, I think there's this assumption that every customer that comes in takes advantage of offers that we have in the market. In fact, what we've been effective in doing in many instances is as you wouldn't be surprised, given the high penetration of multiline accounts we have and family plans, people choose to redeploy a device into their household. And as a result of that, they're not necessarily taking the most lucrative offer that's in the market that occurs. And I will tell you, we haven't given specific guidance on that, but you should assume that, that happens fairly frequently, and we're fairly effective at moving customers into a plan that matches their needs. I think we shared with you a couple of weeks ago that only about 20% of our subscriber base is on our top unlimited plans that are in the market. And as a result of that as we work with customers, and they're consuming more, we're driving them up into better and more capable plans that have more bells and whistles on them and that helps offset some of that ARPU. So the equation is pretty straightforward and simple. It's more customers and relatively stable ARPU. And as a result of that, we're seeing EBITDA go up, and we're seeing service revenues go up. And we had a record EBITDA quarter for our mobility business last quarter. Our growth on service revenues are certainly very much in the hunt of what others are doing in the industry. So I think at some point, people should look at the net-net of it all, and it's an equation that's working for us. We feel pretty comfortable with it. We'll continue to be responsible around it, and we like what we're seeing right now.

Last one on ARPU, the -- you said, yes, about 20% take the high-end unlimited plans. Do you have a sense on where that could go to over time? I mean, is there a target you have out there for that one?

Well, so I think these are evolutionary things that history tends to repeat itself on. Remember, we did a migration away from, let's call it, metered or fixed plans into unlimited and we're now well over into the 80% range on that occurring. And I think that migration going up will be something that we'll continue to see happen. What it ultimately settles in at the top end of the plan, John, my guess is we'll see another structure change in the industry before we get to 100% of that. There'll be some other pricing change or bundling combination change that we'll be talking about. But do I think that given that, that's our top intake product right now that we'll continue to see growth in that? I do.

Got it. Maybe back on the network, just talk a little bit about the C-band deployment. What do you expect that to do to your network? And can you address the issue with the FAA? I mean it looks like both AT&T and Verizon have agreed to lower the power output of cell sites around the airports. Just any practical implications in terms of the performance of the network or costs or anything that we should be thinking of?

Sure. So on C-band deployment, look, we're ready to go. We've been thinking about this a long time. We've been executing on it a long time, and we're anxious to turn that spectrum up. And I think you know what we purchased in the previous C-band auction and what portion of that spectrum will be available for a near immediate turn up right now. And if there were other spectrum brought into the portfolio at some point in time, we should also be mindful that, that spectrum probably has a little different path to market, maybe a little bit more expedient than the second tranche of the C-band spectrum. And I mean that will certainly be an opportunity for any player who's involved in that auction to think about how they ultimately bring that in at the same time as they move forward. And I'm optimistic that the industry will be really responsible in trying to make sure that spectrum resources are brought into service as quickly as possible, given the demand for the product and service that's out there right now. I'm not worried about the issue with the FAA. Frankly, I think the United States has been incredibly responsible about how it's gone about thinking about C-band planning. In fact, our posture on that, given the guard bands that have been put in place versus other areas around the globe, is a more conservative stance. And we know that, that C-band is up and running in other parts of the globe without incident, and there's planes flying and landing every day, many of the same planes that fly overseas that the FAA is talking about right now. We want to be a responsible actor around this. We clearly are concerned about safety. And I think the responsible agency for spectrum planning, the FCC, is -- carries that same point of view, and they were really diligent around all the work that they did in the run-up to the C-band and bringing it in the market. They looked at a lot of data and had a lot of experts in place. And right now, AT&T is holding a valid license to put C-band into service, and we paid a lot of money for it. We want to be responsible and make sure that the dialogue has had. We took that 30-day time out just to make sure that everybody had an opportunity to see the facts on the table, which is strong as to what the safety is. We went further. We looked around the globe and said, what are some other practices that others are using, even though they don't have the same size of guard bands that we put in place in the United States? What are some other countries using? And we agreed to give even a longer runway for that assessment to be done for a 6-month approach to put some mitigating factors in place, which we think is indicative of the fact that we want to be responsible around that. But at the end of the day, we think it's a really, really compelling story. We have a license. It's a valid license. And I expect in January, we're going to be putting C-band spectrum into service to meet the needs that our customers have. And frankly, get the United States into a position competitively that many other countries have been in for a long period of time because they moved faster on C-band. And this is a competitive and economic issue, and it's also an important issue for access to broadband for the nation in total because these are the assets that are going to be used to pick up some of those rural areas with fixed wireless solutions to be able to offer competitive broadband that can bring everybody on the Internet. These are important things for our country, and I think it's time to move ahead on them.

Two more issues that I would address in wireless. First, the wholesale market. I mean you signed an agreement with DISH. I mean is that -- how big of an opportunity is the wholesale market? Are there other -- is there other sort of carriers that you could work with? And could that be a driver of your business?

I think I've said before, you've known me a long time, and I don't mean to sound like a broken record, but wholesale has always had a place in our company. And my belief is if you're building the most scaled and most profitable networks, the way to do that is to have a percentage of the total traffic on your network, in fact, be wholesale. And that's both for fixed and wireless networks. And my point of view was, is our wireless network was a little bit of underpenetrated in terms of wholesale traffic and we found a great partner with DISH, and that traffic is to be used for DISH retail subscribers under a wholesale arrangement that we think provides great fixed cost coverage and great return back into the business, given the avoided effort we have of not having to manage that base. And we think it's really important to have that kind of traffic to make sure that we manage and operate our infrastructure at scale and when we go back to some of the conversations we're having about the profitability of our company and what's been happening, not only our customer acquisition, but just how we're monetizing the network, we've actually regained scale in some of our activities in this business. And as a result of that, our unit cost of customer acquisition, our unit costs on each cell site, because we've been able to bring in traffic during nonpeak periods that wasn't there before, it's helping us in that regard, and it's allowing us to make sure that our return characteristics stay in check. So I'm perfectly comfortable that some percentage of traffic on our network done right is a great way for us to maintain the scale in the industry we need and the DISH contract is one example of doing that. Is there room for more? Sure. I think there's room for possibly us doing some more in other parts of the market as it evolves. Is it going to be the dominant part of our business? No. But I also believe with what we're investing in fiber, we have a great unlocked opportunity for more wholesale traffic there. I'm perfectly comfortable building the best fiber capillaries in metropolitan areas and turning those fiber capillaries back to others to use as backhaul in order to offer their retail services. I think that's a good business for us, and I think it's frankly good for the industry over time. And we're going to continue to lean into those types of things.

I'm actually going to turn to the fiber construction and opportunity in a second. Just lastly on wireless, you mentioned the 5G private network opportunity within enterprises. How big of an opportunity is that? I mean does it eventually move the needle? And last week at AWS re:Invent, they announced a new private 5G sort of initiative. Any thoughts on that and whether that changes the sort of competitive landscape in that business? And maybe just talk about how AT&T is positioned for it.

Yes, it's a good question. I don't pretend to know exactly what Amazon is thinking or doing. I would infer from my observations that they understand that, as I said earlier, we've built wireless networks now that have so much technology, scale and capability that there's planning previously unmanaged and unlicensed networks in terms of their effectiveness. And there's an application of that into many business environments as a result of it. And frankly, over time, there'll be consumer applications as well as we see companies start to use that capability to open up new applications that enable more augmented and virtual reality in the consumer space, it will require broad scale, robust and scaled wireless networks to enable those things to happen. I think Amazon sees that. I suspect any other hyperscaler sees it. And if you're running a hyperscale business and you want workloads, there's going to be some meaningful workloads that come back in and for them to be able to mimic some of the capabilities that we have back in our core and offer companies that want maybe a lower budget, more contained approach or a solution to that, they've kind of built it in a box for them. Frankly, I'm suspect that there aren't going to be a lot of businesses out there that necessarily say they're ready to tackle becoming their own wireless operator in those environments. There's -- from our experience, a bit of complexity that gets involved with those types of things other than the most generic and simple environments. But I think the offer they're bringing in for a fairly straightforward simple business, noncomplex environment, not multiple locations, not having to worry about devices that maybe necessarily leave the four walls of a building. I think what they're doing is probably finding a space where they can go and find additional workloads and bring it in. And those private networks will be more robust than maybe the WiFi networks that might be running in those locations. And in that regard, they're solving the market problem. I don't think we have a scaled enough and simple enough offer in that space right now at this point. I think most of our work and activity has been in the more complex environments. They're the large enterprise customers that have multiple locations, that need to have some ability for equipment and product to move between a private environment and a public environment. I think that's where we've spent a lot of our time in these early applications. As we get up the learning curve on that and as we equip the network to be able to do things differently, can we begin to move down market and offer more economical solutions that might meet the needs of the similar area where Amazon is trying to play? It's possible. But right now, we've got our hands full kind of at the upper end of the market. I do think that there's a lot of great opportunity in enterprise right now, especially in health care, especially in manufacturing, where we're going to see some new intellectual property being written in those spaces to help their businesses and make them more effective and efficient.

Great. Great explanation. Why don't we move to consumer and fiber-to-the-home? Obviously, it's a new initiative -- or not a new initiative for you, but it's an area where we are expecting some more growth...

Everything old is new again.

Exactly. That's exactly right. So I guess that -- why don't we start there? What -- how is the business sort of -- why is it suddenly attractive now? Not just for you but other providers who are off putting fiber in the ground. And you've said 3 million to 4 million new sort of locations passed incrementally. How quickly can you ramp that? And where do you top out in terms of just overall ability to ramp up that -- rev up that machine?

So your question, why is it so attractive now?

And again, there's a lot of -- well, we've got half a dozen entities out there talking about building fiber. And if you go back a couple of years, especially after you guys have met the DIRECTV requirements, there wasn't much going on. And now it's certainly kicking into new gear.

Yes. So maybe I -- because of my age or tenure, I may be more historian than others, but I would tell you, back in 2010, 2009, I was advocating pretty strongly inside the business that we needed to push a lot more aggressively on fiber deployment within the Business Market segment. And I don't know that I was very effective at carrying that day and that message as much as I might have liked or liked to have seen our company pursue. And then I would tell you, back when we started the Austin trials, I may get the year wrong, I'm guessing it was about 2012, that was because I believe that the time had come for fiber to be more broadly deployed in the mass market segment and that it could be very viable. And that success in doing that gave the confidence of the DIRECTV commitment to do 15 million homes. And at that point in time, when I was kind of involved in that decision making, I didn't expect that 15 million was going to be the end. In fact, I suspect you can go to transcripts back in 2015 or '14 and probably find that I talked about the fact that we always start this way. We start with the first tranche, that's the easy stuff, and then we move on to the next. And I would have expected that we probably should have carried forward on that investment level at that point in time. And maybe there's more people interested right now in looking at things, because there's probably a gap that's been left of what I think was a very attractive and superior technology that can be very relevant in the market. And we are moving to close that gap right now. And I think that we are uniquely positioned to do that. I think we understand this technology as well or better than anybody else. I think we can scale to deploy it better than anybody else. I think we have a brand and a go-to-market strategy that can be better than anybody else. I think our scale ensures that we'll gain access to the raw materials that are necessary to build and the labor that is necessary to build, more so than others coming into the market right now. And I think, frankly, as we kind of go through what's going to come out of the broadband infrastructure components of the Infrastructure Bill, we're going to see states are going to need scaled partners to work with, reputable scaled partners, people who can step up to a multiyear set of commitments to get things done, people that will in fact, bring the right offers into the market to help the underserved that cannot afford the product and service, gain access to it. And I think we're going to be in a very unique position to help states do that. And so I think we're in the right space right now. I would have liked to maybe have been further along than 15 million fiber homes left to my own undoing. But we are where we are, and we're now scaling quite rapidly. And I think we've demonstrated with the results we've brought back. The fact that we're moving very much in a 4-year phase into kind of a market split arrangement, after we deploy, that we can be very effective in this market. And I'm excited about that. And I think, frankly, we still have more improvement in the performance, both financially and from a market share perspective as we get our act together and do things on a more scaled basis than what we're seeing today. In terms of our ramp on construction, we're moving past the 3 million range. And as I described it on the last earnings call, I'd rather you just look at the new inventory that we're bringing in every quarter rather than to build inventory because we're going to be doing things to kind of scale ourselves from 3 to 4, and I think 4 to 5. And I'm doing some work as well around where do I think we have other opportunistic things to go and build infrastructure and footprint that maybe is a little bit more nontraditional in sense, and we're looking at some different models as to how we can take our capacity up as a result of that. So look, we're a scaled business. We know how to do these things. We've run large civil works projects, probably more so than any other company in the telecommunications space. I think this is part of our DNA. And as we get our flywheel going around these things, we can be better at it than anybody else. And I intend to -- as long as we have attractive investments to deploy capital against to continue to scale it and take it up.

So two follow-ups. What percent of your locations do you think you could eventually reach economically with fiber-to-the-home infrastructure? And then can you give us a sense of what you think of as sort of guideposts for penetration, say, over a 12- or 24-month period once you open that home or location for sale?

So John, I would tell you, as I talked to the management team, I don't define it in the way that you just asked the question. I don't talk about it in the context of our footprint or our traditional operating territory. As I said earlier, and I've said this many times before, there are no fixed in wireless networks. There are only fiber networks with different access technologies on it. I believe having the right kind of fiber infrastructure in place nationally is what a networking company in the United States needs to be. And when you are our company where we, in fact, service customers nationally, when we have distribution across the largest, the midsize of the market, consumers, we are uniquely positioned to do that right. And the way I think about it is not a percentage of our current base, but where there are opportunities for us to go and build fiber that helps both our wireless network and allows us to gain access to traffic from the business community and from consumers. And that may well be an MDU in the middle of New York that wasn't part of our attractive franchise territory from the past. As I talk about the franchise territory, I think what you've heard me say and I'll repeat it, was probably saying it in 2015. Generally speaking, in loop access technologies, getting to about 66%, roughly 2/3 of the serving footprint, with each generation of technology is usually pretty straightforward on what I would call a market-based economics basis. Somewhere between that 2/3 and 80% oftentimes comes with a little bit of government help in the past history, either a state doing something to subsidize or something going on that was part of an approval process and a trade-off that occurred. But generally speaking, the economics bear out in loop technologies, access technologies, about 2/3 of a footprint and then somehow through a variety of other things that sometimes settles in some place between 2/3 and 80% of additional. And it's that last 20%, 25% that oftentimes gets -- either doesn't get done or gets done with alternate technologies. And I think that's where fixed wireless is going to play really strongly in our country going forward. And why it's so important that spectrum in the mid-band get into service so that all these folks that are living in those less densely populated areas at 100 megabits per second to be able to do all the things that those of us living in more densely populated suburban or metropolitan areas enjoy today, that's all within our reach right now. And we should be moving ahead as a country to do that because it's a great social benefit. It's a great economic benefit. It's a great opportunity for economic development in less populated areas of our country. It's a great equalizer for education, a great equalizer for health care, a great equalizer for economic opportunity. And I do believe that that's what we'll see in that last 20%, 25% of the footprint over time.

Makes sense. So EBITDA growth in the Consumer segment has inflected and you're actually seeing some nice growth. I guess, again, putting a couple of things I wanted to address together, so what's the visibility on your ability to continue to drive growth in that segment? And then conversely, the business segment has had some secular issues, it declined about 8% last quarter. How do you see all this investment impacting that business over time?

So the line of sight on the consumer business is really good. We've hit that inflection point, as you indicated, and it's going to be highly correlated to the number of new living units per quarter that we bring online, relative to our build. And so as I said, I really would rather not talk about how many units we built in any given quarter, any given year, I'd rather talk about as we go forward and you think about our success as a business, how many new living units we have to sell and market to, that we've let up? And that is going to be a really important part of continuing that EBITDA growth, and we have, we think, good visibility into our supply chain right now, and we're starting to see the consistency in the last several months in terms of getting equipment and supplies, our ability to turn up new locations that we feel really good about our guidance that we've -- our longer-term guidance that we've given moving into next year as a result of that. And it's just a matter of execution for us right now. I don't think there's anything more to it than that. As I said, we do civil works projects. We're really good at them. We know what we need to do, and I think we will get through that without any issue. So feel good about the consumer segment, feel good about our ability to grow EBITDA and service revenues and mobility. So that then gets us to the third area that you just mentioned, which is where we are in business. And we haven't spent as much time talking about this, but we are reorienting ourselves in the business market. We've typically been a great share leader up market, let's call it, the Fortune 500, and that's where our bread and butter has been. We're not backing away from that market. We continue to support it. We continue to like our growth and what's happening in our relationship with those customers, especially in the wireless business, we're already there, we have account infrastructure in place. We can do that complex networking on private networks that we discussed earlier. We'll continue to service those customers and do what they need to do. But more and more, when it comes to the complex networking for fixed side of the business, these are more self-perform businesses than they are otherwise. Unless they're -- they have a lot of distributed locations, bank branches, retail stores. If you're data center to data center, there's a lot of self-performing going on a network with SDN. And so where is our strength in the business market, it should be in the mid-market and the low end of the market. And that's where our opportunity is to grow. And that's why fiber deployment is so important. So while many of you are focused on what we're doing to deploy the new living units, rightfully so. For the consumer space, you should be equally aware of what we're doing to make sure that as we're building those new living units we're picking up the right business locations as a result of that investment. And that's where our share growth in the business segment can occur. So the pivot in the business segment is away from some of those more high-end managed service, complex networking arrangements in the Fortune 500, down to becoming a really strong player in the mid-market and gaining growth not only in fixed services, but also where we've frankly been underpenetrated in wireless as well built on the back of our fiber that I think is new market growth opportunities for us. And getting through that transition cycle of those products and services, is -- we won't be through that in 2022. It will take through 2023 for us to hit that same inflection point in business that we've hit in consumer. But we've got a path to get there, and I think it's frankly a more sustainable franchise moving forward and plays off our strengths of being able to do both fixed and mobile solutions in that segment of the market that I'm excited about.

Great. I think we have time for one more question. So let's turn to capital allocation and priorities with cash. Obviously, maybe we'll start with when do you expect to hit your leverage targets? When -- at what point do you believe that -- or just maybe some high-level commentary on CapEx, you're spending things sort of some outsized CapEx for what you've historically spent. When can -- when do we get to the point where we could start to see pressure on that? And then there's been a lot of comments that we've gotten about the dividend policy of the company going forward. Just any comments you can make in terms of the payout ratio or I think with the actual amount of dollars that you're going to be putting towards the dividend once these transactions close.

Sure. So look, no change in what we've previously communicated, which at the close of the Time Warner transaction -- the WarnerMedia transaction, excuse me, we expect it'll be at about 2.6x debt-to-EBITDA. I would expect by the end of '23, that should be down about 2.5x. And that's still our expectation right now based on current guidance and where things are at. Getting the balance sheet where I've got the right flexibility on, is really important to me. As I have said before, my job and my capacity, when individuals come and visit me and talk to me about a good idea that can offer a return back into the business, ought to be to say yes. And I believe that us getting into that range and being in a position where we have that latitude of flexibility is what's important for return characteristics, which is maybe getting at your second question, which is, right now, I fully understand my obligation to show back to the investment community that where we're deploying that stepped up capital investment is, in fact, bringing those returns. And a lot of our stepped-up capital that we've given you characterizations toward, are really in 2 places, one of it's bringing on the new era interface into wireless, which I think we absolutely, as I said earlier, cognizant of the fact that we need to continue to return. And for a company that's had some of the best returns in the industry in that space and the highest ARPUs, we don't intend to seed that. We intend to make sure that we can get adequate return against what we're deploying in that space. But I've given you some ideas and thoughts around how we think we can operate the business better to still be aggressive in the market, still make sure that we're gaining our fair share of share and at the same time, achieving that objective. And the second place is we're stepping up our investments in fiber. We've given you a lot of proof points as to why that's really strong and important to, as you mentioned one earlier. We've turned the corner in the consumer space on EBITDA growth. We're watching those returns improve every quarter. And as we work through some of our cost out work around here and our transformation work, they're going to get better. When we can get into that space with customers that are paying us $50-plus a month, and we're splitting share in that market, that's a good place for us to be over the long haul, and that's a pretty sustainable franchise. My job is to continue to come back every quarter and prove to you that we are consistently doing that. And when I do that, you'll have no issue with me saying I'm continuing to invest at a level to attack that customer base. The moment I don't do that, then you should question me and we should ask, is that when we should be ratcheting back on some of our capital deployment and catching up with our execution. And I will be incredibly mindful of that going forward that it's up to me as an operator of this business to prove that to you, and I think we can. And I think we've got great things in store for how we can return off that fiber investment. On the dividend side, I think what we've told you is we'd like to be in the top 95% in terms of yield characteristics of what we wish to do. We think we have an opportunity to set it there. We've told you, it's probably going to be in the $8 billion to $9 billion range of total cash flow annually at the close of the WarnerMedia transaction that's worked on a 40% payout structure-ish, assuming about $20 billion a year of free cash flow by the end of '23. Those are the assumptions that we're working on right now, and that's about the range we expect to be in. So the Board continues to look at its dividend policy. It does every quarter. It makes a decision going forward for the next quarter. This is the guiding principle we've kind of kept in our mind at this point in time as we move forward. With the investment opportunities we have that are organic in the business right now, with how we see cash flow projections going out, we think that's a prudent balance in rewarding our shareholders at this juncture. But like they do every quarter, the Board will continue to evaluate our progress and success against our execution and ensuring that, that's an equation that still holds together, moving forward.

Great. That's a great place to leave it. John, I really appreciate you being here. You're always generous with your time, and thanks for being here again this year.

I always love joining you this time of year, John. It means the end is near. So it's good to see you. Thanks.

All right. Thanks, again. Hope to see you.

All right. Bye-bye.