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

Thank you all for attending the last presentation of the 2026 Bank of America Telecom and Media Conference. Really happy to have AT&T helping us wrap up this year and excited to have Pascal and Jen join us here this afternoon. So thank you both for being here.

Thank you for having us. .

Thank you.

And I think you might have a safe harbor that you wanted to show, Pascal?

Yes, indeed. Can we pull our safe harbor? Some of the comments today will be forward-looking and are subject to risks and uncertainties. Please refer to our website for more information.

Great. Pascal, so I want to kind of cover a broad range of topics, but I want to start with priorities and momentum in the business. And going back to the second quarter. So big picture in the second quarter, AT&T reported faster growth in service revenue, adjusted EBITDA and adjusted EPS than in the first quarter. And you also reiterated your full year outlook. So I'd love to hear from you, Pascal, what has improved most meaningfully in the underlying business? And what gives you confidence in that momentum carrying through to the second half and even longer-term guidance period?

Yes. Look I think we are -- I think we reached the tipping point in the second quarter. And we expected that -- I mean, I'll take you back the last several years, we've been investing against priorities that we have deep conviction as it is our belief, if you want to be the best connectivity company, you need to have the very best technology. That is, for us, fiber and 5G. We've made enormous investments in both bolstering our spectrum position, modernizing our wireless network and deploying fiber. Last year, we significantly increase -- enhance our position by acquiring -- by announcing the acquisition of the Lumen consumer assets and the EchoStar spectrum. Together, those assets position us for accelerated growth. We said it at the time we did those deals. Those deals have both closed now, and we expect to see an acceleration in broadband revenue growth, both fiber and fixed wireless. When we acquired EchoStar spectrum, it allowed us to open up more areas with its wireless. So the combination of those 2 acquisitions plus our organic build that -- fiber that we have been at for several years now really has increased the opportunity set for us to drive converged relationships. Our consumers have told us very clearly, they want to buy from one provider. And if we can provide them the very best services at a compelling price point, where we have owners economics on both sides, we believe that is a critical advantage. Ironically, in many ways, we are insurgent in broadband in that for years, our cable peers have enjoyed a virtual monopoly. And we are overbuilding in their areas. We're able to bring a better product at an attractive price point, knowing that we have -- we can trade economics between wireless and fiber. And so it's a great play and a great position to be at, and we think there's a lot of room to run. As you know, we continue to build out significant fiber locations, both in our legacy -- in our historical footprint plus in the footprint that we acquired for [indiscernible]. And that's going to continue to give us a nice runway. So we sit here today, we have guided for the next 3 years to grow earnings double digits -- EPS double digits. We said this year that we are returning $18 billion back to our owners in the form of dividends and buybacks. Over the next 3 years, we expect to deliver $45 billion back to owners, plus double-digit EPS growth and accelerated the EBITDA growth from here. So, oh, no. I am so incredibly proud of the organization and the position we find ourselves in.

And you touched on convergence earlier, and I want to come back to that in a minute that it is all central to the story and even the evolving debate, right, around telecom versus LEO and that entire thing. But I would have focus on maybe wireless and competition for a second because we entered '26 with expectation for elevated competition, right? I think in part because in 4Q, you did see some carriers out with relatively aggressive promotions, not AT&T, but others. In the second quarter, combined what 432,000 postpaid phone net adds, higher ARPU, lower year-over-year postpaid phone churn. So maybe contrary to some of the expectations that the market had entering the year, I'd love to hear what changed during the quarter? And how much of that performance reflects AT&T specific execution versus moderation industry switching activity, and it's kind of a long question. And if you look kind of beneath the headline numbers, what customer behavior has changed? Switch less frequently, what's changed in their behavior or their activity?

Let me start, and then I'll have Jen jump in. There were several things we knew was going to accelerate our momentum. Remember, we acquired the Lumen assets in February. That first quarter, we knew we were going to have to invest significantly to ramp up our distribution. So that was a headwind we had called out and we expected that. Two, we only had 2 months of looming operations in the second quarter. So mechanically -- in the first quarter, mechanically in the second quarter when you having a full quarter would also add to our growth rate. One, we also have pricing actions planned for the second quarter. And on top of that, we knew as we scale the Lumen assets. As we manage those assets and put more marketing muscle behind it. that those assets were going to produce more than they have historically and all things that we are seeing and we are benefiting from that have really helped the momentum. And all those plays has a lot of room to run on top of a great performance by our business segment which has also reached the tipping point that for years, we've been saying we're going to achieve service revenue growth. We grew search revenues 1.8% last quarter, and we are guiding to our growth for the foreseeable future over the next 3 years, low single digits. So a lot of things are working well. And as we scale our fiber footprint as we scale the Lumen acquisition, we have a lot of them to run.

And you touched on execution of AT&T strategy and things that you're actively doing? I'm also curious so if you're seeing the consumers are switching less frequently holding devices longer, maybe emphasis on network quality, service, what you're seeing with customer behavior and how that's affecting the metrics that you posted?

Yes, I'll build from where Pascal just was, which is we certainly are seeing behavior that is similar to last year with respect to switching. We are seeing same levels. I'd say the industry is very healthy with respect to competition. It is as competitive out there as it has been. Switching levels we've said they're on par. I wouldn't say they're higher, they're lower. They have held steady as we've gone through the year. What we're very proud of is that our thesis is holding across 3 fronts. One, the converged strategy is working, anchoring the home with Converged absolutely gives us the opportunity in areas where we are underpenetrated in fiber, such as the new Lumen assets. We can go build off the home, pick up the fiber and then grow wireless, where we have not historically had as strong of wireless share like in the lemon footprint. That thesis is holding out. We also hold on to our wireless subscribers in fiber areas. So that grows the value of the household. The second thing that we've done, and we did exceptionally well in the second quarter is the team has executed very, very well and consistently on our pricing. We rolled out new pricing constructs earlier this year. Customers have been very receptive to that. We refreshed our plans, and we've gone out there and listened to customers on their pain points and where AT&T is uniquely positioned is that we are listening to customers who want choice. Customers don't want to pay for more than what they need. And in our traditional plans of unlimited your way, we are leaning into the mix and match view that we uniquely do. So customers truly can go into their family plans where we have large share and makes them match uniquely to the lines they have. With our build to plan, they can uniquely go in at $15 a line and only add the features they want. And so we look at that and say we will build to the household only the plans and features they want. And it's been very receptive. You mentioned it and Pascal mentioned it, we grew ARPU. We lowered churn at a time when we added all of those lines. We actually had the highest account growth in the second quarter than we've had in over 3 years with postpaid voice accounts. And so that is demonstrating the value of CONVERGE. It's demonstrating our execution on price. The third thing I would say is that we are absolutely leaning into the value proposition of the guarantee.

Yes.

Customers are saying and showing us with that growth that the guarantee value proposition makes sense. Staying consistent with leaning into choice, staying consistent with showing them that our network assets and the fact that we're willing to back up our network assets and our service with the AT&T guarantee is building trust.

Yes.

And that shows that customers value that trust, they value choice, they value the price equation that we're giving them. So those things are working and they're positioning us better as we look forward.

Can I build on that for 1 second -- because one of your competitors actually called out expectation for higher churn in third quarter, I think, in part because they had made some planned changes, some pricing changes. And I think it speaks to maybe difference in execution, very deliberate choices that are made by AT& and how you touch the customer and how you make those changes. So can you just walk me through briefly how you think about making those changes interacting with the customer to make it a lower friction, less churn inducing event because obviously, there's is a good way and is a bad way to do it, and it seems as if you're doing it in a good way.

Right. When we look at our pricing actions with customers, we have 3 pillars that we have stayed very consistent with for the last several years. The first is that if we take a pricing action, we ensure that any pricing action adds value for the customer. That is, first and foremost, what we start with. The second is that we are going to be very transparent with the action so that customers understand what's happening. They know it's happening in advance and what value is being presented to them. And then the third is that we come back to choice. And so we will always present it in a way to the customer that says, here's the value that is coming to you. Here are the choices you have within those plans to either stay with the plan you have at the new price point, Here's what you have available to you that might be a higher price point to fit you better or the lower. And what we've been able to do over the last several years as we've executed these pricing plans is learn that customers often stay with the plan there on. Some choose to move up and some choose to move down, and we're able to model that with a lot of confidence and able to build that trust with customers, and we're able to then look at and model the churn that we anticipate. And our business cases for these pricing actions tend to be much more conservative with the churn we would expect and that is we model higher churn to make sure that we're willing on the sensitivities to take the actions.

So you can accept the contemplation of the action.

Exactly. And then we tend to come in lower than our expectation on churn.

That's great. So Pascal, on choice, right? Big choice to make in fourth quarter this year. New iPhones announced yesterday, the long-anticipated foldable iPhone, but I think even the lower-end devices average MSRP went up like $100, something like that. And that's not inconsequential when you're thinking about profitability, and we've run the math on it, right? I think you and others have said that we are not going to keep on increasing subsidies or the consumer needs to be reduced, right? So heading into the holiday season, what is your thought process strategy around devices, around device promotion, I can tell me exactly, but how are you thinking about subsidy, especially with the higher device prices?

I'm going to phone a friend next to me since she is the one making those decisions. But you made a point that's an important one. We are living within a subsidy budget. Just because manufacturer has decided to increase prices for a variety of reasons. It doesn't mean that, that change is a subsidy budget. And so we have to figure out how to live within budget envelope and the team does a really good job of looking at various things in making sure, on the one hand, we're competitive, but on the other, that we are living within that subsidy budget and Jen can take you through some of the considerations.

Yes, I'd love to hear more detail on the subsidy budget and how you can struck that.

Absolutely. Well, you're getting a front row seat to our regular meetings here -- this is -- look, the customers are going to set their demand with the new devices. And we are there to serve customers first. And then we look at it and say, okay, how do we make sure that the AT&T value proposition of network and guarantee is first and foremost, why a customer would choose to come to us. And then let's make sure you have the portfolio of devices you want to choose from and that we're competitive in the market. But within that, we're doing it profitably. We're not chasing volume for volume's sake. Our goalpost is to win in service revenue. That is how we measure success. So with higher cost devices, we would anticipate, as with anything else, there could be some suppressed demand. We'll see how customers take us. Where we look at it with offers is that we are going to match and produce our offers relative to the customers' value. And we use, you'll see high-level marketing messages as many do high-level marketing messages, grab attention, they drive traffic and then we construct the offers underneath that to ensure that our total cost fits within the envelope. And so you'll see a strong message that competitive at the highest level will generate traffic, and the levers we have below that tend to come from these avenues. First, we can look at the value of the device that gets traded in. And we can tweak that, the newer the device that's traded in the higher the value. I mean that's intuitive. The second thing we can do is use rate plans. The service rate plan customers purchase from can gate the eligibility of the higher tiered offers. So if you're on one of our higher tiered rate plans, you then get a higher trade ineligibility of your device for the higher-end offer. And then the third thing we have at scale that our competitors don't have is a converged scaled base, and the ability then to use these offers to drive scaled converged growth. And so the more value on the household account itself, the more value we're willing to give on the offer because the long-term value of the account rose.

So you're solving for CLV?

Absolutely.

That's it's solving for, right?

At the end of the day.

That's all the right. You're not solving for that adds. You don't happen to add target anyway. So you don't have to worry about hitting at that target.

That's right.

We are very deliberate in that regard.

Very deliberate yes. That's clear. So just on the consumer growth and share gains, you added about 147,000 consumer postpaid wireless accounts in 2Q. From where those new relationships coming and if AT&T sustainably gained market share among 1 line, 2 line and even value-oriented households where historically, I think you actually been under penetrated in those different segments of the market. So I guess the question is from where are you seeing growth? And is it primarily from historically underpenetrated?

The growth that we are seeing is from our value segment. We've been open about that is where our under-penetrated segment is. It's where our opportunity is. I would say it is still an opportunity. So that is a runway in front of us where we're still under index. But absolutely, the accounts you're referencing and our highest in 3 years, as I mentioned, is where we are seeing the majority of that growth. What I would tell you is the growth that we look at is in this formula, the right product at the right price and the right offer to the right customer at the right time. And so making sure that we take our converged formula of fiber and Internet Air, our fixed wireless product plus wireless, targeted at the right price construct and offer construct towards 1- and 2-line accounts versus our very valuable base that has multiline accounts and then mirror that against our pricing constructs of unlimited your way, build a plan of our new OneConnect plan that we're testing. And mirroring those out across the segments such that we get the highest, what we would call LTV, CLV such that we are growing converged households at the end of the day, that is the formula we're solving for. So yes, we're seeing growth here. We also see growth from protecting the base.

Okay. That makes a lot of sense. And you mentioned FWA a few times, both of you have. And I want to go back to second quarter and make sure I understood some comments because I'm an analyst to always interpreting things probably incorrectly a lot of times. And I think John Stankey said in a paraphrase because you'll probably correct me, that you'd be prioritizing fiber in markets, which is not surprising, right, where you have fiber in those markets. And maybe less emphasis on FWA in the markets where when you have fiber, right? I wanted to interpret that, I thought maybe that meant less emphasis, less building out of FWA and an even greater focus or acceleration in fiber given this potential competitive threat that we've all been talking about. Am I reading too much into that comment? Or is there some greater emphasis focus on fiber deployment, maybe less emphasis in FWA?

Let me give you our logic, and it's fairly straightforward. Our belief is this when we invest in fiber and we're successful in deploying it, it is the very best product that drives the best consumer experience. You couple that with -- it's our lowest cost to serve. The incremental cost of delivering a bit in fiber is lower than any other technology. So it stands to reason that we would prioritize putting as much traffic as possible where we've invested to build fiber. And in turn, where we don't have it, we think fixed wireless is a fine solution. especially in those areas where we don't have fiber, we tend to be underpenetrated in wireless. If we can bring a combined offer of wireless to get a share of the population that we otherwise would not have a relationship with -- it makes all the sense in the world. But we are doing it very deliberately recognizing that -- it's long term, it's expensive to support a growing fixed wireless base. We don't ever anticipate having the size of base that some of our peers have. Do we have a lot of room to still run? Yes, absolutely. But we don't anticipate because we're being very surgical, and we're trying to build a business that we believe is going to be sustainable long term, one with a great cost profile, one that allows us to increase our share of the connectivity budget in each household, but one that we could make a really nice return on it. And so it's balancing a lot of things when we're trying to do that.

Okay. And I'm inching towards the questions about convergence because we're kind of getting there in the conversation. But I wanted to talk a little bit about ARPU trends in the quarter because the discussion point. I think it at 2Q. And an area of focus was the divergence between the improving ARPU for wireless and then the pressure on fiber ARPU, and that be a lot of questions on and then even after the call on this topic. And historically, investors look at these trends independently, right? But your comments suggest actually economics are becoming more interconnected, especially as convergence grows across your portfolio, so how should investors think about these ARPU trends together, maybe more interconnected going forward? And what would give you confidence that the overall customer relationship becomes more valuable over time?

That's my favorite question.

Is that?

It is.