AT&T Inc. Citi’s 2026 Global TMT Conference

Available at the registration desk. For those of you I haven't met, I'm Mike Rollins. I cover communication services and infrastructure for Citi. It's a pleasure to welcome back AT&T. From AT&T, to my far right, Chief Financial Officer Pascal Desroches, and Melissa Arnoldi next to me here, Executive Vice President, General Manager of AT&T Business. Thank you both for being with us today.

Thank you. Thank you for having us.

It's great to see you both. Pascal, you've had some news of your own. So congrats on your upcoming retirement. I was thinking back to when we were together a few years ago, and you talked about one of your ambitions was to leave AT&T in a better place than when you took over the role, and particularly financially and on the balance sheet. As the company's in this middle of this multi-year strategy to invest and grow, would love to get your perspective on how you view AT&T's most significant accomplishments and still what's ahead.

Sure thing. Before I do, my friends in legal would be quite sad if I didn't give you the appropriate safe harbor warnings. Some of our statements will be forward-looking and are subject to risk and uncertainties. Refer to our website for more information. Mike, appreciate the question. I was reflecting upon this a few weeks ago. The situation when John Stankey took over as CEO and I took over as CFO was you had a company that had a telecom business, wireless business that was in a disadvantaged asset position because of its mid-band spectrum position or lack thereof. You had a predominant DSL broadband plant across the country. You had DirecTV, which was in secular decline, and you had the Time Warner businesses that needed to be repositioned because you had to go direct to consumer.

At the same time, you had a balance sheet with well over $150 billion of debt and an annual dividend obligation of $15 billion. It was very clear something had to give. I give John enormous credit for his bold moves off the bat in divesting of both DirecTV and the Time Warner businesses and resizing the dividend. Those were incredibly important things to do in order to allow us to do the very important work of reinvesting in our businesses. We are firmly of the view, in order to be an industry leader, you need the very best assets. We were not going to settle for anything less than that. In the last 5 years, we have invested over $150 billion to reposition the company. As we sit today, we have the largest fiber broadband network in the country.

Our spectrum position is as good as it's ever been. We did all this while continuing to rightsize our cost base and take down our leverage. It's taken a long time to get to this point, but what's really exciting is that we're just getting started. The company this year has guided that it's going to grow EPS double digits. We've also said that we're going to return about 100% of our free cash flow to shareholders in the form of dividends and buybacks. We expect that our earnings growth accelerates from here. If you take a step back, just look at our Q2 earnings. The businesses we've been investing against, think about the products of wireless, fiber, fixed wireless across both business and consumer.

The service revenues for those businesses grew over 5% on a massive base, and the EBITDA associated with those businesses grew over 8%. By the end of the decade, that's the business that we're going to be left with. What's really exciting is that we are just getting started. We have a great set of businesses with great asset positions that we're adding to over the next several years. It's an incredible time to be an AT&T shareholder, and I've been incredibly proud to be part of a team that's accomplished all it's did the last several years.

From our side, it has been really nice to watch the performance and the focus. Speaking of improving trends, Melissa, in advanced connectivity business, the service revenue achieved a really important inflection in the second quarter results. It is the first time that I can remember in a while where you reported positive growth. It approached nearly 2% year over year. Can you walk us through the journey of turning the corner in business? What are the big factors and then the durability now of being able to grow business revenue at AT&T.

Yeah, it is a great question. Thanks, Mike. If you zoom out for a minute, to your point, second quarter was an inflection point for the business, but this journey started over two years ago. When we looked at the business, we took a hard look and said, "Okay, what do we need to do to make sure we get to that inflection point?" We determined and could see that our customer needs were changing, technology needs were changing, and quite frankly, they were changing faster than we were changing. We took a hard look at the business, but what was different is we knew we had the assets to compete and to win. We have the converged assets. We have the right product portfolio.

We have a strong set of customers and a customer base, and we have employees who are dedicated to making sure that we grow this business. Once we aligned all those to the interest of the customer, we had to look very clinically at the customer needs and how they want to buy and be serviced by AT&T. It was clear we had a great opportunity that we were missing. We were not focused in the right areas from a go-to-market distribution perspective. We were heavily focused on indirect. That can be good for the top end of enterprises, but there is a small and medium market out there that we were missing. We have now calibrated our distribution, and we have focus in both digital as well as indirect or our reseller channel.

That is key for us to make sure we are hitting on all cylinders across our business. We also realize that sometimes we can be not so easy to do business with, and so we have to be in a place where we can offer simple bundles, where we can meet our customers where they want to be met, and part of that goes back to the distribution. It is durable at this point. The way I know it is durable is because we can see the momentum across all of our products, whether that is fiber, fixed wireless, 5G, security, or value-added services. When you take a step back, the fundamentals are there. The assets are very strong. We now have the right leadership and the right focus, and our strategy really has not changed.

It's a sharper execution on what we know we should be doing, and then again, partnering with the right distribution channel has been able to open up what we need to do to be able to go to market and sell. Then again, we've got to be easier to do business with. All those things have culminated in the results that you talked about, and we're just getting started.

Within the business growth, that includes wireless, but the strategic wireline service revenue has also been growing That's right.

significantly. Maybe unpack for us, if you can, what's happening with those products, the strategy to grow all that strategic wireline revenue, and how that's just evolving in the marketplace. What are customers looking for today maybe differently than what they were looking for in the past?