AT&T Inc. (T) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture. Positive elements include the strong growth in Consumer Wireline EBITDA and strategic fiber expansion. However, the decline in Business Wireline revenue and EBITDA, along with management's cautious outlook on competition and mobility margins, balance these positives. The Q&A reveals concerns about pricing strategy and lack of specifics on cost savings, reflecting uncertainty. The overall sentiment remains neutral, as positives and negatives offset each other, with no clear catalyst for significant stock movement.
Key Financial Performance
Service Revenue Growth Service revenue grew 3.5% year-over-year in the second quarter. This growth was driven by the addition of over 400,000 postpaid phone customers and 243,000 fiber subscribers, as well as 203,000 Internet Air net additions. The increase reflects the company's focus on customer-centric offers and quality services.
Adjusted EBITDA Adjusted EBITDA grew 3.5% year-over-year during the second quarter. This growth was attributed to efficiencies from scaling the fiber network and customer base, as well as cost-saving initiatives.
Adjusted EPS Adjusted EPS was $0.54 in the quarter, up approximately 6% from $0.51 in the prior year. The increase was due to improved operational performance and cost management.
Free Cash Flow Free cash flow was $4.4 billion in the second quarter, up from $4 billion the prior year. This increase was driven by strong operational performance and cost efficiencies.
Capital Investment Capital investment came in at $5.1 billion, which was up modestly year-over-year. The increase reflects investments in fiber deployment and wireless network modernization.
Consumer Wireline Revenue Consumer Wireline revenue grew 5.8% year-over-year, driven by approximately 19% growth in fiber revenue. This was supported by the addition of 243,000 fiber customers and efficiencies from scaling the fiber network.
Consumer Wireline EBITDA Consumer Wireline EBITDA grew 17.8% year-over-year in the second quarter. The growth was driven by scaling the fiber network, cost-saving initiatives, and progress in retiring legacy copper infrastructure.
Business Wireline Revenue Business Wireline revenue declined 9.3% year-over-year. The decline was due to ongoing pressure in legacy wireline services.
Business Wireline EBITDA Business Wireline EBITDA declined 11.3% year-over-year. The decline was attributed to legacy wireline pressures, though partially offset by cost-saving initiatives.
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Operating Highlights
AT&T Guarantee: Launched earlier this year, it promises customers connectivity, deals, and service, with improved Net Promoter Scores among wireless and fiber customers.
Internet Air: Added 203,000 net additions in Q2, with over 1 million subscribers now. Positioned as a precursor to fiber in areas where fiber will be deployed in the future.
Fiber Deployment: Accelerating fiber deployment to 4 million new locations per year by the end of 2026, aiming to reach 50 million customer locations by 2030.
5G Expansion: Significant investments in 5G and fiber connectivity services, with plans to modernize the wireless network and expand mid-band spectrum coverage.
Customer Growth: Added over 400,000 postpaid phone customers and 243,000 fiber subscribers in Q2, driving service revenue growth of 3.5%.
Cost Initiatives: Progress in retiring legacy copper infrastructure and reducing operating costs, with plans to discontinue service across 10% of wire centers in 17 states.
Legislation Impact: The One Big Beautiful Bill Act supports investment in next-generation networks, with $6.5 billion to $8 billion in cash tax savings from 2025-2027.
Pension Plan Contribution: Plans to contribute $1.5 billion to the employee pension plan by 2026, aiming for a 95% funded status.
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Risk or Challenges
Texas floods impact: The recent Texas floods have caused significant disruptions, and AT&T has had to allocate resources to support first responders and government agencies. This could strain operational resources and impact service continuity in affected areas.
Postpaid phone churn: Postpaid phone churn increased by 17 basis points year-over-year, driven by customers reaching the end of device financing periods and increased market activity. This could lead to higher customer acquisition and retention costs.
Higher mobility equipment costs: The cost of acquiring and retaining subscribers has increased due to higher mobility equipment costs and spending on the launch of AT&T Guarantee. This could pressure margins in the short term.
Legacy copper network retirement: The ongoing retirement of legacy copper infrastructure involves significant operational and regulatory challenges. This could lead to transitional disruptions and costs.
Business Wireline revenue decline: Business Wireline revenues declined 9.3% year-over-year, reflecting ongoing pressure from legacy services. This could impact overall revenue growth.
Increased competition in wireless market: The wireless market has seen increased activity, leading to higher competition. This could result in pricing pressures and increased churn.
Seasonal churn patterns: Postpaid phone churn is expected to follow seasonal patterns, with higher churn during new device launches and the holiday period. This could impact subscriber growth and revenue stability.
Higher growth-related spending: Higher growth-related spending in Mobility, including customer acquisition and retention, could impact short-term profitability.
Foreign debt remeasurement: A $2.8 billion noncash remeasurement of foreign debt due to the weakening U.S. dollar has increased net debt slightly, which could affect financial stability.
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Guidance & Outlook
Fiber Deployment: AT&T plans to accelerate its fiber deployment to a pace of 4 million new locations per year by the end of 2026, aiming to reach approximately 50 million customer locations by the end of 2030. Including acquisitions and joint ventures, the total fiber reach is expected to exceed 60 million locations.
Capital Investments: The company expects third-quarter capital investment in the $5 billion to $5.5 billion range. Additional capital investments of $0.5 billion in 2025 and $3 billion across 2026 and 2027 are planned, primarily for fiber deployment.
Free Cash Flow: AT&T expects free cash flow in the low to mid-$16 billion range for 2025, with approximately $1 billion of upside to annual free cash flow guidance for 2026 and 2027.
Mobility Service Revenue Growth: The full-year guidance for Mobility service revenue growth has been increased to 3% or better, up from the previous outlook of high-end 2% to 3% range.
Consumer Fiber Broadband Revenue: The full-year guidance for consumer fiber broadband revenue growth has been raised to mid- to high-teens from the previous outlook of mid-teens.
Consumer Wireline EBITDA Growth: The full-year guidance for Consumer Wireline EBITDA growth has been increased to low- to mid-teens from the initial outlook of high-single to low-double-digit range.
Business Wireline EBITDA Decline: The full-year guidance for Business Wireline EBITDA decline has been revised to low double-digit range, an improvement from the initial outlook of mid-teens decline.
Pension Plan Contribution: AT&T plans to contribute $1.5 billion to its pension plan by the end of 2026, with more than half of that coming in 2025, aiming to elevate the plan's funded status to approximately 95%.
Share Repurchases: The company intends to accelerate share repurchases under its $10 billion authorization, expecting to buy back $4 billion of stock by year-end 2025.
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Shareholder Return Plan
Dividend Program: No specific mention of a dividend program or changes to dividend payouts was made during the call.
Share Repurchase Program: AT&T repurchased approximately $1 billion of stock during the second quarter of 2025 and an additional $300 million so far in the third quarter. The company plans to accelerate the pace of share repurchases under its $10 billion authorization and now expects to buy back $4 billion of stock by year-end.
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Key Q&A
Q:Can you talk about whether you expect to see a similar increase in wireless churn in the second half of the year based on competitive and cohort expiration factors?
A:Management expects a competitive environment in the second half of the year and is planning for a more active environment. They are hopeful that some activity will dissipate but are preparing for continued competition.
Q:Is there any way to quantify the savings from the decommissioning of 10% of wire centers?
A:Management highlighted that they are already seeing cost savings from legacy transformation and expect these savings to continue as more wirelines come offline. However, no specific quantification of savings was provided.
Q:Should AT&T rethink the velocity of price increases given the higher churn this year?
A:Management does not view pricing as the main issue for churn. They believe their pricing strategy, which ties prices to value, has been effective. They are mindful of the economic environment and may make marginal adjustments but did not provide specific details.
Q:What is the budget in your long-term guidance for spectrum acquisitions, and would it be subject to review if valuable spectrum comes to market?
A:Management stated that their capital structure allows flexibility for spectrum acquisitions if opportunities arise. They emphasized their strategic approach to spectrum investments and their ability to adapt to market conditions.
Q:Can you discuss the returns on the fiber build, comparing the first 30 million homes to the next 30 million?
A:Management stated that while the profitability of the 60 millionth home may not match the first, all builds meet return rates. They emphasized the benefits of a converged dynamic and the ability to generate strong returns even as costs per unit increase.
Q:How do you feel about the quality of incremental Mobility customers and the returns in this business?
A:Management is focused on high-quality growth, ensuring customers pay for lines and avoiding free add-ons. They are confident in their strategy, which includes targeting customers likely to buy multiple products and leveraging converged offerings.
Q:Are there additional pressures on Mobility EBITDA growth in the second half of the year?
A:Management is cautious about the second half due to seasonal patterns and a one-time noncash item from the previous year. They are planning for an active environment but remain confident in their performance.
Q:Is there an update on opportunities to expand the fiber footprint beyond the 60 million target?
A:Management is focused on executing their current strategy and sees potential in open access and overbuilder opportunities. They are cautious about overpaying for assets and aim to complement their existing footprint.
Q:Do you expect higher fiber net additions in the second half of the year, and how is competition from cable affecting this?
A:Management expects seasonality to drive higher fiber net additions in the second half. They are confident in their ability to compete and continue to gain share from cable providers.
Q:How does the elevated mobile churn environment impact your ability to expand Mobility margins in 2026 and beyond?
A:Management believes that growth-related spending is lumpy but tied to high-quality revenues. They expect operating leverage to support margin expansion over time.
Q:Are there any macroeconomic factors or federal government cuts impacting your business?
A:Management highlighted positive telecom policies and investment incentives but noted some dislocation in public sector spending and prepaid market dynamics. They are monitoring broader economic uncertainties, such as tariffs.
Q:How do fiber and fixed wireless fit together in your strategy?
A:Management views fiber as the long-term solution for high-end markets and fixed wireless as complementary for price-sensitive and less usage-intensive segments. They aim to use fixed wireless strategically to support fiber growth and address different market needs.
Q:Review of Unclear Management Responses
A:Management avoided directly quantifying the savings from the decommissioning of wire centers and did not provide specific details on potential marginal pricing adjustments or the exact impact of macroeconomic factors like tariffs.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ATT Guarantee
Act
Analyst Investor
Chairman
Internet Air
Investor Day
Research Division
adoption
capital investment
cash tax
connectivity provider
customer base
fiber deployment
investment capital
investment fiber
location
mid teen
outlook cash
pace
pension plan
policy
provider America
provision
reminder
return
saving network
tax legislation
tax saving
teen outlook
term outlook
unit
value customer
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