AT&T CEO John Stankey on Q2 results, Starlink competition and future of telecom

[00:00:00] Speaker 1: AT&T shares trading higher by about 3.3% this morning. Earnings came in at 65 cents a share. That beat estimates of 59 cents. Revenue, $31.6 billion, slightly below the Wall Street consensus. But the company did confirm its full-year earnings, and it has a lot of other numbers that really beat expectations. Free cash flow was up on a lot of other things that we'll be watching this morning. Joining us right now is AT&T's chairman and CEO, John Stanky. John, thank you for being with us this morning. Why don't you run through the quarter and tell us [00:00:30] John Stanky: what you think the most important highlights are? Well, look, it was a fantastic quarter. The team did a great job this quarter. We told everybody last quarter that our intent for this year was that we were going to step into accelerating growth, largely because we've been investing aggressively in the business over the last couple of years, and you would start to see it manifest itself through that and a combination of the M&A transactions we've done. And you saw exactly that. It's really encouraging to see the kind of volumes on customers. We had over a million new strategic accounts this quarter, which is great. I think in the last three years, we haven't established more new account ads into the business than what we did this quarter. Fiber was on fire, nearly 370,000 new fiber additions, really strong, and our postpaid voice and wireless at 430,000. That's all really, really good stuff, and that's what drove that acceleration in both our service revenue growth and our EBITDA growth and, of course, caused us to look at our guidance and say, we'll be at the upper end of what we expect in EBITDA as we move through the year and EPS as a result of that strong performance. Cash was also there, and that's enabled us to accelerate some of our buybacks into this year, especially given the suppression of the stock over the last couple of months. It's a great buying opportunity, and we intend to step into it using some of our strong cash position to do that. [00:02:01] Speaker 1: You know, John, the stock is up by close to 3.5 percent this morning. Obviously, the street likes what you've been doing over the last three years. The stock is up by more than 55 percent, but if you're looking at the last one year, stock's off by about 16 percent, and that is not unique to AT&T. That is something that all the wireless carriers are facing at this point. The street's biggest concern seems to be competition coming from SpaceX's Starlink, and I think people are really eager to hear what you have to say about that competition, competition or the idea of whether you would ever allow them to sign a wholesale network deal with you. Why don't you talk just a little bit about that, because that does seem to be the issue, the broader issue the street's focusing on. [00:02:44] John Stanky: Well, I think you can look at this quarter and look at the results and understand that in the market today, we're doing a lot of things that customers like. We have a fantastic product. We have the best broadband product that's out there that's built on the foundation of fiber. Our wireless business gets stronger and stronger. We bolstered the performance of that business with some really important and strategic spectrum acquisitions, and the two products together are giving us fantastic results. You saw the percentage of customers that buy both products from us jumped dramatically and continues to improve. You see that when we do that, we can manage churn. We saw improvements in churn this quarter, which is a reversal of a trend that's going on. You're seeing that we're able to pick up not only consumer customers, but business customers. We return to business growth this quarter, and we expect that that's going to be a continued trend on through 28. It's the strength of our business and what we can do today. We have all the pieces we need to put the best product in the market. There are going to be new competitors, and there are going to be folks that come in, but the reality is that they're coming to the game very late after this industry has been established. They have to catch up with substantial amounts of infrastructure investment that's been going on for decades inside hospitals, on university campuses, in stadiums, in tall buildings. All those things are expectations of customers today that it works wherever you go. We handle 98-plus percent of the traffic on a converged customer that a customer generates already today. There's a small percentage that sometimes the customer walks off the network, and by next year, with the partnerships we've established, we'll be able to deal with that as well. So we're in a place where we've got the right assets. We're handling things incredibly well. Customers love the product. We can compete with anybody that comes in, and we're in a very, very strong position with the best product out there. [00:04:42] Speaker 1: Yeah, John, there's a view on Wall Street that the wireless companies all learned their lesson by cutting some of these wholesale agreements with the cable companies that worked out to really create competitors they didn't want there in the past. And so there's a view that a company like an AT&T or a T-Mobile or a Verizon would not do those wholesale agreements with Starlink. Is that your estimate on that? Or, you know, there's also another view that TD Cowan, an analyst there, put out that said, look, AT&T has the best fiber optic network, so it's in the best position. It would lose the least. If it were to cut a deal with someone like a Starlink, it would be in the best position to continue to compete. Which of those two views is a better assessment of how you see things? [00:05:23] John Stanky: Yeah, the point of view, and I think I've articulated it before, I can't speak for my peers in the industry, obviously, but we do wholesale agreements when we think there's a part of the market that we can't address with our distribution, our brand and our product. And when it makes sense for us to get a partner in that can go and do that better than we do, then we say that's a good time to go and have a wholesale arrangement if we can't self-perform to get to the market with our brand and our capabilities. And I would tell you my point of view in metropolitan areas and suburban areas of the reason we're building the business we build and the reason we're doing what we're doing with the pricing portfolio we're doing is because we believe we can get to the vast majority of that market and we can do it effectively. And so I would say that every market around the globe is a little bit different. The U.S. is probably a bit more disciplined on wholesale arrangements than say maybe what you see in Europe. And that's largely because we have very robust distribution, very well recognized brands, very pervasive infrastructure, and we're able to get good returns off of that. And as a result of it, wholesale arrangements can be much more judicious or sparing. And so I don't feel a need right now that I need to have a satellite partner as a main distribution vehicle for me because I don't think it addresses a part of the market that I can't get to on my own. [00:06:49] Speaker 1: Let me ask this. If you did feel like there was a satellite partner that you would need to pick up at some point somewhere around the globe, do you think you're more likely to want a partner like Elon Musk [00:07:01] John Stanky: or a partner like Andy Jassy? We want to partner with everybody in the satellite ecosystem. That's exactly why we set up the JV with T-Mobile and Verizon. The whole purpose behind that is, as I said earlier, most of our companies are handling the vast majority of Internet traffic that customers carry today. And we need to solve for a very small percentage. It's a very small percentage of the time when somebody walks off the network. And so by putting a buying consortium in place, we can go out to the market, aggregate those volumes and make sure that multiple constellations are available to handle that very small percentage of traffic and do it at an economical price and make sure it's executed in the market where it's easy for the customer to get access to it. And so that JV will allow us to go and buy from if you want to go to Amazon or you go to SpaceX or AST Space Mobile. And I think that is a really appropriate way to go to the market, especially in terms of what the benefit is the customer is going to get from that and ease of access.