Okay. Good morning, everybody. Welcome to day two of Morgan Stanley's TMT conference. I'm Ben Swinburne, Morgan Stanley's telecom and media analyst. Quick disclosure, for important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. If you have any questions, reach out to your Morgan Stanley sales representative. We're kicking off day two with Jeff McElfresh. He is the COO of AT&T, overseeing the company's global network technology and operations since 2022, but has a long, long career at AT&T, which we're gonna talk through all of the important things at AT&T over the next 30 minutes. Jeff, thanks for being here. Ben, thank you for having me. If I could call everyone's attention to our safe harbor statement and remind everyone that we are in a quiet period for FCC Spectrum Auction 113, as it's in effect. Great. Well, with that done. You guys provided an update to your multi-year guidance. Yep On your January earnings call, laying out expectations for healthy and improving organic growth over the next few years. I'm sure you wouldn't be surprised to hear that, you know, competition is a big focus in the investment community and in the telecom space in the U.S. Stepping back, what gives you and the team confidence you can deliver on those growth targets in an environment that at least people would describe as being mature on the wireless side and heavily competitive in both wireless and broadband? Yeah. Thanks for the question, Ben. We at AT&T have a differentiated strategy. I mean, it is a disciplined investment-led strategy to drive convergence, and we have been incredibly consistent with this for quite some time. Yeah. This is not just something that's new for us. In fact, when I look at the number of customers that we now serve in a converged environment, the quantum of customers is significant. What we learn from what they tell us is, you know, there's only one internet, why pay for it twice? For us at AT&T, when we see that kinda response and adoption to the products, you know, it's rewarded in things like where we offer convergence that's backed by fiber. AT&T is number one in brand love, number one in NPS. Churn profiles of these customers are the lowest among all customers. The propensity for them to buy multiple products and help grow up the revenue stack continues to increase. This playbook that we've been executing, in a heightened competitive environment for the last many years gives us a lot of confidence that continuing to focus and execute on that is winning play. I'd say we've got all the building blocks. Yeah. Like, there's nothing that we need. We've now closed on the Lumen transaction, that adds 4 million passings. We're at 36 million fiber passings as of today. We'll exit the year with 40 million. I mean, there's nobody else in this sector that is expanding their growth funnel the way AT&T is by executing a proven strategy. That's a great start. You mentioned convergence, and I think the market seems to oscillate between, you know, being bullish on convergence and then worrying it's sort of devolving into discounting and, you know, maybe even a price war. How does AT&T approach convergence in the market, in a way that drives growth but also preserves customer lifetime value and returns? Yeah. I mean, the continued performance of churn profiles with these customers and the number of products that they purchase continue to maintain the most attractive LTVs in our business. That continues. Now, at AT&T, when we think about investing as we are at the highest levels of anybody in this industry, what do we hold ourselves responsible to? 1, we gotta drive penetration into that investment. 2, we've got to sell multiple products to get even stronger returns. Our strategy to serve the best, highest performing quality product in a converged manner drives these LTVs that we're seeing and keeps these customers incredibly loyal and sticky. We're not competing on promos. We're not competing on just pricing actions. We're competing on performance and value. The more we do, the better the brand performs in these markets. I think that's an important note. That discipline that we hold ourselves to is something that has generated very attractive returns. I mean, during this competitive environment, as we continue to drive convergence, we've delivered in fourth quarter, very strong wireless growth, strong fiber growth, strong EBITDA, expanding margins. We're able to do all of that while maintaining our commitment to our capital returns program with share buybacks and attractive dividends. This is a working formula. What I'd like to impart on the audience is, I mean, we're still in expansion mode. We are still growing. As we expand this fiber network and we run this convergence play, we gain even more and more scale. Ultimately, AT&T will have the absolute best, largest fiber network that is a superior technology that can serve traffic at the lowest marginal cost of any other technology in the industry. We complement that with a modernized, open 5G network that is now fully fueled with a very impressive mid-band spectrum portfolio. Owning and operating both of those networks gives those at AT&T the ability to serve customers where they want to be served, offering the right performance and the right value. You mentioned the wireless network. Let me ask you about your outlook for that business, mobility. You guided to 2%-3% wireless service revenue growth. Yep Through 2028, primarily volume driven, I believe. Yep T he way you framed it. Where are the opportunities in the U.S. wireless industry for you to do a better job with market share and go after? It's probably two frames to think of. The first is we continue to see opportunity in market segments of the market where AT&T is historically under-penetrated. That may be more of the price-sensitive or a value-conscious market, single line accounts, as well as maybe 55 +. We still are seeing success in growing our small business franchise with wireless. These are the more classical, straight-up wireless-to-wireless plays that we continue to execute on and is bringing new accounts into the AT&T fold. Importantly, on the convergence footprint, you know, when we closed this transaction with Lumen. Yeah in record time, we ingested 4 million passings network that is 25% penetrated against AT&T's 40% penetrated larger fiber network. You could imagine, as I said earlier, okay, well, Jeff, you and the team are focused on penetrating, driving that fiber up from 25% - 40% in that footprint. Our ability to drive convergence, which is to attach mobile to that account inside of that footprint, the Lumen territory represents areas of market share where AT&T is lower than our national average, and 1 in 5 of those Lumen accounts have wireless services from AT&T. As we execute the same strategy we've been executing, we drive incremental wireless growth in a differentiated manner that's durable to the competitive pressures that you see in these footprints. That ability for us to go grow is, as I just explained now. We're not stopping at where we sit with this fiber footprint. I mean, we'll add another 4 million incremental to exit the year with 40 million passings by the end of this, by the end of this year. This convergence play is fueling incremental mobility growth. Mm-hmm W hich is why our guidance incorporates continuing to execute our convergence strategy. You know, there's been a lot of focus, as we've mentioned earlier, on the competitive environment, Jeff, and I think over the last 6, 9 months, the cable operators have incrementally gotten more aggressive, I would say, from a pricing and packaging point of view, and really leaned into wireless and broadband bundles. What impacts, if any, are you seeing from this on AT&T's ability to compete and grow, particularly in wireless? We've been, you know, we've been seeing cable, being competitive. Yeah Fo r quite some time now. But I'd say, like, we're not cable, we're not light cable. I mean, our playbook is, as we are expanding our fiber, which is the absolute best, highest performing product in the sector, in this industry, as we're expanding that into territories where cable has enjoyed some incumbency, you know, it's clear. It's clear that customers are going to pay and switch service for a company that will give them better performance at better value. As we own and operate both the fiber network and that wireless network, that gives us the ability to serve the household in a way, in a competitive way that is unmatched by cable. Over the last, call it 3 to 4 quarters, as you've seen, as you cited some heightened- Yeah Competitive intensity, I would just guide the audience to and look at our results over the last four quarters. Yeah S ignals that cable strategy is actually giving us pressure? I would say no, we're actually being quite successful. Yeah. you touched on it earlier, the network and the modernization of the network that's going on. Yeah. I think AT&T, you've issued somewhat unique strategy and network position. Talk a little bit about where things stand right now on that modernization process and what it does for the company as it wraps up. Yeah. I'm super excited about this because I've been at the company for a long time. Next week, we get to celebrate 150 years of connecting people from the very first phone call next week. That's why I'm wearing this nice little pullover. I saw that. I shared last night with some guests that I've never been more excited as an engineer in the industry for what we got going on at AT&T right now. This modernization that we're doing across our network assets is by all means, kind of quiet and behind the scenes. We haven't spoken a lot about that, but we're making incredible progress on our wireless network. We're about halfway through the switch, the rip and replace of some radios. We've got another 18 months before we're kinda complete with that program. What I'm excited about is that's been almost flawless in terms of implementing this tech upgrade across all these towers without disturbing customer service. If you're a company like ours that backs your product with the industry's only guarantee, like we've raised the bar on ourselves to make sure that we don't impact service when we're making these investments and modernizing the wireless network. The progress, what we're seeing when we have touched these cell sites and really refreshed the technology that's on the towers, we're seeing gains in customer experience, gains in throughput, gains in retainability, gains in performance, and lower cost structures because we've gone to more standard models across these towers so that our operating teams find efficiency in maintaining that RF environment. That's just gonna continue to improve as we make our way through that transformation. This sounds like it's both an efficiency and a customer-facing. It is. That's kind of like on the surface. Yeah. The second tactic and the second objective of this modernization effort is to open it up. Opening up introduces new players to come in from the hardware perspective to innovate on small cells, femto cells, and some even high-performing radio assets. We've seen some really good success in the lab and some early market trials of providers of equipment that are new to the category, interfacing with our network in this open standard. That's one benefit for capital efficiency in the future. I'll remind you, as we get through this modernization, like right now, we're at peak levels. When we complete the wireless modernization, that capital intensity falls, kind of similar to when we're done building out our 60 million plus passings, our capital intensity falls. When we get to that point, of the wireless modernization, we now have a platform that we can open API interface to maybe, let's say, a wireline network or a hyperscaler. Mm. At AT&T, our convergence strategy isn't just a go-to-market strategy. It's actually what is guiding our investments in our networks as we modernize. Think convergence of these network assets well deep into the edge of the network closest to customers. This is why we have confidence we will emerge with the absolute best, lowest marginal cost network to serve an ever-increasing demand of traffic as AI workloads. Mm-hmm. All these, new capabilities are starting to surface and emerge. Got it. Why don't we, let's shift gears to broadband. You mentioned it earlier, but let's talk about Lumen. You closed the Lumen's Mass Markets acquisition last month, adding over 4 million homes... Mm-hmm. To the footprint. What's next in terms of leveraging the newly expanding fiber footprint and kind of folding it into your overall convergence strategy? Yeah. You probably recall John's commentary in our fourth quarter earnings. When we closed this transaction in record time, you know, at AT&T, we've done a lot of horizontal mergers, acquisitions, and integrations. As the teams are preparing for a close, generally we have more time to get a few of the final pieces assembled, but the close occurred in record time. As John alluded to, for the first cycle or two, we're still completing that integration work. That integration work isn't, let's say, technically complex. It's about things like you convey employees. You welcome new employees from Lumen into the AT&T world, and then you've got to allocate resources out into the markets where you're finding increased demand for your fiber product. The technicians that you need to locate, you know, that takes a minute or 2 to hire, to train, and to get them positioned. We've also got a build engine that conveyed with the Lumen transaction, and we are going to capitalize that build engine and scale it along with our Gigapower franchise to generate 1 million passings a year run rate. We're working on the building blocks for that organization to increase their rate and pace of new footprint build. Because remember, the acquisition of Lumen wasn't a synergy based case, this was a growth-based case. We'll take the time to get the assets positioned right, and I'll be excited for when we start to report results as the year progresses, so our investors can actually see the success we expect. With Lumen, you're, I think you're at 36 million. We are. fiber passings. You plan to reach over sixty- That's correct. by 2030. You mentioned you're the building more than anybody else in the country, but you've actually got to ramp up the run rate. We do. to get to those numbers. Yeah, we do. What really needs to happen? Like, how do you de-risk, you know, a pretty key expectation of the market to get up to sort of a $5 million type build run rate? I mean, it's a pretty significant ramp. It is, but you have to remember that this build isn't happening all on top of one another. I mean, we at AT&T, we have built at a 4 million run rate level in the past. As we scale up to that 4 million number, you have to ensure that you've got good cost control over your supply chain and your labor markets, which we've demonstrated we do and we continue to do. Two, you've got to ensure that your implementation out into the markets is effective, that is the permitting, that's the pre-positioning of all the materials and the contractors and the employees to get the work done. We've successfully scaled from 2 to 2.5 to 3 to 3.5. We've got the runway on that from an organic perspective. In the Gigapower side, the amount of footprint that they have to pursue to go grow is known, it's identified, and it's in the permitting process. The scale of the AT&T purchasing power with fiber providers and with equipment providers helps to de-risk those build engines from scaling. How do you think about cost containment, cost per passing in a world of, you know, inflation and supply chain complexity and, you know... Yeah T he world you're operating in? Yeah. A lot of people buying a lot of fiber lately, right? Right. Well, a couple of things first. Over the last couple of years in an inflationary environment, our cost per passing has been inflated no more than 2%. We have been very successful in managing cost. Mm. As I said, or as I shared with the investors at our analyst and investor day in Dallas, there's three costs we pay attention to. We pay attention to what it costs us to actually build the network to pass a location. We pay attention to how much it costs for us to connect the customer to that network, and then the cost to maintain. When we're looking at investing this amount of capital into a fiber network, we're gonna go drive penetration because it's the only way you get revenue on it. The cost associated with turning that investment into revenue is a large component of the total cost. It's just not the cost to build. Yeah. As we find efficiencies in our cost to build, which we have as we've scaled, we're finding even more efficiencies in our cost to connect. Cash is cash, so it gives us the ability to redirect any improvements or efficiencies in our cost to connect in other areas like growth, maybe building one more passing. Mm-hmm. The scale advantages of this network and this build engine and this team is impressive. That's what gets me excited because when we wrap up this transformation and this fiber expansion, then you're kind of sitting there looking at having a highly penetrated, best performing, future-proof fiber network where you've got happy customers that buy more from you than just broadband. They are loyal, they have low churn, the highest NPS scores. You can kind of get this image of this becomes a cash flow generating platform that AT&T is gonna enjoy when we make our way to the end of the decade. You guys laid out growth projections for broadband. There has been certainly a little bit of a moderation in fiber ARPU growth, and I think the market's been focused on that in your results and your outlook. What's your perspective on the opportunity or risk around AT&T's fiber ARPUs, and is it still an opportunity for AT&T in terms of driving growth long term? Yeah. I mean, it's, there's no change of perspective in terms of what kind of revenue yields we can get on the fiber network. I think this is an important point. We're growing. Yeah. Like, we're expanding. When you're running a very large scale network like ours, you get into a yield management strategy where once you achieve a certain pen rate on an investment, you have secured the payback. You've hit your IRR, like, success. What we're seeing at AT&T is we are continuing to beat our own internal expectations in terms of penetrating that fiber when it's built, converging it with mobility, securing the home with a quality of installation that's durable, so any resident that ever occupies that location in the future is eligible for self-install, and the cost profile of that is very attractive. Yeah. Our strategy is to maximize the number of connections on our fiber network to do so in a manner that, penetrates in segments that, you know, aren't just SFUs. There's many different kinds of customer cohorts. Fortunately, because of our execution and the cost structure of this technology, we're able to compete across many of those cohorts in a way to gain share and continue to drive attractive returns and profits in that part of our business. Yeah. The last broadband question then we'll move on, but, how does fixed wireless fit into all this fiber focus? Same as it always has at AT&T. It's a very tactical product for us. We don't sell fixed wireless well where we offer fiber. We use it for preceding, pre-selling where fiber's coming. We use fixed wireless effectively and drive convergence in markets where we never intend to have a fiber asset. You know, you can think about as over the last year or so, as we lifted up that 3, 4, 5 spectrum, it opened up more sectors of fallow capacity we could sell into in areas where we have low wireless share, like we did in the Lumen footprint. You can imagine AT&T was offering fixed wireless in those markets. Now that we have fiber, we won't prioritize fixed wireless. We'll prioritize obviously fiber. Fiber remains our number 1 play where we have it. fixed wireless is a tool in the toolkit to drive, conversions, to drive growth in markets where we don't have fiber. Thank you. Let's move to the business market. What do you think is the most, you know, exciting opportunity in B2B and since this conference is all about AI. Technology, yeah. H yperscalers, maybe you can talk about how AT&T sits in that ecosystem. It's, we're well-positioned, Ben. We've got a storied, we got a great book of business with Enterprise, as you know, we've been around a while doing this. I've never seen the kind of conversations like I'm seeing today with Enterprise customers. They are trying to figure out where their workloads go. In the past, maybe it was a hub and spoke model. I've got my data center, I got to get to another hyperscaler data center, maybe I have to interconnect through a meet-me point. Now they're realizing that with AI coming on strong within their enterprises, that these workloads are really going multiple places. They need a high availability, high assurance, high-performing network that is not single-threaded, but multi-threaded in order for them to secure their future. When you couple that need against the largest fiber network and the strongest 5G position in the industry, AT&T has got real opportunity to drive not only fiber and 5G, but some value-added services to help our enterprise clients actually attach to this AI-enabled network of the future. I think that's emerging and developing. I think there's no pinned out winning strategy yet because many people are still investing in these data centers in the metro areas. More and more the conversation is leading in that direction. Why I like it is, well, AI needs high-performing bandwidth. Yeah. That's kind of the business that we're in. Yep. Yep. There's a lot of focus also on satellite connectivity. Yeah. I know you've spent a lot of time thinking about and looking at. You have a deal that you've recently announced, with Amazon- Yeah With their, what used to be Project Kuiper, now Amazon LEO, product. Yeah. You are also an investor, and I think an early partner in AST. Yep. Talk a little about AT&T's position on direct-to-cell or direct-to-device, and sort of how you think it fits in either as an opportunity or even as a potential new competitor down the road? At AT&T, we view our number one role is to connect people and to do so in a very seamless manner. It's our job to remove the complexity. You just want to be connected to the internet. We still view satellite as an important but complementary service. The Amazon LEO deal was for a different mission or different use case than direct-to-device. Yeah. Which I think bodes to our strategy, where we're not wedded to one particular technology or provider. Our, our job is to ensure that we can provide seamless connectivity to the internet at the lowest marginal cost with the best performance. If we do that in this industry that is being shuffled and reshaped right now, we believe that's the winning strategy. You'll see, you'll see consistency from AT&T in bringing in partners like an AST or an Amazon or others, where it helps us deliver on that vision of being the company that makes connecting seamless. Do you see satellite as a potential competitor to terrestrial long term? No. We've been pretty consistent on that. It, it'll have its place- Yeah Where it is uniquely positioned to perform, miracles actually, and fantastic things. The amount of traffic growth that we see in the terrestrial networks right now... Yeah is not slowing down. It's not just download traffic, it's these AI applications and robotics and autonomous vehicles, the uplink needs that they are bringing forward are massive. You really need dense, very robust terrestrial networks on the ground to carry that traffic. Got it. Okay, let's shift gears, a little bit more on the expense and EBITDA side of the equation. Sure. You're aiming to decommission, I think, the majority of your copper network by the end of 2029. Not a small project. Not a small project. Give us an update on sort of where you are now, what milestones you've achieved, and also, you know, what are the big pain points in front of you when you think about certain geographies and all the regulatory bodies you guys interact with? We've had really good success here, and it's been a long mission. Susan did a nice job at our investor and analyst day in Dallas, kind of laying out what the milestones are, and we're right on those milestones. One thing that's important to note is we've announced a new reporting convention that we're going to begin reporting here in the first quarter, separating out our Advanced Connectivity and our legacy business. This is an important move for AT&T. We're giving clear transparency to all of you, our investors, as well as we're creating some accountability for our teams that have to go mine out these legacy services. You're able to now see what kind of revenues and expenses are associated with that copper network. That's an important point for us. We've got about 85% of the wire centers today, we're not selling in anymore. We have permission to discontinue sale. We've got about 30% of them where we can go to full discontinuance, which means we can actually shut down these wire centers. We've got over 5,000 of these, scattered across all the states. Right now we are in execution mode. We are migrating customers off of those services. We are transitioning them to our products to get them off of the copper. Mm-hmm. Then we go in and we cleave out equipment and hardware, shut down power, and basically lower the operating expense of that wire center. It is a wire center by wire center task. There's no rip the Band-Aid and one day it's all gone. It is going to atrophy like this as we manage that. Yeah. The bigger challenge is many of the systems that support legacy, they're not a system just for that wire center or that state. Success across the footprint is required for us to decommission some of these larger legacy IT platforms that support that work. That will come towards the tail end of our unwinding strategy with copper. You'll be able to now track and see our progress on unwinding that copper legacy business, while at the same time you'll see these very attractive growth rates in our Advanced Connectivity segment, whereas it's where all of our capital is going and we're excited about that structure. The expectation you've laid out for the market is 3% - 4% EBITDA growth. Yep T his year, ramping to 5%+ by 2028. When you think about the expense piece of that acceleration, what else are you focused on beyond what we just talked about to get there? Well, I mean, this is an investment-led transformation. Yep. It's not just sheer cost-cutting. The other activities that we have in flight in the company beyond copper sunset are, we touched on wireless modernization. Standardizing on our architecture out in the field gives us synergy opportunity in the workforce and the tool sets that we use to maintain that. That lowers our carrying cost and cash operating expenses. Second, in our wireline modernization strategy, as it begins to get implemented market by market, when we're done with that market, that market's in the future state, and the support costs that are required to maintain that go away. Yeah. It's not a cliff event for us in terms of driving operating leverage. We have guided to a $4 billion cost target out to 2028 right now. That continues as we continue to execute each of these transformation strategies. Got it. Well, that's a good place maybe for my last question, which is beyond 2028. I know you guys are thinking long term about the network and the business. If you think about AT&T 2030, and you think about all the capital you're investing into the business more than really anybody else in the sector between now and then, what does AT&T look like, you know, as these investments and transformations, you know, wrap up and you reach the other side? It's gonna be a beautiful day. I remember when we first started talking about the end of the decade, I'm like, "Well, that's a long way away." I mean, that's just four years from now. That's looks right around the corner. one, a, industry-leading, most modern, most open, and most cost-efficient wireless network that is ready for the future state of technology nationwide. Plus, dense metropolitan fiber in all the markets where we find attractive returns with success in driving and leading in convergence in this industry with customers on those networks with attractive churn profiles, a churn performance and return profiles. Everywhere else across this great nation, no more copper. We're only serving with wireless. The efficiencies that we generate when we come out of that transformation, I think, are self-evident in terms of the P&L and the expenses. We're gonna be in a position where we've proven consistently and are in a leadership position with a converged strategy as this industry resets around us. We don't need to buy anything incremental, we just need to execute, and it's in front of us to go execute. When we get there, the cash flows that this company will generate will be industry-leading. Great. Perfectly landed at zero. Thank you, Jeff. This was awesome. Appreciate it. Yeah, touchdown. Thanks, everybody.