Ladies and gentlemen, thank you for standing by. Welcome to the AT&T 4Q 2020 Earnings Call. At this time, all participants are in a listen-only mode. Following the presentation, the call will be open for questions. And as a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Amir Rozwadowski, Senior Vice President, Finance and Investor Relations. Please go ahead.

Thank you. Good morning, everyone. Welcome to our fourth quarter call. I’m Amir Rozwadowski, Head of Investor Relations for AT&T. Joining me on the call today are John Stankey, our CEO; and John Stephens, our Chief Financial Officer. Before we begin, I need to call your attention to our Safe Harbor statement, which says that some of our comments today may be forward-looking. As such, they are subject to risks and uncertainties. Results may differ materially. Additional information is available on the Investor Relations website. And as always, our earnings materials are on our website. I also want to remind you that we continue to be in the quiet period for the FCC Spectrum Auction 107. So, unfortunately, we can’t answer your questions about that today. With that, I’ll turn the call over to John Stankey. John?

Good morning, everyone. Happy New Year to all of you, and I hope this moment finds you all in good health. With that, let’s go ahead and get started on slide 3. There are a lot of words to describe 2020, most of which wouldn’t be nice to say in public, but when I look at how we executed on our priorities in the midst of this pandemic, I keep coming back to one word, and that’s resilient. We added 1.5 million postpaid phones during the year, our most net adds in a decade and our highest value subscribers. We reduced churn, streamlined operations and have the nation’s fastest wireless network. For the second year in a row, we added more than 1 million fiber subscribers as customers moved to our higher speed services. And perhaps most remarkable during this pandemic, we launched HBO Max. And about seven months later, we have more than 41 million HBO Max and HBO domestic subscribers, two years ahead of the plan we shared with you in October of 2019. Our resilient portfolio of subscription businesses continued to generate strong cash flows, more than $27 billion, to support our ability to invest in our growth areas and sustain the dividend. In fact, we finished the year with our total dividend payout ratio at a very comfortable level. On debt management, we made material progress in 2020 by reducing debt maturities over the next five years by about 50% and lowering our weighted average interest rate on debt to about 4%. We continue to transform the business to drive efficiencies. Our cost-cutting initiatives generated about $2 billion in savings in 2020, dollars we invested back into the business to drive subscriber growth and move our transformation initiatives forward. In mobility, we streamlined distribution, shifted some stores to third-party dealers and closed others. Total calls into our call centers are down by 30 million as we saw a dramatic shift to online transactions by our customer base. We retired more than 30 products in our portfolio and consolidated operations to capitalize on reduced complexity. We took our first steps and reduced our real estate footprint by more than 9 million square feet with more work underway in our longer-term operating model. We also realigned and streamlined our WarnerMedia operations to better deliver on HBO Max and the future of how consumers want to view content. Those are a few of our 2020 highlights. Let’s talk about our 2021 priorities on slide 4. We have three priorities this year. Number one is straightforward, grow our direct customer relationships. That begins with the vital connectivity services we provide and the strength of our network. We’ve had the overall fastest wireless network in the nation every quarter for the last two years according to Ookla and the fastest nationwide 5G network in the second half of 2020 after our nationwide 5G launch. It shows the strength of our low-band spectrum portfolio. Our fiber Net Promoter Scores continue to be materially better than cables and are helping drive strong subscriber trends and higher penetration rates. There is strong demand for the reliability and speeds our fiber product provides. Beyond our core connectivity services, we’re focused on our goal to establish relationships with most U.S. households, and HBO Max is the key here. Through our software-based entertainment platforms, we can learn more about our customers and create long-lasting emotional connections with our award-winning storytelling capabilities. Our second priority is the same as last year, and that’s continuing to transform our operations to be more effective and efficient. We’re restructuring businesses, sunsetting legacy networks, reducing corporate staffing levels and overall benefit costs. As a result, we’re positioned to enter the post-pandemic world as a more agile and efficient company. Our third priority is about continuing to be deliberate and strategic with how we allocate capital. We plan to use free cash flow after dividends for the next couple of years to pay down debt. We remain focused on monetizing noncore assets and using those funds for debt reduction as well. We’re committed to sustaining our dividend at current levels, and we’ll give top priority to debt reduction at this time. In summary, I’m pleased with the progress we’ve made the last two quarters. Despite COVID-19 challenges, we’re seeing growth where we want to see growth, and we’re successfully redirecting our investments to support those areas. We have more work to do, but I’m confident we’re on the right path. Before I hand it over to John, I want to acknowledge that I’m sensitive to the reality that there’s much going on in and around the business. I know inside AT&T, we’re working hard to reposition the Company. So, I can imagine you’re working equally hard to keep up with us. To that end, I want to let you know, we plan to host a virtual investor event in the second half of the quarter, where our leadership team will provide more insight into our business plans, and we’ll have a lot of time for discussion and your questions. Look for more to come on that soon. With that, I’ll turn it over to John to discuss the more detailed results from the quarter.

Thanks, John. Good morning, everyone. Let me start on slide six with a quick look at our fourth quarter subscriber metrics. Wireless subscriber growth was the best it’s been in years. We had 1.2 million postpaid net adds, including 800,000 postpaid phones. Postpaid phone churn was the second-lowest quarter on record, coming in at 0.76%. Our fiber momentum also continues. We added more than 270,000 fiber subscribers in the quarter. HBO Max subscriber growth continues to outpace original estimates. We added nearly 7 million total subscribers for HBO Max and HBO in 2020 alone. The trend of premium video declines continues to improve. If you exclude the impact of Keep America Connected on third quarter net adds, our premium video net adds improved sequentially for the fifth quarter in a row. Let’s now look at our consolidated and segment results, starting with our financial summary on slide 7. Adjusted EPS for the quarter was $0.75. That included COVID impacts to revenues from lower television licensing and production, changes to the theatrical release slate and lower international roaming. Combined, COVID had an estimated $0.08 of EPS impact to the fourth quarter, which we did include in our adjusted results. We’ve made the decision to operate our broadband and legacy voice operations separate from our video business unit and have recast our Entertainment Group results accordingly. In conjunction with this change in operations, we have reassessed the book values of our video assets, including goodwill and other long-lived assets. As a result, we recorded a pretax noncash impairment of $15.5 billion. Additionally, we adjusted for an actuary loss to our benefit plans and a write-off of production and other content inventory at WarnerMedia, stemming from the continued shutdown of theaters and film releases going on HBO Max. We’ll provide more information in our SEC filings on our website and in our annual report. Revenues were down from a year ago, with gains in mobility partially offsetting pressure from WarnerMedia and video, but revenues were up sequentially. Foreign exchange had a negative impact of about $200 million in revenue, primarily in our Latin America segment. Cash flows for the quarter and the year underscore our resilient customer base and liquidity. Cash from operations came in at $10.1 billion for the quarter and $43.1 billion for the year. Free cash flow was $7.7 billion for the quarter and $27.5 billion for 2020. For the full year, our total dividend payout ratio was just under 55%. Gross capital investment was about $20 billion in 2020, and we continue to invest heavily in our growth areas, even during the pandemic. In addition, we invested about $800 million in HBO Max in the fourth quarter and about $2.1 billion for the full year. Let’s now look at our segment operating results, starting with our Communications segment on slide 8. Our Communications business showed revenue growth this quarter, thanks to a strong performance in mobility. We told you we intended to give our best customers our best prices and offers, and you are seeing the benefits of that logic. Strong subscriber gains and people moving to unlimited plans help drive service revenue growth in the quarter, even with continuing pressure in international roaming. More than 60% of our postpaid phone base is on an unlimited plan. Churn has been impressive. The last two quarters have been our lowest postpaid phone churn quarters on record, and for the full year, a remarkable 16 basis-point improvement in postpaid phone churn. Our successful retention approach does require some upfront investment, but the lower churn levels and an improved subscriber count make this the right economic trade. As I mentioned, we have split the Entertainment Group into two reporting units, broadband and video. A full reconciliation of the two units is in our support documents. But for comparative purposes, here are the trends in the Entertainment Group, the way you have been used to seeing them. We had our best AT&T Fiber fourth quarter net adds, even with more challenges associated with the pandemic, and penetration continues to grow. It’s now at 34%. In our video unit, premium video losses were improved year-over-year, thanks to lower churn and our focus on high-value customers. We continue to drive ARPU growth in both video and IP broadband. In fact, premium video ARPU was up more than 5%. Our business wireline team continues to effectively manage the transition of the business and deliver solid results amidst the pandemic. Solid cost management is the key to delivering solid EBITDA all year long. Let’s move to WarnerMedia and Latin America results, which are on slide 9. WarnerMedia continues to be impacted by the pandemic as we’ve seen across that entire industry. We did see solid gains in subscription revenues, thanks to the rapid growth of HBO Max. We now have 41 million domestic HBO Max and HBO subscribers and about 61 million worldwide as we prepare for the international launch of HBO Max later this year. And we now have more than 10 million customers who combined one or more of our connectivity products with HBO Max or HBO. Advertising revenues also grew driven by political advertising and CNN, which was number one in all of cable viewership, not just news in the fourth quarter. Because of the pandemic, we introduced a unique one-year plan in which Warner Bros. will continue to exhibit films theatrically worldwide while adding an exclusive one-month access period on HBO Max, simultaneous with the film’s domestic release. Our goal is to make the best of a very challenging situation for all involved. That includes filmmakers and talent, theater owners and most importantly, the movie-going public. Our Latin America operations continue to work to recover from the pandemic. We added more than 500,000 subscribers in Mexico and almost 50,000 subscribers in Vrio, helped in part by our over-the-top offering in Brazil. Latin America revenues continue to be challenged by FX, slow economies and COVID. Even with this, Mexico EBITDA improved year-over-year for the second quarter in a row, and Vrio continues to generate positive EBITDA and cash flow on a constant currency basis. Now, let’s go to slide 11 for our 2021 guidance. Last year was a difficult year for us to forecast for obvious reasons. There remain uncertainties in 2021 with the rate and pace of recovery from the pandemic around the globe, impacting media, travel and employment. Against that backdrop, our current outlook for 2021 is as follows. We expect consolidated revenue growth of about 1% with wireless service revenue growth of 2% and a gradual improvement in WarnerMedia’s top line. As noted previously, we plan to reinvest all our savings from our transformation efforts to support our customer count momentum in our growth businesses. Combined with ongoing declines in our premium video segment, this could lead to adjusted EBITDA declining slightly in 2021 versus this year. Adjusted EPS is expected to be stable with 2020. We expect gross capital investment in the $21 billion range and net CapEx of about $18 billion. The primary difference between the two is from vendor financing initiatives we have in place and anticipated FirstNet reimbursements. Free cash flow has been resilient for us, even during the pandemic, and we expect that resiliency to continue in 2021 with a $26 billion range target for free cash flow. We’ll also continue to focus on bringing down debt. As John mentioned, we expect to use free cash flow dollars after dividends to pay down debt. We continue to look for opportunities to monetize assets and apply those proceeds to paying down debt, including Crunchyroll, which we expect to close later this year. We do plan to provide an update on our leverage outlook and longer-term debt ratio target, once the auction quiet period ends. As 2020 showed us, things can change quickly. However, we are encouraged by our ability to adapt to those changes while driving increased customer counts, generating strong cash flows, investing in areas of strategic focus, all while maintaining a disciplined approach to our capital allocation and shareholder return strategies. As John mentioned, we plan to have a virtual analyst event later in the quarter to talk about this more. Amir, that’s our presentation. We’re now ready for Q&A.

Operator, we’re ready to take the first question.

Thank you. Your first question comes from the line of Simon Flannery from Morgan Stanley. Please go ahead.

Okay. Thank you very much. Good morning. So, looking forward to the Analyst Day. Perhaps you could start with the macro environment. What are you assuming in terms of the backdrop? Are you really assuming things continue to be much as they are, or do you have a pickup in the second half on things like roaming and advertising? Any comments just about trends with what CIOs are seeing, et cetera, that underscores that? And then, within the CapEx budget, are there any material changes within your priorities there, for example, your fiber build-out? I know that’s a big priority. Is there an opportunity to ramp that up or additional spend on 5G rollout? Any color there would be great. Thank you.

So, Simon, this is John. Let me address that. On the macro front, towards the end of last year, we observed that customers were willing to spend. Our bad debts were solid, showing positive trends on both the consumer and corporate sides. While we’re not overly enthusiastic, it’s a good sign. Our plans account for the current environment over the next six months, with some expected pickup in the second half, particularly in the fourth quarter due to pandemic relief activities. We anticipate increased theatergoing in the fourth quarter compared to this year, and some more travel, but we don’t foresee a significant jump. It’s really more about maintaining our course. There is slight improvement, but we’ll continue on this path. Additionally, cash collections have been strong and resilient, which is reassuring. Regarding our capital expenditures, the gross capital investment is up by $1 billion. There will be some adjustments from last year’s spending; specifically, I expect to see a little less on the video satellite side due to the success of AT&T TV and our focus on reducing churn rather than just increasing gross adds. We’ll allocate more funds there. We are continuing to invest in wireless, and we have made significant progress on the FirstNet build, giving us some flexibility to manage. Another area to note is the increase in the fiber build, which presents more sales opportunities. John, did I cover everything from your perspective?

Yes. I’ll be more precise than John. We’ll be building somewhere around 2 million fiber residential locations in that neighborhood. That’s kind of what we’ve got the team tasked to do to give you a sense of what that increase will be. And I think the only other thing I would comment on relative to the wireless spend overall, the shift that’s occurring, we put a tremendous amount of capacity out over the last several years in combination with a lot of the work we spoke to you about with FirstNet upgrades. And there is a kind of a shift in mix going on within the wireless building. We’re now moving away from what I would call capacity that’s on existing spectrum bands and starting to see ourselves prefer possibly using other spectrum that may come into service at some point in time, et cetera. So, we got a little bit of a dynamic going on in the shift that’s in the overall wireless program.

Thanks for your question, Simon.

Okay. Is the capital expenditure loaded in the second half?

We don’t have anything that differs from what you’ve already seen. We started engineering on the fiber build this year. I previously mentioned that we were preparing to begin, and it was my intention to get started. The teams are already making progress. We discussed this last quarter, and while I don’t want to repeat myself, we informed you that this build is somewhat different from when we first started, as we now have wire centers that are already capable of fiber. The infrastructure is in place. We’re now moving on to the next adjacent neighborhood or area. Consequently, the speed at which we can get up and running is not as challenging as it was initially. We have a smoother process in place than you might expect, due to the advances made in fiber infrastructure.

Your next question comes from the line of John Hodulik from UBS.

First, a related question. What’s driving the 22% decline in the broadband segment? Were there additional costs associated with splitting it out from video? And sort of how do you expect that to progress through the year, especially with the increased fiber build you expect as we go on? And then, secondly, any update on the timing of the AVOD launch or anything you can tell us on new content or reliance on sports and news?

John, let me address the broadband aspect first. Honestly, it's primarily due to our efforts to enhance sales capabilities, attract new customers, and the infrastructure investments made in previous years. Additionally, part of it involves the fact that we provide HBO Max to all our gig customers, which includes an intercompany charge under the AT&T umbrella, and we see the economic benefits from that. We're optimistic about this strategy. However, it's important to note that building network infrastructure and customer service for fiber is a long-term initiative, and we've navigated this process multiple times, feeling confident about the long-term returns and efforts involved. Yes, we will continue to invest, similar to last year, in customer growth. In the last six months, we've gained over 600,000 to 650,000 net new customers, and we are pleased with this, especially when considering churn rates and customer satisfaction metrics like NPS scores. So, we fully support this approach. There is investment involved. Regarding the AVOD, we anticipate launching our international HBO Max version and AVOD later this year, although I can’t provide specific dates at this time. John, do you have anything additional to add?

We’re still shooting for a second quarter launch on AVOD. And I think, I would point out equally as important is the Latin America launch of HBO Max that we’ve been working really hard on and be an important driver for us on future growth and getting ourselves embedded into the international front on a unified platform and approach to things. So, you should expect, as we get into the second quarter, there is going to be a lot of activity and change going on here. One of the reasons we’re kind of trying to pinpoint the exact date on it is, as you know, we’ve been working through pandemic-related production issues, and ramping that back up has been a pretty significant path. The team has done a remarkable job getting ourselves back into that business and working through the dynamics safely. It puts a little bit of overhead on things in terms of speed of production and what we’re able to do. And there’s a bit of rework that goes on with trying to work around the limitations of a pandemic-based environment. As a result of that, we’re still fighting through getting the pipeline dropping the content at the right rate and pace that we wanted to. And the first quarter this year continues to be a bit of a stretch in that regard as we cycled back into production. Our expectations are that we start to hit our stride as we get into the second quarter. And it’s really important as we put these new iterations to the product. We know that we have ourselves in a good position in terms of the content inventory. And so, as we’re kind of going hand-to-mouth on these right now, John, we’ll be a little bit more discrete on when we announce what’s coming out and exactly what month simply because it’s just that tough, and that much of a battle literally show by show to get this stuff done and get it into the funnel, and we’re working hard to do that. And we hope we’re past any of the unexpected dynamics like the California closures that went on over the last several weeks that put a couple of twists and turns in the road, and we’ve got the worst behind us. But, I’m a little chased right now with everything on the pandemic. So, I don’t want to overpromise anything.

Your next question comes from the line of Phil Cusick from JP Morgan. Please go ahead.

Hey guys. So much to ask. Thank you. So, in wireless, John, you talked about growing customer relationships overall as a priority for the Company. Should we assume that means the current level of promotion and upgrades that effort continues? And then, second, to follow up for John Stephens, just really quick. You mentioned an updated leverage target that you had talked about in an Analyst Day. I know you can’t really talk about where leverage goes around an auction. But, do you anticipate changing the target from the current 2.5 turns? Thanks very much.

Phil, we're operating in a dynamic market where things are constantly changing. We're going to review our promotion strategies and make the necessary adjustments to ensure we can maintain and grow our market share. It's essential for us to continue expanding our business. The management team is concentrating on two key areas. We appreciate the momentum we're experiencing and aim to enhance our efficiency. We've made significant progress in funding much of our market activities, but we're not fully self-funding yet. Therefore, our ongoing efforts to improve the efficiency and effectiveness of the business will allow us to adopt a more assertive approach in the market, and this is a focus for our team every quarter. We strive to provide diligent and realistic guidance to you, ensuring we have strong confidence in what we communicate. I'm pushing the management team to adopt a more ambitious approach, and they have been performing remarkably well over the past few quarters. If they continue to deliver, it will give us greater capacity to engage in the market and maintain a strategic stance of attracting high-value customers. We're committed to pursuing the opportunities we believe we can excel in, such as our FirstNet capabilities in the public sector and deepening our relationships with enterprise customers through affinity programs. We aim to capture the mass market with appealing offers like HBO Max, which has resulted in a robust gross addition pool while ensuring we take care of our existing customer base. This is our strategy, and we intend to keep it up. Our performance as the industry leader in churn this quarter confirms our approach. Our customers are satisfied with our network and service, and they're also looking for new devices. We’ve noted that we have a larger agent population focused on device longevity compared to the rest of the industry. We're working on this initiative. I believe creating a new 30-month lease on life for our customers aligns well with our franchise goals considering everything ahead of us.

Phil, with regard to the update at the analyst conference. First and foremost, what we’ve said and we’ll continue to say is free cash flow in excess of dividends is going to go to pay down debt. Proceeds from the sale of assets is going to pay down debt. The reality of it is we would prefer to be able to give you more information about a leverage target. We can’t do that at this time because of the status of the C-band auction and our inability to comment on. That’s all we’re trying to tell you is that we understand that we would normally give it to you that would be appropriate. But because the FCC rules, we can’t. So, we will commit that we will update it when it’s possible. That’s the story. I think, the one thing that I’d repeat though is $27.5 billion last year, $26 billion, we’re guiding for next year, $15 billion dividend, lot of money they’re used to pay down debt. That’s what the message we want to give you, and the proceeds from things like Crunchyroll going to use to pay down debt. So, we feel good about what we’ve done over the last three years with regard to managing the debt, and we feel really good about our ability going forward. But, the comment about leverage is just, we feel it’s appropriate for us to give to, we can’t because of the rules around the C-band auction.

Okay. So, that’s a maybe this year leverage target, not a permanent changing the 2.5 leverage target?

As I mentioned, we will provide all the details at the analyst conference when we can openly discuss it. I need to be cautious about what I share for now. Our main focus is that cash flow exceeding dividends and proceeds from asset sales will be used to reduce debt. By examining our net debt at the end of the year, I believe we have demonstrated a strong track record of fulfilling our commitments.

Your next question comes from the line of Michael Rollins from Citi. Please go ahead.

I just wanted to follow up on the wireless business, just with a couple of questions. So, with the guidance to grow service revenues at about 2%, can you frame the opportunity to improve ARPU for your wireless customers over the next 12 to 24 months? And then also with that target and given where the fourth quarter service revenue growth was, does that mean that AT&T may be exiting the fourth quarter of ‘21 with service revenue growth above that 2% for the whole year and relative to maybe where you’re starting earlier in the year from?

Michael, let me clarify a quick point regarding the math. In the first quarter of 2021, we had international roaming, which will affect our comparisons since last year we had about 2.5 months of it. The following three quarters are expected to be without international roaming, so the numbers will differ. I mention this to avoid confusion when discussing the full year instead of quarterly analysis. The key factor driving service revenue is customer growth. We recorded 1.2 million postpaid net additions last quarter and 1.5 million net additions in total voice connections, primarily over the last six months. Overall, we have nearly 16 million total wireless connection net additions for the year. We believe that our strategies, including providing our best customers with the best offers, will allow us to maintain a competitive advantage in network quality. We remain optimistic about continuing to grow our customer base, which is the primary driver of service revenues. Regarding ARPU growth, we see opportunities to upscale our packages, particularly with offerings like HBO Max, which has performed exceptionally well, adding 7 million subscribers—the best numbers we've seen in a decade. This bundling of wireless services with HBO Max is expected to drive growth, encouraging customers to upgrade from mobile share plans to unlimited and eventually to elite plans. While we are not specifying exact percentages or dollar amounts, we are confident in the growth of our wireless service revenue, contributing to the company's revenue growth guidance of 1%. We also expect positive impacts from the recovery of WarnerMedia.

Your next question comes from the line of David Barden from Bank of America.

Hey guys. Thanks for taking the questions. And John, I guess, this is going to be your last quarterly conference call. So, we’ll see you at the Analyst Day, but congrats on everything you’ve gotten done.

Thanks, David.

I have two questions. First, regarding the separation of the video business, taking the $15.5 billion write-down is likely to intensify discussions about divesting the satellite business. Could either John elaborate on what that might look like and how much of the $26 billion free cash flow guidance is attributed to the satellite video business? Second, we just completed the first month of the HBO Max experience with Wonder Woman coinciding with its theatrical release. This will occur 11 more times throughout 2021. If we project what happened with Wonder Woman across those 11 releases, how would that impact Warner Bros. in terms of revenue and profit compared to what 2019 might have looked like in a more typical year? Thank you.

So, let me try to deal with the front end of that, David, and then, John can give you a little bit of context on the cash flow. Obviously, what I’ll say on that is we assume that we’re running the business as we portrayed it to you. And we have been debating how we wanted to set up our operations for video for some time. I think, part of this, when we step back and think about why we made this change is we figure we’re at a life cycle change in these products, that getting management teams focused in this way will be the best way to maximize value in the discrete product lines. In the video case, we’ve seen a pretty dramatic change in what’s occurring in the market. And there is a variety of things driving it. You all know about the declines in the pay TV life cycle. But we also have the dynamic that’s starting to occur, which I think is a really important one to understand where we’re starting to see pay TV disconnect a little bit from broadband as virtual MVPDs start up. Our own product itself, in many respects, has a virtual characteristic to it. And it’s a fairly mature offering. Getting the management team really focused on what to do in the latter stages of the life cycle of a mature product and ensuring that we manage it effectively, I think, is a wise thing to do for that product on a standalone basis. That’s one driver behind why we made that decision. The second driver behind why we made this decision is, I believe we’re at the front end of a dynamic of customers wanting to ensure that they have connectivity and broadband access no matter where they go, and they want a simpler model around that. I think about our business being in a very unique position for both businesses and consumers to deliver on that promise. The innovation that’s going to be necessary from a product perspective, and then pairing that with what are the new complementary products and services that customers might want to bundle or use with that connectivity, I think, is a new play. And that’s a new growth for us. And to get them another part of the management team really focused on that aspect of our business is how we simplify unified connectivity for our customer base, whether a consumer or business, whether fixed or mobile, starting to think about what those virtual type add-ons are to that product that come with a very different delivery mechanism than what we’ve historically seen when we’ve been bundling what I would call these high overhead, premise intensive visit-type services that we’ve traditionally had in the bundle, and play into that is the strength and position for growth is the second part of why we want the management team set up the way we have it right now and focused on that going forward. I am absolutely comfortable that that’s the right call for how to operate our business, moving forward. And I will tell you, I’m not going to speculate on anything structural or M&A-oriented. We never do, and I’m not going to now. But I believe that what we’re doing here is if the goal is to always run an asset for maximum value creation, this is the right strategy to run the asset for maximum value creation.

Yes. Both the asset of video and both the asset of broadband is so critical going forward.

Let me quickly discuss the HBO Max and theatrical aspect. There is a distinction between major releases and smaller films. For instance, Wonder Woman has different production values compared to many others in our lineup. We have more major releases scheduled for 2021 that will generate as much excitement as Wonder Woman, along with other high-quality films that may appeal to a narrower audience. This approach allows us to present our entire lineup to our end-user base effectively. We might see some fluctuations in our results. While we plan to release around 17 or 18 movies, we shouldn't expect the same subscriber spikes we had in December and early January with every release, as that wasn't the intent of our strategy. However, we have a strong opportunity to create marketing and promotional campaigns around these significant releases that will resonate broadly with our customers. This year is unique, and we approached it accordingly. It is worth noting that the media coverage surrounding this situation may have been somewhat exaggerated on both sides. When our team decided on this strategy, we believed it was right for this moment. The decision was made thoughtfully, considering the needs of our subscriber base and the value of our franchises in both theatrical and streaming contexts. Our streaming business provided us with this opportunity to utilize our content effectively. This decision was also based on our predictions about audience behavior for theatrical releases in 2021. Data we've gathered supports the assumptions we made at the start. Recently, we've seen other studios shifting their release schedules, which strengthens our belief that late 2021 and early 2022 will see a crowded market. We don’t think that simply having more content in theaters will significantly increase the number of moviegoers. As indicated by our write-off, we felt we had untapped assets that needed to be leveraged correctly. It was the right economic choice for us. We think this strategy allows us to grow our subscriber base and offers flexibility in distribution, turning an unfortunate situation due to the pandemic into a positive opportunity. We must recognize that theatres were largely empty in 2020 due to the pandemic, just as flights were canceled and restaurants closed. This led to some disruptions across various businesses, including theatrical releases. I commend our team for their decision to maximize this situation in light of our strong theatrical slate that supports our streaming services. In hindsight, we could have approached certain aspects differently as pioneers in this space. However, at the core, we must ensure fair treatment and compensation for everyone involved. We have taken care of the theater owners, who now have a regular schedule of releases during a time when other studios are delaying their projects. Ultimately, we believe this will result in positive outcomes for everyone as we navigate the challenges accompanying a high-stress environment like a pandemic. Based on our data and experiences so far, we are delivering results consistent with our expectations, and we feel confident about our current position.

Yes, and say a couple of things. One, I’d point out first, almost from my perspective, 7 million net adds is pretty stout, and strategy worked. And secondly, it’s still early. We’re 31 days out from Wonder Woman’s release. And so we’ll continue to file it. More importantly, for everybody on the call, I think at the Analyst Day, we’ll get the team. Jason and his team will get the opportunity to talk to you about some of the further plans and go through that. Dave, your other question, I think, was with regard to the planning process. The guidance we’ve given here today, but for the exclusion of any commentary on C-band, is what we have as assets in our portfolio as of January 1st and owning them for the full year, other than Crunchyroll, other than the already held-for-sale termination of Crunchyroll. That is, yes, there is free cash flow in here from the video business. I won’t give you a specific number on that, Dave. But, you can assume based on the results of the business last year, it’s probably going to be a lower number, inclusive next year than it is this year for the changes in customer base and so forth. But, it is a business as usual, what I would call kind of business planning approach. All that being said, feel really good about the free cash flow position. Particularly, as I mentioned in an earlier question, cash came in strong at the end of the year with regard to the fourth quarter, with regard to customer activity, both on the corporate business side as well as the consumer side. You guys can see it in our bad debts, which are remarkably low. Team did a really great job of weeding out fraud and focusing on the best customers, and it’s showing up in our numbers. So, I think, hopefully, that answers your question, David. Thanks for the earlier comment about my retirement. It will be a change, but it will be interesting.

Good luck.

Thank you.

Your next question comes from the line of Brett Feldman from Goldman Sachs. Please go ahead.

Yes. Thank you for taking the question. And if you don’t mind, I’d like to follow up on some of the fiber commentary. It’s obviously encouraging to see that you’re going to be picking up the pace of the build-out this year. But, even after building out 2 million additional homes passed, that would still be a small subset of the number of customer locations in your total wireline footprint. How do you think about what portion of that footprint, which I think has 60 million households in it, is potentially attractive in terms of being a great demo and having economics to reach them that generate a compelling return for you? In other words, for how long can you keep adding 2 million homes a year to your footprint? And am I even asking this question correctly? Because as you build out your 5G footprint, which is really a national 5G network using layers of spectrum across multiple bands, it would seem like wireless will increasingly be a viable technology for reaching households beyond your traditional footprint. How do you think about the fixed wireless opportunity? And maybe how do you just think about the ability to be a provider of high-speed residential broadband across the country? Thanks.

Brett, I’m going to repeat myself, but it's crucial for our long-term investments to maintain consistency internally so the management team can achieve steady execution from year to year. Reflecting on past upgrades in outside plant access technology throughout my career, I don’t expect this one to be significantly different. The initial third of the customer base usually represents the easiest segment to target; it's where we hone our processes, engage with our vendors, and start benefiting economically. We’ve largely completed that phase with our investments over the past few years. As we climb the learning curve and vendors scale up, we gain confidence in our economics, and our business processes improve, we begin to see better profitability from each subscriber. This is what we anticipate for our broadband metrics on the fiber base as we progress over time. The next third represents our current opportunity. We are in the middle stages, targeting the next 30% to 60% of the customer base, and we evaluate the economics that support this effort. The final third tends to be the most challenging. Often, this segment is in rural areas where effective broadband options are still lacking, which can involve policy issues or require a technological advancement to address. I wouldn’t want to predict that this will be resolved soon. Unless there’s significant subsidy support, I believe it may be a better use of taxpayer money to explore more hybrid solutions rather than solely relying on fiber in those regions. We are still working through the current stages of our strategy, focusing on the next 30% of the customer base. As I mentioned during our last call, this year we're targeting 2 million, and if the team performs well, we can achieve more and ramp it up further. When we can show our investors that we are delivering the returns they appreciate, I believe they will encourage us to continue on this path.

John, the only thing I’d add in your putting a fence around this issue, John made this comment earlier, and it’s really important. We have fiber-to-the-neighborhood in many, many locations, and taking fiber-to-the-home is the second step. We haven’t done that yet. So, if you think about our VDSL, our new greenfield builds, the neighborhoods next to the VDSL, and where we’ve got fiber-to-the-prem, those are the opportunities. That VDSL footprint is 35 million. When you add the fiber to it, it’s greater than that. That will give you kind of a framework for something that we could efficiently do just what John said about building out the 2 million this year. That’s where a lot of the focus is going to be. I think of that as the way to think about the opportunity for us. And yes, we have that ability. We need to continue the sales momentum. That’s going to be really critically important to make it work. But in line with that, that’s I think a focus of easy capability for us.

Your next question comes from the line of Frank Louthan from Raymond James. Please go ahead.

Thank you. Can you discuss any potential regulatory changes related to Title II that might arise in the next 12 months? Additionally, could you provide more details about your plans for fiber-to-the-home? You mentioned extending service to another 2 million homes this year. How likely is it that this pace will continue, or will it be assessed year by year?

I mentioned around 2 million homes. As I stated earlier, I want to show you that reaching that 2 million mark is a clear win and a significant contributor to our business’s growth and subscriber numbers. I believe we can exceed 2 million in a year while remaining very profitable. We’ll provide evidence of this, and then we'll update you on the resulting rate. If we perform well, do I anticipate discussing a 2022 goal that heavily focuses on this? I hope the management team can rise to that challenge and navigate it successfully. I believe that addresses the first part of your question.

Title II.

Oh! Title II. How can I forget? Look, I think, it’s inevitable that we’re now back into the wood-saw approach of the new administration and a new belief that despite four years of not a single data point to suggest that we have a problem to solve, nobody blocking anybody, nobody throttling anybody, nobody doing anything inappropriate in terms of use of service and disclosing how they’re offering services to customers, we’re going to go through another regulatory bloodletting over this. I expect it to happen. We’re going to watch the cycle repeat itself. One would hope at some point that there’s a recent discussion around a policy that gets us away from this web sign and allows everybody to kind of have a more consistent and stable approach. I don’t know that that’s going to happen, but we’re certainly going to try and push and discuss it. Where I think the third rail is on this issue is the dynamic around what happens to the freedom of people who invest in competitive markets to price their products and services appropriately. If we stay away from that third rail, if the kind of latitude is in there to be able to price and do the right things in the market where competitive markets exist, then I think everything will probably, at the end of the day, be okay. But if, for some reason, policy goes down a path if that isn’t the case, it hasn’t in the past, even when Title II is in place, we have the latitude to do what I felt like we needed to do. If, for some reason, policy went further to try to solve a problem that doesn’t exist, I have to step back and ask ourselves how we’re allocating capital around that and evaluate where that comes out and ask if it’s the right place for us to go for our shareholders based on that dynamic and that very important lever for us being taken away.

Frank, I believe the industry is proud of the progress made during the pandemic, especially in enabling remote work. Many of you are likely joining this call from home. The investments made by the industry during the previous union leadership are paying off. Our company is concentrating more on broadband, not only in terms of its availability but also in how people are utilizing it for remote work. We are addressing these factors while also keeping an eye on various aspects of infrastructure legislation, additional stimulus measures, and tax laws. We will remain attentive to these developments. Amir, can we take one more question?

Yes. We’ve got time for one last question, operator.

Okay. That question comes from the line of Tim Horan from Oppenheimer. Please go ahead.

Thanks, guys. John, I know you said the move to virtualization of content is kind of accelerating, and that seems to be happening with gaming, compute, even communications with Microsoft Teams and Zoom. How are you positioned to take advantage of that? Are you better positioned as a company that owns the pipes and some of the content, or do you think it makes more sense to separate these assets, or you’re in a really unique seat? I mean, how do you really take advantage of this accelerating move at this point?

Tim, our biggest and single most important bet in that regard is HBO Max. I think about that broadly as, while today, we talk about it as an SVOD evolving to an AVOD offer. I’ve mentioned this before. I view it as a really important foundation for broader customer relationships. This is the first big foray of maybe legacy AT&T thinking about having broader relationships with the customer base at a relatively low price point SKU that isn’t exclusively dependent on infrastructure. To the extent we are successful at having that relationship with most U.S. households, if we don’t use that as an opportunity as a springboard for us to start thinking about how we extend those customer relationships across other opportunities, either to own and operate content or engagement with a customer or to use the platform as a means for others to distribute, we’d be losing a huge opportunity. There are all kinds of things we want to do around the edge and making sure that we work with the right hyperscalers to virtualize and give our customers the opportunity to gain access into infrastructure, so that they can run their compute environments and their application environments effectively. That’s all important and that’s all meat and potato stuff we need to do on a network. I think about owning some degree of engagement with the customer, a relationship, a means to build with them, having them interact with your service so that you have insights as to who they are, what they like, what they do, what their proclivities are, being able to emotionally attach with them, having a software platform that allows you to build the next building block of a product that extends into engagement, that talks about dynamics of changing consumption in social and interactive. I think this is a really important dynamic for the health of our business. I know it’s longer term in nature, and I’m well aware of the folks who have maybe a tighter orientation to financial return, question, why would you be pushing as hard as you are in this area? It’s because I feel pretty strongly about that. Building large subscription bases of customers that pay us every month for something has been kind of the hallmark of this business. We have a really attractive dynamic in that in our overall revenues and profitability today. We need to evolve that into what the next step is. This is just one of those steps in making that happen.

Thanks very much, Tim. That’s all the time for questions that we have. And with that, I want to turn it over to John Stankey for final comments.

I have one last order of business before I let you go, and Dave kind of hinted at it with his compliment to John. I do want to point out that it’s with mixed emotions that we recognize that this is I believe John’s 40th and last earnings call that he’ll be doing with all of us. He’s been a very valued and long-time coworker of mine. I think if you think about the fact that he sat in this role as CFO of this Company for nine years, that speaks volumes in and of itself about his character and abilities. That’s a tremendous level of longevity for somebody who occupies a role as significant, as pressured and as dynamic as the one that he’s had. I’ve worked with John for 23 years of his career, which has been a long time, and it’s been a pleasure all along the way. I could say a lot of things. Obviously, high integrity, high impact, high functioning and incredibly high regard as a person. We’re going to miss him at AT&T. I know you’re going to miss him in support of all of you, but we’re delighted about what lies ahead for him and his family and Michelle on his next chapter. As you would expect, the professionalism and navigating the handoff to what’s going to be a very capable successor. I’m just delighted to have Pascal coming in, and look forward to all of you getting to know him. It’s gone incredibly smoothly. It’s been first rate. As we join you a quarter from now and Pascal takes the reins, you’ll see what a nice, smooth and even keel transition that’s been when we reconvene. I hope you join me in giving best wishes to John in his next chapter and thank him for everything he’s done for us. Thank you, John.

Thanks, John, and thanks for the kind words. Thanks to all the other members of the management team here who’ve been a family for me. Specifically, thanks to my team, the finance team, just remarkable people across the board. Pascal is going to do a great job, and you guys are going to be thrilled we’re upgrading. I just want to wish everybody on the call good luck, Godspeed, stay safe. And remember, don’t text and drive. Thank you all.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference. You may now disconnect.