Thank you for standing by. Welcome to AT&T's Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. Following the presentation, the call will be opened for questions. And as a reminder, this conference is being recorded. I would like to turn the conference call over to your host, Amir Rozwadowski, Senior Vice President of Finance and Investor Relations. Please go ahead, sir.

Thank you and 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 Pascal Desroches, our CFO. Before we begin, I need to call your attention to our Safe Harbor statement. It says that some of our comments today may be forward-looking. As such, they're subject to risks and uncertainties described in AT&T's SEC filings. Results may differ materially. Additional information as well as our earnings materials are available on the Investor Relations website. With that, I'll turn the call over to John Stankey. John?

Thanks, Amir. I appreciate you all joining us today, and my best wishes for a productive and healthy year ahead to all of you. We finished 2023 with a strong fourth quarter as we made substantial progress on our strategy of being America's best high-performance network provider. We showed again in the fourth quarter and throughout 2023 that we're delivering consistent, positive operating and financial results, including sustained margin expansion and annual free cash flow growth. To do this, we work to grow the right way, invest at historic levels in best-in-class 5G and fiber assets, and deliver the best network to more customers in more places, all while simplifying our operations to drive efficiency while enhancing the customer experience. As a result, we're now positioned to provide our growing customer base with the best communications technologies to meet their ever-growing need for connectivity, supporting sustainable growth. We are deliberately allocating capital to expand and enhance our networks and improve financial flexibility to drive incremental shareholder returns. Since Pascal will cover the fourth quarter results in detail later on, I'd like to highlight some of our full-year accomplishments and long-term business trends. Let's start with wireless. For the full year, we delivered more than 1.7 million postpaid phone net additions with strong service revenue growth and continued historically low postpaid phone churn, all while maintaining healthy ARPUs. Taking a step back, it's clear how far our investment-led strategy has taken us from where we stood only three years ago. Since the start of 2021, we've substantially improved our mobility position and brand perception. We went from losing wireless share to growing our share of subscribers. As a result, we increased our postpaid phone base by more than 10% to more than 71.2 million subscribers. This represents our best three-year stretch of postpaid phone net add growth in more than a decade. During the same three-year time span, we've added to our share of industry wireless service revenue growth, increased our annual wireless service revenues by more than $7.5 billion, and grew mobility EBITDA by about $4 billion. This level of sustained success requires contributions from across the company, including our network team that continues to enhance and expand our 5G and fiber networks. Our mid-band 5G network is now available to more than 210 million people, offering faster speeds and an enhanced experience. We're also bringing more fiber to Americans than anyone else. This excites me because where we build fiber, we win. Over the past three years, we went from passing about 18 million consumer and business locations to now passing more than 26 million locations. As we continue to expand our reach, we're growing our fiber base. With 1.1 million AT&T fiber net adds in 2023, we've generated more than 1 million AT&T fiber net adds annually for six straight years. Over the past three years, we've grown AT&T fiber subscribers by 3.4 million, or by nearly 70%, to more than 8.3 million. This success reflects new customer wins and lower churn, trends that we see as sustainable. The financial benefits we continue to realize through our fiber focus are significant. Compared to 2020, we've more than doubled our fiber revenues to over $6.2 billion in 2023, and our broadband ARPU climbed more than 20% as customers continue to seek higher value plans with faster speeds. In addition to delivering high-margin revenue growth, fiber is more energy efficient, requires less maintenance, and customers keep the service longer. Therefore, as we scale our fiber footprint, we expect to continue to drive margin expansion. This flywheel of faster subscriber growth, higher revenues, and expanding margins gives us confidence in our ability to repeat similar levels of fiber fuel growth in the future. In summary, our mobility and consumer wireline businesses are growing in a sustainable fashion. We're now a highly competitive wireless brand and the leading fiber brand. We've increased customer satisfaction, improved networks, and are the best positioned to drive long-term returns as the convergence trend develops. Now let's shift to our second goal of improving efficiencies. Last July, we announced we achieved our $6 billion plus run rate cost savings target well ahead of schedule. We then set a new target for an incremental $2 billion plus in run rate cost savings by mid-2026. We're making strong early progress on this target. Importantly, we're seeing the benefits from these cost reduction efforts increasingly fall to the bottom line. This is translating into improved operating leverage, as evidenced by the adjusted EBITDA margin expansion we delivered in 2023. Going forward, we expect margin expansion to continue. I'm proud of the progress the team has made in streamlining our business. We now have further confidence in our ability to deliver on our promised goals. Turning to our last key priority, the benefits from our capital allocation strategy are meaningful and evident in our results. We were again a top investor in America's connectivity through our 5G and fiber networks in 2023. Even with our elevated levels of investment, we delivered better than expected full-year free cash flow of $16.8 billion, which is above our previously raised guidance. Furthermore, we achieved this significantly higher free cash flow while simultaneously reducing our short-term obligations. We reduced our vendor financing obligations by $3.3 billion in 2023, all while making more than $2 billion of non-recurring spectrum clearing payments. With a year-end net debt to adjusted EBITDA ratio now below 3 times, and the improved flexibility in 2024 to dedicate more cash to debt reduction, we are confident in our path to achieve the 2.5 times range in the first half of 2025. So overall, I'm proud of what our teams accomplished in 2023. Our strong fourth quarter to end the year accomplished all of our stated 2023 objectives. We replicated our success in 2022 again in 2023, exactly like we said we would. Moving to 2024, it should be no surprise that our plan is to do it again. Again, here's how we'll build off our momentum in the year ahead. In mobility, we expect to continue our success with adding quality customers on the strength of our go-to-market approach and elevated customer value proposition. We also intend to improve our performance by targeting under-penetrated segments like value-oriented customers and small to medium-sized businesses as well as better penetrating our expanding fiber customer base. As we do this, we'll take the same disciplined approach by remaining steadfast on profitable growth. Where we build fiber, customers love the value and service we offer, and accordingly, we become the favorite to win. We'll continue to extend our lead as the company that reaches more homes and businesses with fiber. We remain on track to pass our 30 million plus consumer and business fiber location target by the end of 2025. As I mentioned last month, the better than expected returns we are seeing on our fiber investments potentially expands the opportunity to go beyond our initial target by roughly 10 million to 15 million additional locations. This also assumes similar build parameters and a regulatory environment that remains attractive to building infrastructure. And in areas where we don't yet have fiber, AT&T Internet Air allows us to better serve customers in select markets with fixed wireless Internet access. We also expect 2024 to be the prove-it year for our Gigapower initiative, and we plan to explore other unique opportunities to extend the AT&T brand on a converged basis beyond our traditional footprint. The good news is that no one is better suited to answer the call for converged connectivity than AT&T. We already have North America's largest wireless network and the nation's largest and fastest growing fiber network. There is simply no debate that 5G and fiber are hands down the best connectivity technologies available and we are the only provider that benefits from owners' economics at scale on both technologies. Why is this so important? Traffic on our network has continued to increase in excess of 30% each year over the past three years. Our position with the most pervasive U.S. fiber footprint, the largest wireless network, puts us in the unique position to grow at an advantaged marginal cost structure. At AT&T, we're making the right moves to deliver high-performance converged networking at a scale and breadth second to none in the United States. We're doing this by continuing our investment in scaled, flexible, and increasingly open networks that address customers' needs to get on the Internet no matter where or how they are situated. Our existing strength and presence in literally every market segment from the largest multinational corporations to the most basic consumer allows us to effectively scale and commercialize the right solution with the right technology at the right price. Accordingly, we're well positioned to grow high-performance networking that seamlessly combines fiber, mobile and fixed wireless, and satellite technology in the most secure and effective package desired by our customers. This is all part of orienting the company to put the customer first and prioritize simplicity in everything we do to further our growth and become more efficient in 2024. This includes enhancing our digital and self-service channels that are increasingly being supported by AI. This work will help shape the effortless and personalized customer experiences required for a truly converged future. AI-driven efficiencies are also another significant leg of our cost savings efforts as we make progress on achieving our announced incremental $2 billion plus run rate savings target by mid-2026. In summary, we have the right formula to continue the improved operating momentum established over the last three years. I'm pleased with our momentum exiting 2023 and remain optimistic about where AT&T is positioned in the broader industry as we enter a year that I suspect will shape the direction of our industry in the decade to come. With that, I'll turn it over to Pascal. Pascal?

Thank you, John, and good morning, everyone. As John shared, we've maintained our momentum across both 5G and fiber. Let's start by reviewing our fourth quarter financial summary. Revenues were up 2.2% for the quarter and 1.4% for the full year, largely driven by wireless service revenue, broadband revenues, and Mexico. This was partly offset by a decline in business wireline. Adjusted EBITDA was up 3.2% for the quarter and 4.7% for the full year, as growth in mobility, consumer wireline, and Mexico were partly offset by a decline in business wireline. In the fourth quarter, adjusted EPS was $0.54, down 11.5% for the quarter due to a $0.10 impact from higher non-cash pension costs, lower capitalized interest, lower equity income from DIRECTV, and a higher effective tax rate. For the full year, adjusted EPS from continuing operations was $2.41, in line with our previously stated expectations of the low 2.40s range. Free cash flow for the quarter was $6.4 billion, including about $900 million in DIRECTV distributions. For the full year, we came in above our already recently raised guidance with $16.8 billion in free cash flow. This is an improvement of $2.6 billion year-over-year, or up 19%. We achieved this free cash flow growth even with about $1 billion of higher cash taxes and about $750 million of lower cash distributions from DIRECTV. Additionally, we reduced vendor financing obligations by $3.3 billion last year. Cash from operating activities came in at $11.4 billion for the quarter, up $1 billion year-over-year. For the quarter, capital expenditures were $4.6 billion with capital investments of $5.6 billion. Full-year capital investment was $23.6 billion, as we continued to invest in 5G and fiber at historic levels. We also continue to strengthen our balance sheet. Last year, we lowered net debt by about $3.3 billion, which was also burdened by a $1.7 billion increase year-over-year for changes in FX rates related to foreign debt. We additionally completed an $8 billion pension liability transfer through the purchase of insurance annuities last spring, and we've done all this despite overcoming meaningful declines in the legacy wireline part of our business. Now let's look at our mobility segment operating results. Our mobility business continues to deliver strong results, growing both revenues and EBITDA for the sixth consecutive year. We are pleased with our 526,000 postpaid phone net adds for the quarter, particularly given some of the rich promotions by our peers. This success demonstrates the general health of the wireless industry and the consistency of our go-to-market strategy, which continues to resonate with high-value customers. Revenues were up more than 4% for the quarter and 2.7% for the year. Service revenues also continue to improve, thanks to steady and profitable subscriber growth. In the quarter, service revenues rose about 4%, while they were up 4.4% for the full year. Mobility EBITDA for the quarter was up about $450 million or 5.6%, driven by growth in service revenues. For the full year, mobility EBITDA grew 7.4%, and we continue to see margin expansion year-over-year. Mobility postpaid phone ARPU was $56.23, up 1.4% year-over-year. ARPU growth continues to be largely driven by our targeted pricing actions and from customers trading up to higher-priced unlimited plans. Postpaid phone churn of 0.84% for the quarter remained historically low. Our continued low churn levels clearly demonstrate customers prefer the value proposition they are getting from AT&T. In prepaid, our phone churn was less than 3%, with Cricket phone churn substantially lower. We remain encouraged by the overall health of the wireless industry and are confident that our mobility business will deliver again as we expect to continue to grow in customers, service revenues, and EBITDA at a healthy clip in 2024. Now let's move to consumer and business wireline results. As John mentioned, the financial and operational performance of our fiber business is exceeding our initial expectations. Wherever we have fiber, we continue to win. In the fourth quarter, we added 273,000 fiber customers even in a seasonally slow fourth quarter and lower year-over-year household moves. This accentuates the resiliency of fiber and the superior experience it provides customers. Broadband revenues grew more than 8% year-over-year due to fiber revenue growth. Fiber ARPU was $68.50, up $0.29 sequentially, with intake ARPU now at more than $70. Consumer wireline EBITDA grew more than 10% for the quarter and more than 8% for the full year due to growth in fiber revenues and the more efficient cost profile of fiber. And while fiber remains our focus and lead product, we've also been encouraged by the initial introduction of AT&T Internet Air, our targeted fixed wireless access service. We had 93,000 AT&T Internet Air subscribers at the end of the year and now offer this service in parts of 35 locations. Turning to business wireline, EBITDA was down about 19% in the quarter. This was impacted by about $100 million of items, primarily discrete intellectual property transaction revenues we had in the fourth quarter of 2022 that did not repeat in the fourth quarter of 2023. As I will discuss in a moment, we expect trends in business wireline EBITDA to improve on a full-year basis in 2024. In the fourth quarter, our business solutions wireless service revenues grew nearly 6%. This is an area where we continue to grow faster than our nearest peer. FirstNet also continues to be a growth factor for us with wireless connections growing by about 260,000 sequentially. Now let's move to our 2024 financial guidance. Here are our expectations for the year. First, we expect to again grow mobility subscribers against a healthy, but normalized industry growth. We also anticipate continued benefits from a larger subscriber base and modest growth in postpaid phone ARPUs. This should result in wireless service revenue growth in the 3% range for the full year. For broadband, we expect revenue increases of 7% plus for the full year. This growth reflects continued fiber subscriber growth and higher ARPUs from the mix shift to fiber. Overall, we expect to continue to grow consolidated revenues next year. As we think about the EBITDA trends in 2024, we expect to grow mobility EBITDA in the mid-single digits as our disciplined approach helps us to grow valuable subscribers. In business wireline, we expect EBITDA to be down about 10% plus or minus. We expect legacy business wireline declines to be partially offset by incremental cost savings and increased fiber and fixed wireless revenues. Additionally, our guidance reflects the impact of the expected deconsolidation of our cybersecurity services business. In consumer wireline, we expect to grow EBITDA in the mid-single-digit range, thanks to continued growth in fiber revenues, and to a lesser degree, growth in fixed wireless subscribers. This will be partly offset by an expected continued decline in legacy copper revenues. Finally, similar to last year, we expect to benefit from ongoing corporate cost reductions again this year. These factors combined deliver consolidated adjusted EBITDA growth in the 3% range for the full year. Moving to EPS, here's what to think about when you do your calculations. Our full-year guidance reflects non-cash headwinds of about $0.24, which include the following; $0.17 higher depreciation; approximately half is from accelerated depreciation on Nokia assets impacted by our Open RAN transformation, and we expect this impact to continue through 2026. The other half is incremental depreciation from our elevated 5G and fiber builds; headwinds of approximately $0.07 associated with higher non-cash pension and postretirement benefit costs, largely driven by declines in prior service credit amortization. As a reminder, prior service credit are the result of amendments made in prior years to our postretirement benefit plan that reduced benefits. Under GAAP, the impact of these amendments is recorded as a credit and equity and amortized into income over the expected service period of plan participants. In 2023, prior service credit amortization was $2.6 billion, which is a positive contribution to other income. In 2024, we expect prior service credit amortization to be $2 billion or a decline of about $600 million. Next year, we expect a more moderate decline in prior service credit amortization, continuing to decrease in the subsequent years as prior year plan changes become fully amortized. We have provided the projected future annual amortization by year in the footnotes of our supplemental financial trends document on our Investor Relations website. Importantly, we have continued to lower our pension obligation, including our transfer of certain pension assets and liabilities to Athene last year, and we don't expect any material required contributions to our pension plans for the balance of this decade. In addition to these non-cash items, the guidance also includes $0.08 of other headwinds. These include $0.05 impact from lower spectrum-related interest capitalization as we near completion of our initial C-band spectrum deployment in 2024. We don't expect capitalized interest to be a significant headwind beyond 2024, and $0.03 impact from lower adjusted equity income from DIRECTV, which we expect to be about $2.6 billion versus $2.9 billion in 2023. Lastly, we expect an effective tax rate in 2024 consistent with the 2023 rate. Given these assumptions, adjusted EPS for 2024 is expected to be in the $2.15 to $2.25 range. Normalizing for these four items, our 2024 guidance would imply adjusted EPS growth consistent with our expected growth in adjusted EBITDA. We expect to be in a position to begin to grow adjusted EPS again in 2025. Turning to free cash flow, here's what to consider for 2024. First, we expect adjusted EBITDA growth in the 3% range. We also expect cash taxes to be up about $1.5 billion based on current tax law. As we look out to 2025, we would anticipate cash taxes to increase around $1 billion over 2024. Cash distributions from DIRECTV in 2023 were $3.7 billion, down about $750 million compared to the prior year. Looking forward, we expect DIRECTV cash distributions to decline at a similar rate in 2024 and thereafter. I'd also like to point out that DIRECTV's debt levels have not changed materially since the end of 2021 and its debt is non-recourse to AT&T. Another impact to free cash flow is lower capital investment. We expect 2024 capital investment levels in the $21 billion to $22 billion range. It's also important to note that the mix shift of our capital investment continues to move in a favorable direction as vendor financing obligations decline and project capital spend increases. Accordingly, we plan to continue to pay down short-term vendor and direct supplier financings this year as we shape an even more sustainable and ratable quarterly free cash flow cadence. Remember, our capital investments consist of payments from prior year capital spend plus current year spend. This year, there will be fewer payments of prior year obligations than we saw in 2023 due to significant reductions in vendor financing. However, in the year, we do expect higher spend on capital projects. When you combine all these factors, we expect to deliver free cash flow in the $17 billion to $18 billion range this year. This is greater than 2 times our current annual common dividend and more than enough to cover other commitments. As we discussed in recent quarters, we continue to make progress on improving the ratability of our free cash flow. Last year, our free cash flow was about 70% back-end loaded to the second half. We expect that to be closer to 60% this year. Accordingly, we expect first-quarter free cash flows of at least $2.5 billion. Overall, the combination of increased free cash flow and fewer one-time items will enable us to continue our deleveraging progress in 2024 and remain on track to achieve our target range of 2.5 times net debt to adjusted EBITDA in the first half of 2025. Amir, that's our presentation. We're now ready for the Q&A.

Thank you, Pascal. Operator, we're ready to take the first question.

Our first question will come from the line of John Hodulik of UBS. Please go ahead.

Great. Thanks. Good morning, guys. First, thanks for the detail on the free cash flow. Pascal. But can we focus on the sustainability of the postpaid phone growth in '24? You added 1.7 million subs that gross adds were down a bit in the fourth quarter. I guess, first, could you talk about the momentum you're seeing here, here in the first quarter and how competition is shaping up? And then John, you talked about these under-penetrated markets these three segments value, SME and conversion. Any color you can give us in terms of how big of an opportunity those underpenetrated segments are and how you expect to adjust that year in '24? Thanks.

Hi. Good morning, John. Happy New Year. So look, first of all, on the aggregate market, as we've been indicating, we thought there was going to be a little bit of a slowdown from previous year's activity level. We saw that happen in '23. I think we're at a more normalized level right now. We're kind of expecting that is going to continue into next year. It'll be probably right around the same place. We're not going to see it dramatically different. And our expectations are we're going to continue to attack the market the same way we've been doing, and we've been really consistent about that over the last three years. And I don't think you should expect to see that there is going to be any less sustainability of our performance than what you've seen over the previous couple of years in the strategies and the tactics we use. I think the market is a healthy market right now. I would say, if you would look at the fourth quarter and look at what we delivered on postpaid phone net adds, your point on gross is an accurate statement, and I think it reflects the fact that we're trying to be incredibly disciplined around profitable growth. We managed to outgrow one of our peers that has already reported. We did that, I think, by being very disciplined on our promotional levels and being very strategic in the channels that we operate in. As I've indicated on previous calls, we delivered an incredible churn level, which helped us do that. It's always easier to keep your customers than to churn them out. We've managed to keep that churn level while we've been growing ARPU. We're driving operating leverage and EBITDA growth in a really strong fashion. I think the equation is incredibly sustainable with what we're doing right now. We're going to tweak it, and that's what I was alluding to and some of the things that we know there's some areas where we could probably do a little bit better. I suspect, looking at some of the numbers yesterday from what Verizon reported, there are some areas that they probably looked at and said that they can do a little bit better in, and we all have regional players that we play against and things that we do, like the cable companies, that, as we kind of understand the playbook and look at it, we can adjust how we approach that. They're kind of a new player in the market. My guess is, after everybody comes out and reports, we're going to see that the three large incumbent wireless carriers have had very effective quarters. We all understand how to run our business. I think we're all being pretty disciplined around how we go about it. I think we're all conscious of the fact that we've invested at record levels and need to make sure that we're driving returns on those record levels of investments. And to me, that kind of lines up for a very sustainable outlook as we move into next year.

Got it. Thanks, John.

And Simon Flannery of Morgan Stanley. Please go ahead.

Thank you very much. Good morning. I wanted to revisit the balance sheet. We're approaching the time next year when you reach your target of 2.5 times in the first half of '25, so it's becoming more imminent. How are you currently evaluating the options to either repurchase stock or expand coverage to an additional 10 million to 15 million fiber homes or further reduce debt? I would appreciate your insights on that. Additionally, if you could provide any information about your ACP exposure and your recent thoughts on BEAD, that would be helpful.

Sure. Morning, Simon. So I would say first of all, and we've been really clear on this and it doesn't change, first and foremost, we want to invest at the right level in our business to make sure that we can grow it in a way that we think drives sustainable returns to our shareholders. Secondly, the dividend is something that we have to protect and make sure that we're offering a fair return on, and then getting the balance sheet where we want to get the balance sheet is absolutely critical. When we arrive at that point, it's the time to make the decision, and the decision has to be made relative to where stock is trading, where interest rates are in the environment, what opportunities we have in front of us as a business to continue to grow things based on how policies evolve in this country, and where we think there is opportunity for us to grow and get fair returns. All those things will go into the Board's deliberation. I think what you're touching on, though, is we are about ready to enter the doorstep where we have choices around what we do with that capital, and that's the most important thing. And I step back from the year of 2023 and look at the progress that we have made, not just on delivering the commitments that we made back to all of you and our investors, but the fundamental improvements in the structure of our balance sheet, the momentum that we have in the business and to be on the doorstep of those options is a really exciting thing in aggregate for the management team. And I think it shows an incredible amount of progress on the hard work. We have a tremendous amount of optionality in front of us. As we shared with you, our balance sheet is in really good shape in terms of how we've been able to tear down our obligations and the rates that we're paying on it, and how our organic cash flow will allow us to pay down the maturing debt that's in there. And so as we choose to drive more shareholder value, the field is wide open to us as to where we wish to go and what we wish to do, and we will do what is in the most and best interest of the shareholder at that point in time. And we view it as being a really important moment for us to arrive at. It's something the management team is focused on and is ensuring that we get there and we all know that it's incredibly important to driving the value in our stock. On the ACP side, I guess the editorial comment I'll make is, it's unfortunate that we're at this moment, and I say that from the perspective of we have an awful lot of subsidy that's deliberate and overt, that are in regulatory structures today, which are important to ensure that every American can gain access to the Internet. And those subsidies, unfortunately in many cases, were set up and structured from many years ago, and they've been funded under constructs that have kind of run their time as industry and products have shifted and changed. And from my point of view, regulators right now should be spending their time and energy stepping back from that and understanding how we take all the different subsidy structures in place and get them together in a coherent approach to ensuring those most in need can get subsidy that they need to be able to afford access to the Internet so that as a country, we can step back and say that everybody has access to capable, scalable Internet that allows them to do all the things that are so critical today. And I think through a combination of ACP, universal service reform, and other programs that are out there, that money is there if there was a political will and a coherent policy put forward, that it would be good for the industry and good for our country. Unfortunately, we now are looking at a triage moment on one program, ACP. I don't know where it's going to go. I will tell you, either way it goes, we'll be fine. We've given you guidance fully knowing it can break one way or the other. I'm comfortable that what we can deliver in our plan next year isn't going to hang on what the government chooses to do with ACP. If they choose to cancel the program and don't fund it and move forward on it, we have plays that we'll run. We have things that we'll do with our customers and how we approach the market and what we do to respond to it. And we believe we can manage through that in an effective way within the context of the size of our company and what we do and how we go to market. If they go the other way and they do manage to fund it or fund it on some kind of a revised basis, AT&T will be continuing to lobby that regulators should be thinking about a more holistic and sustainable approach, trying to get this right for the future so we don't approach this moment again. It's some last-minute circumstance, and that we can have a thoughtful approach to it. And that battle will not go away, and I think it's the important thing for all of us to do. On the BEAD side, Simon, I don't know that a lot has changed other than we've seen some incremental progress on a couple of states moving forward in their process. As I shared with you last time I was asked this question, we'll probably have 50 different recipes of how BEAD ultimately works its way into the market. There may be some similarity between each of the states, but there clearly are 50 different states and 50 different points of view on this. I think we're going to be very measured and targeted as to where we go in both in terms of the states that are setting up the right kind of rules that incent the joint private sector investment as well as the right rules that are sustainable for how you operate in that. I think a good news story is, I point to a state like Texas, I think was the largest benefactor of BEAD financing, seems to me policy-wise they have a pretty sound approach to things. It looks to me like we can work effectively in the state. Given it's a large amount, we'll probably have good opportunity there. There are a few other states that I look at and say I'm not sure the policies are going to line up effectively. The end of the day, as I said in my opening comments, we have 10 million to 15 million organic opportunities to go and invest and build. We know what the average cost per past location is for us to build those areas. It's a very controlled and measurable number. In some of the BEAD circumstances, the amount of private capital per living unit that's being required is actually substantially higher than what our average cost is and what I would call our organic and market-driven non-BEAD footprint. And so if I think about I can get more scale, more households faster in places where the construct is very straightforward, the amounts and the plays to run are getting more scale in existing areas, that's what weighs against your incentive to invest. And I think states that understand that are coming up with smart policies to try to be competitive with that and states that don't understand that are probably going to have pretty voluminous and deep requirements that ultimately cause private capital to maybe shy away from matching in some of those areas.

Great. Thanks for the color.

And Phil Cusick of J.P. Morgan. Please go ahead.

Hi, guys. Thank you. John, maybe talk about pricing in wireless this year. Verizon just ran through another one. It seems like the inflation-driven wave of general consumer price increases is slowing. Do you think there's more room to take a little more price in the postpaid space? And then maybe just expand on the AT&T Air effort. How much does this scale over time and how many more markets do you think are possible this year? Thank you.

Good morning, Phil. So look, I'll give you the same answer on pricing I think I probably give every time I'm asked it, and I just suggest there is a string of data points to go back and look at to kind of buttress up my observations on this, which is, we've been pretty deliberate about where we think we add additional value into our customers and whether or not we can ultimately drive price changes that are aligned with driving that incremental value. And as I mentioned earlier, we've invested a heck of a lot in our networks. People are using over 30% more of it per year. They are getting more utility out of what we do, and the capability of the networks is allowing them to do more things in more ways. And as a result of that, I think that value is allowing us to go in, in places and certainly drive some remuneration for the level of investments that we're putting in. And you see it in our ARPU growth. I think we’ve shared with you that we expect probably some modest ARPU accretion in our guidance as we move through next year in the wireless space. Some of that will come from moving people up to higher priced plans with more bells and whistles, and some of it will come through pricing movement. I would tell you, I go and I rest on our track record. You're seeing the numbers, and you're seeing what we've been able to do. I think we can continue to run many of the same plays that we've run, and we're doing it with, I don't know, we may end up with another record churn quarter or best in industry churn quarter. We'll be darn close to it, and we're doing it at levels of ARPU performance in the market that I think is pretty stellar. So my message is, I think we know how to do this. I think we've done it pretty effectively. I think the team is pretty diligent about it. I think there are opportunities for us to continue running the business the way we've been running the business. And I expect we'll have to do that in 2024 to deliver our plan and do what we need to do, inflation-driven or not. On AT&T Air, again, not much different in my narrative around it. I don't expect that we are going to be pushing the product in the same way that some others in the market are pushing it today. We've made a conscious choice as a company that we want to dedicate capital to investing in fiber, which we believe is a more sustainable, long-term means to deal with stationary and fixed broadband needs. It doesn't mean that we don't think that fixed wireless serves some segment of the market. It does. It serves certain types of circumstances in the consumer base. It serves certain types of circumstances in the business base. And we will take advantage of those certain circumstances. As I've said, there are a lot of small businesses that have usage profiles that fixed wireless is very attractive to. It's something that we will lean into this year. You will see it reflected in our performance as we move throughout the year. We have places where because of our spectrum profile and our share position in particular markets, we can maybe lean in a little bit more aggressively in defining the consumer segment that we might serve with the product and service on a competitive market that you will see us begin to add some degree of market penetration on. And as I've told you before, we will continue to use it very actively in our transition away from legacy assets as we begin to shutter our copper footprint, take out square miles in our network, not have the operating costs associated with those fixed infrastructure that we can use this as a catch product. It's a very effective catch product in some of those areas, especially given the density characteristics of what's happened that we haven't built fiber there yet or we will not build fiber, but it still allows us to meet our obligation back to the customer base and our state franchise agreements, etc. So I don't think you're ever going to see a scale to the kind of monthly numbers and quarterly numbers you see coming from some of our competitors, but it's a great tool. It's a great opportunity for us to continue to grow. I think the most important thing to understand, as you've seen is that we are broadband positive, aggregate broadband positive, and we are going to continue to be aggregate broadband positive going forward. So not only are we growing EBITDA, we're going to now start growing the customer base and this will be one of the tools we use to have that ratable, sustainable growth that I think we've been seeking.

Thanks, John.

We have a question from the line of David Barden of Bank of America. Please go ahead.

Hey, guys. Thanks so much for taking the questions. I guess the first one, Pascal, if you could kind of elaborate a little bit on the range of the free cash flow guidance. Is it dependent largely on where capital investment lands within that 21 to 22 or are there other potential moving parts that we don't see in that equation? And I guess related to that, maybe John, at the end of the year, you had 26 million fiber homes passed. The goal is 30 million by 2025. Obviously, you've got a choice to kind of continue to deploy the way you've been doing, which puts you closer to that 30 million by the end of this year, or you could throttle it back in an effort to contain the capital investment out the door and support the free cash flow guide. Could you kind of elaborate a little bit on the game plan there? Thank you.

Hey, Dave. Good morning, and Happy New Year. Here's the way I think about cash. We've made really good progress over the course of 2023 in paying down some of our short-term financing obligations. And therefore, as I look at the capital spend in 2024, it's going to be more heavily weighted towards project spend. We have really good line of sight on that. It's going to be within the range we provided to you, and we feel really good about that. The other factor that we have reasonably good line of sight to is our cash taxes for the year. Based on current legislation, we have pretty good line of sight in terms of where that lands. Obviously, we're expecting EBITDA to grow. That's going to be the driver of the growth, coupled with the step down in capital investment. I don't anticipate any material headwinds from working capital, albeit depending upon how we're doing, we may decide to continue to lean into short-term financing obligations to reduce those. So those are the swing factors, but look, all in all, feel really good about our ability to deliver on the guidance and continue to grow the business from there.

Dave, the way I would tell you is, I go back to the question that was asked earlier about capital allocation and what we need to do. And I would say first and foremost, you've got to understand, we've given you guidance. We've made a set of commitments. Those are important to us. That's what we need to deliver. And whatever decision-making we ultimately undertake has got to be within that context of ensuring that we're consistent in delivering back to you and our commitments. What I would tell you is it's not just making a decision of, well, are there incremental homes you can go get with fiber. There are opportunities to present themselves to our business in a variety of different places where we have a choice to say, well, we're a little ahead of plan or we were a little more efficient, should we do something else here or there, and we'll take advantage of those things every time they pop up. And I would tell you, I am very comfortable we're going to meet our commitment to you of 30 million passings, but I don't know, we could see something happen where we get a vendor's circumstance like we've seen in wireless, where somebody comes in and changes pricing, and we get more efficiency out of something, or we see great results coming back in on the Gigapower side, and we decide that's a better place to go and allocate a little bit more capital. All those things are evolving. We'll weigh them, we'll make decisions, and we'll come back in and we'll tell you what we're going to do, all within the context of we want to make sure we're consistent in meeting our commitments back to you.

Got it. Thanks, guys.

And Michael Rollins of Citi. Please go ahead.

Thanks, and good morning. I'm just curious what you're seeing in terms of the state of the economy for consumers and businesses? And for your business wireline segment, can you share more of the playbook of how AT&T is planning to improve operating performance in that segment?

Good morning, Michael. I'm happy to discuss this. The economy has shown resilience, and I believe it will likely maintain that strength as we move through this year, especially since it's an election year. While I can't predict specific policies, it appears that there are favorable developments on the horizon that suggest efforts will be made to sustain growth. This could help address the somewhat uncertain situation regarding declining inflation rates and their effects on growth, paving the way for a productive 2024. We haven't noticed any signs from consumers indicating they are unable to meet their obligations or that they are not positioned to continue purchasing our services. Currently, we don't see any concerning trends in business formation either. Overall, we feel optimistic heading into 2024, barring any significant external shocks in the global environment. We anticipate that policies will align favorably. Regarding our wireline business, I want to acknowledge some challenges we faced in the fourth quarter. As Pascal mentioned, we encountered nearly $100 million in one-time items that won't reoccur, which we had anticipated. However, one area we underestimated was the weaker-than-expected wholesale revenues, which are crucial for us as they tend to be higher margin and subscription-based. The industry has gone through a lot of restructuring, driven by M&A activities and technological changes. We believe we have now moved past the worst of those challenges after two years of repositioning and renegotiation. Our outlook for 2024 is stronger, and we don’t expect the same pressures we experienced previously. As we adapt our execution strategy, I’ve mentioned our focus on the mid-market, where we are beginning to see initial positive results, albeit more slowly than I'd prefer. This shift requires us to develop new distribution channels and build new partnerships to effectively market our products. We're also reconfiguring our product offerings, which entails repricing and upgrading systems to enable third-party collaborations. We're making strides in this area, evident from the growth in fiber-driven revenues related to the connectivity products and services we're providing. It's important to note that while we report wireline segment results individually, our overall business marketplace, including both wireless and wireline, is still showing EBITDA growth. This is partly because more businesses are increasingly relying on wireless infrastructure, which puts some pressure on our wireline operations, but we are benefiting from growth in other areas. We see fixed wireless services and AT&T Internet Air as significant opportunities for us moving forward. This transition aligns with our long-term strategy. We maintain strong brand credibility and confidence in our product offerings, and I believe that as convergence of services becomes essential, we will further stand out in the mid-market.

Hey, Mike. One other point, just to add as well, as the legacy revenues continue to decline, we have an opportunity to continue to really hit costs in that sector fairly hard. And so I'm confident that that will also be a factor in moderating the losses over time.

Thanks very much, Mike. Operator, we've got time for one more question.

Our last question will come from the line of Tim Horan of Oppenheimer. Please go ahead, sir. Mr. Horan, your line is open.

Sorry about that. Can you talk about the longer-term capital intensity, what you're kind of thinking currently? And I guess there's a lot of moving parts with free cash flow. Maybe a sense, can you grow free cash flow off of this year? It seems like you can and it seems like your capital intensity is still relatively high versus your peers. Just some color around longer-term free cash flow growth. Thanks.

Sure. Regarding capital allocation, I believe we won't maintain our current level of investment indefinitely. We are developing sustainable infrastructure that will support our franchise for many years. Although the fiber investment is challenging initially, it is a highly durable investment with a long depreciation period for a reason. Once we have laid the fiber, increasing capacity requires relatively minimal effort. I have indicated that we should aim for mid-teens as a percentage of revenue in a steady state once we move past this initial investment phase. As long as we perform well in the market despite these elevated investment levels, I feel confident we can continue on this path, but we must ensure we deliver the right results. I believe we've already navigated the toughest part. We aim to complete our fiber projects before initiating another air interface investment. As I've previously mentioned, transitioning to ORAN will provide us with new ways to manage our capital intensity going forward. While it won't change our historical investment levels, it will help us balance our capital investments across fixed and mobile services to achieve the returns we need. Our ORAN investment will also allow us to meet our capacity growth demands more efficiently, enabling us to pursue various initiatives in our fixed services. Overall, I feel positive about our current position and anticipate increased efficiency moving forward. We will be selective in targeting returns based on our market performance, and I believe we are in good shape. Pascal, would you like to add anything?

No. Look, the investments we've been making obviously are working, and as I look forward, we've said it, we expect to operate at mid-teens capital intensity long-term, and we're committed to that. We're also committed to having a capital allocation plan that also looks for other ways to deliver value to shareholders.

Thanks very much, Tim. Turn over to John for final comments.

Well, thanks. Appreciate everybody sticking with us, and I apologize about some of the longer prepared remarks at the front end, but that's not atypical as we try to give you some guidance and visibility into the business, and appreciate you enduring that. I would just reiterate what I said in my opening remarks that I thought 2023 was an incredibly solid year for us from an execution perspective at AT&T. I'm incredibly proud across the board of what we've done and the formula in optimizing the various parts of the business as we move through it. It's as solid a fundamental year at AT&T as I can remember in recent history, certainly in a very long time. If I think about those fundamentals, you see them manifested all the way through the balance sheet and our cash flow statement. And I think that's the most important thing to kind of step back from and realize this business enters 2024 in a very, very strong and healthy position. I'm excited about where we enter 2024. We've taken great steps to simplify our business. We still have some more work to do in that regard, but we are entirely focused on the future right now, and it's a future that I believe lines up incredibly well for the asset base of AT&T as consumer tastes are changing, as we're seeing the move to convergence, and as we see the growth that's occurring and the importance of high-performance networking that I believe AT&T has the asset base and the positioning to move with where this future is going. And that's why I'm so optimistic about what we have in front of us. And I think we're going to get to a very exciting place to start 2025 where we have the choices in front of us that we would like to have and we've worked so hard to get. I'll give you one final housekeeping thing before we separate. This is Amir's last call with us. We've worked him hard the last three years, and I guess like any thoroughbred that we work hard, we need to send him on to his next chapter, and we're excited about what he's going to be able to do for us as we give him a new opportunity to show what he's been able to do and learn about the business. And as a result of that, I hope you join me in welcoming Brett Feldman to AT&T. A couple of you might know Brett. He's been around a little bit. We're delighted to add Brett, and as good a job as Amir has done, and it's really hard to fill those Air Jordans, I'm sure Brett will do an exceptional job of that. We think it'll be a great addition to the management team and we'll continue to work hard to keep you in the loop moving forward. So thank you all very much for your time this morning, and we'll see you in 90 days.

Ladies and gentlemen, that does conclude today's AT&T earnings call. We'd like to thank you for your participation and thank you for using our service. Have a wonderful day. You may now disconnect.