A Storied History of Transformation and Growth

AT&T's origins can be traced back to the 1880s, when it was founded as the American Telephone and Telegraph Company. Over the decades, the company has undergone a remarkable transformation, evolving from a regional telephone provider to a global telecommunications and technology powerhouse. AT&T Inc. was incorporated under the laws of the State of Delaware in 1983 as one of several regional holding companies created to hold AT&T Corp.'s local telephone companies after the 1984 breakup of the original AT&T. Following its formation, AT&T expanded its communications footprint and operations, most significantly by merging with incumbent local exchange carriers Pacific Telesis Group in 1997 and Ameritech Corporation in 1999.

In 2005, AT&T merged one of its subsidiaries with AT&T Corp., creating one of the world's leading telecommunications providers. The Company changed its name from SBC Communications Inc. to AT&T Inc. in connection with this merger. In 2006, AT&T acquired BellSouth Corporation, which included BellSouth's 40% economic interest in AT&T Mobility LLC, resulting in 100% ownership of AT&T Mobility. The company further expanded its portfolio with the acquisition of wireless provider Leap Wireless International, Inc. in 2014 and the acquisition of wireless properties in Mexico in 2015.

AT&T's growth continued with the acquisition of DIRECTV in 2015, a leading provider of digital television entertainment services. However, in July 2021, AT&T closed a transaction with TPG Capital to form a new company named DIRECTV Entertainment Holdings, LLC, separating AT&T's U.S. video operations. In September 2024, AT&T agreed to sell its remaining interest in DIRECTV to TPG, with the transaction expected to close in mid-2025.

The company's transformation also included a brief foray into the entertainment industry. From 2018 through April 2022, AT&T acquired and held various investments in entertainment businesses, namely Time Warner Inc., which comprised a substantial portion of AT&T's previous WarnerMedia segment. However, in April 2022, AT&T completed the separation of its WarnerMedia business in a Reverse Morris Trust transaction.

In recent years, AT&T has further streamlined its portfolio, divesting non-core assets such as WarnerMedia, Vrio, and Xandr, to focus on its core connectivity businesses. This strategic realignment has allowed the company to double down on its strengths, investing heavily in 5G wireless and fiber optic networks to meet the growing demand for high-speed, reliable connectivity.

Financial Snapshot: Sustained Growth and Solid Fundamentals

AT&T's financial performance has been characterized by consistent growth and strong cash flow generation. In the fiscal year 2024, the company reported total revenues of $122.34 billion, a slight increase from the previous year's $122.43 billion. Net income from continuing operations stood at $12.25 billion, with diluted earnings per share of $1.49.

The company's balance sheet remains robust, with a net debt to adjusted EBITDA ratio of 2.7x as of the end of 2024. This financial flexibility has allowed AT&T to continue investing in its strategic priorities while also rewarding shareholders through dividend payments and share repurchases.

For the most recent quarter, AT&T reported revenue of $32.30 billion and net income of $4.08 billion. The company has $3.3 billion in cash and cash equivalents on its balance sheet and a $12 billion revolving credit agreement that was undrawn as of the most recent quarter.

AT&T operates primarily in the United States and does not have significant international operations. The company's Communications segment accounted for approximately 97% of AT&T's total segment operating revenues and substantially all of its segment operating income in 2024.

Driving Growth through 5G and Fiber Expansion

AT&T's focus on 5G deployment and fiber network expansion has been a key driver of its recent performance. The company's 5G network now covers over 314 million people in the United States, positioning it as a leader in next-generation wireless technology. Additionally, AT&T has made significant strides in its fiber rollout, with 9.3 million fiber broadband customers as of the end of 2024, adding 1 million new fiber subscribers during the year.

The convergence of AT&T's wireless and fiber offerings has been a significant strategic advantage, enabling the company to offer integrated connectivity solutions to both consumer and business customers. This bundled approach has led to a growing number of "converged customers," who subscribe to both AT&T's wireless and fiber services, further strengthening customer loyalty and retention.

Operational Efficiency and Cost Transformation Initiatives

Alongside its network investments, AT&T has undertaken a comprehensive cost transformation program to improve operational efficiency and profitability. The company has set a new $3 billion-plus run rate cost savings target to be achieved by the end of 2027, building on the success of its previous cost reduction efforts.

Key initiatives within this program include the decommissioning of legacy copper networks, increased automation and digitization across the business, and the streamlining of customer service and support functions. These measures are expected to drive further margin expansion and free cash flow growth in the coming years.

Navigating Regulatory and Competitive Challenges

As with any major telecommunications provider, AT&T faces a complex regulatory landscape and intense competition from both traditional and emerging players. The company has proactively engaged with policymakers and regulators to ensure a favorable operating environment, particularly around the transition from legacy copper networks to modern, high-speed fiber and 5G infrastructure.

Additionally, AT&T competes with cable operators, regional providers, and over-the-top (OTT) service providers for both consumer and business customers. The company's ability to differentiate its offerings, provide superior customer experiences, and leverage its integrated connectivity solutions will be crucial in maintaining its competitive edge.

Communications Segment Performance

AT&T's Communications segment is the primary driver of its business, contributing the vast majority of its operating revenues and operating income. This segment provides wireless and wireline telecom and broadband services to consumers in the United States and businesses globally, and is divided into three main business units: Mobility, Business Wireline, and Consumer Wireline.

The Mobility business unit generated $85.25 billion in operating revenues in 2024, up 1.5% year-over-year. Mobility service revenues increased 3.5% to $65.37 billion, driven by subscriber gains and higher average revenue per subscriber (ARPU). As of December 31, 2024, Mobility served 118 million subscribers, including 89.2 million postpaid, 19.02 million prepaid, and 9.63 million through resellers. Postpaid phone net additions were 1.65 million in 2024, and the postpaid phone churn rate improved to 0.76%.

The Business Wireline business unit saw operating revenues decline 9.9% to $18.82 billion in 2024, driven by lower demand for legacy voice, data, and network services, partially offset by growth in fiber and connectivity services. Business Wireline operating income decreased 43.7% to $88 million.

The Consumer Wireline business unit reported operating revenues of $13.58 billion in 2024, a 3.1% increase driven by a 7.2% rise in broadband revenues, partially offset by declines in legacy voice and data services. Consumer Wireline operating income increased 33.5% to $869 million.

Overall, the Communications segment generated $117.65 billion in operating revenues in 2024, relatively flat compared to the prior year. Operating income for the segment decreased 2.5% to $27.09 billion, primarily due to the decline in Business Wireline.

Latin America Segment

AT&T's Latin America segment provides wireless service and equipment in Mexico. In 2024, this segment generated $4.23 billion in operating revenues, an increase of 7.6% year-over-year. Service revenues increased 3.9% to $2.67 billion, while equipment revenues increased 14.7% to $1.56 billion. Operating income for the Latin America segment decreased 56.7% to $40 million. As of December 31, 2024, the segment served 23.58 million wireless subscribers.

The Latin America segment accounted for approximately 3% of AT&T's total segment operating revenues and less than 1% of its segment operating income in 2024.

Outlook and Key Catalysts

Looking ahead, AT&T remains well-positioned for continued growth and value creation. The company's 2025 financial guidance calls for adjusted earnings per share in the range of $1.97 to $2.07 and free cash flow of over $16 billion, reflecting its confidence in the execution of its strategic initiatives.

AT&T achieved all of its consolidated financial guidance for the full year 2024, including:

• Mobility service revenue growth of 3.5%, slightly better than the 3% guidance.
• Consumer Wireline broadband revenues growth of over 7%, meeting the 7%+ target.
• Consolidated revenues growth of 3.1%, in line with the 3% guidance range.
• Adjusted EPS of $2.26, slightly above the $2.20-$2.25 guidance range.
• Capital investment of $22 billion, at the high end of the $21-$22 billion guidance.
• Free cash flow of $17.6 billion, slightly better than the $17-$18 billion guidance range.

For 2025, AT&T has reiterated its long-term financial and operational guidance:

• Expect consolidated adjusted EBITDA growth of 3% or better.
• Adjusted EPS guidance of $1.97 to $2.07.
• Free cash flow guidance of $16 billion or more.
• Capital investment expected to be in the $22 billion range again.

The company plans to begin share buybacks in the second half of 2025 once it reaches the target net debt to adjusted EBITDA ratio of 2.5x. AT&T expects to maintain its dividend per share and deliver over $40 billion in total shareholder returns over the next 3 years, including over $20 billion in dividends and up to $20 billion in share repurchases.

Key catalysts for the company's future performance include:

1. Accelerated 5G and fiber deployment: AT&T's plans to further expand its 5G and fiber footprint, providing customers with enhanced connectivity and driving subscriber growth.

2. Operational efficiency and cost transformation: The company's ongoing cost optimization efforts, which are expected to result in significant margin improvement and free cash flow generation.

3. Convergence of wireless and fiber services: The continued success of AT&T's integrated connectivity offerings, which cater to the evolving needs of both consumer and business customers.

4. Strategic portfolio management: The company's disciplined approach to portfolio optimization, ensuring a focused allocation of capital and resources to its core growth areas.

Conclusion

AT&T's rich history, financial strength, and strategic focus on 5G, fiber, and operational efficiency position the company as a formidable player in the rapidly evolving telecommunications industry. With a clear focus on its core Communications segment and the promising growth in its Latin America operations, AT&T is well-positioned to capitalize on the increasing demand for high-speed connectivity and integrated telecom solutions. As the company continues to execute on its transformation initiatives and meet its financial targets, investors can look forward to a future of sustained growth, improved profitability, and enhanced shareholder value.