Senior EVP & CFO, AT&T Inc.
Cutting the Cord: AT&T’s Push Beyond Landlines and Legacy Tech with CFO Pascal Desroches
On the latest After Earnings, AT&T CFO Pascal Desroches joins Ann Berry to unpack the company's strategy, investments, and ...
About Pascal Desroches
Pascal Desroches, AT&T's CFO, has discussed the company's ongoing transition away from legacy copper infrastructure toward fiber and wireless services. In a March 2025 interview, he stated that AT&T expects to "largely get out of the copper business" over the next five years and projected $3 billion-plus in savings over three years from that shift. He described the company's strategy as growing its core mobile and fiber businesses while legacy revenues decline, and said AT&T aims to return value to shareholders through dividends and share buybacks. Desroches also noted that over 70% of consumers want to buy connectivity services from a single provider, and he expressed admiration for Apple's customer loyalty. In a July 2022 interview, Desroches addressed recession risks and free cash flow guidance. He said that even in a recession, AT&T expects customers to pay their bills due to the "mission-critical nature" of its services, though he acknowledged delinquency trends were slightly worse than pre-pandemic levels. Desroches described price increases for some customers on older plans as a "painful step" that had shown early positive results. He also stated that AT&T had taken "hard steps" including dispositions and a dividend reduction to position the company for long-term investment and growth.
Transcript (44 segments)
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Narrator0:00
Data. Relentless demand for it isn't going anywhere. With the average consumer now owning more than three devices and U.S. data center power demand projected to grow at a 15% annual rate until 2030, the infrastructure to deliver all this has been under investor spotlight for several years, and nowhere more so than in the telecom and energy sector. Within that $190 billion market cap giant, AT&T has been doubling down on the data story. After a diversified acquisition spree in 2018, AT&T is now entering its fifth year of transformation into a streamlined, pure-play communications leader. Starting in July 2021, the company's video entities were separated into DirecTV, and in 2022, it spun out WarnerMedia into a merger with Discovery, leaving behind what is now its core business lines. That includes mobile telephony, which uses radio signals from cell towers to provide wireless internet and phone service to users who can stay connected while moving around. This includes first responders, firefighters, paramedics, and police who use AT&T FirstNet services, a dedicated network built on the company's 4G and 5G infrastructure. Second, fiber services, which use fiber optic cables to transmit data with light, offering fast internet speeds and more reliable connections, but requiring a wired connection. This is replacing cable. AT&T has already added 11 million fiber locations to its network between 2020 and 2024, doubling its number of fiber subscribers. And from now until 2027, AT&T plans to invest $22 billion per year in fiber infrastructure to reach over 50 million locations, estimating that by the end of the decade, about 80% of homes will have a fiber offering. The shift certainly showed through in AT&T's recent earnings reporting: the addition in 2024 of 1 million fiber subscribers for the seventh consecutive year, with a 7.8% year-over-year revenue increase in consumer broadband. The fiber network also reached just under 29 million locations. Mobility service revenues increased 3.5% annually, reaching over $65 billion for the year, with solid performance in postpaid phone subscribers and continued convergence as customers buy both mobile and fiber services. Something that we're going to dig into. But enterprise services are still at an inflection point. The business wireline segment saw a revenue decline of 10% year over year, with pressure on its legacy voice and data services and a Q4 drop in profitability. We unpack all this and more with AT&T's chief financial officer Pascal Desroches in studio with us at After Earnings. Let's get right to it.
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Interviewer2:24
There was a time not too long ago when there was a lot of price competition, particularly to get consumers onto their cell phone networks. Has that tapered out? What are you seeing in terms of pricing pressure?
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Pascal Desroches2:35
It's always been competitive in the industry and it remains competitive. But what we offer is a good service that is incredibly valuable. Consumers not only are asking for it, they are asking for more of the plans that provide them with more connectivity, whether it's on the broadband side with faster speeds, or it could be on wireless with plans with more features and minutes. And so, yes, it's competitive. And yes, we have to provide promotions to get consumers onto our services. But the returns on those investments are incredibly attractive. And as I said, not many companies are in a position to provide that.
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Interviewer3:19
About 40% of your fiber subscribers are also mobility subscribers, I believe, Pascal, an interesting convergence phenomenon. Where do you think that 40% gets to over time?
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Pascal Desroches3:32
Here's what we've said publicly. It is our goal to get to 50% as you get towards the end of the decade. So by 2029, next five years, we expect to get to 50%. Importantly, 50% of a much larger base. Today we are at nearly 29 million passings. By the end of the decade, we'll be at 50 million plus. And we expect to get to 50%. Doesn't mean we'll stop there. I think there are opportunities to go well beyond. Our research has shown over 70% of consumers want to buy from the same provider. They just want that connectivity to work, whether it is at home, whether it is in the car, on a plane, they want it to work. They'd much rather deal with one provider that provides them that seamless connectivity. And we are as well positioned as any to do that.
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Interviewer4:25
So within that context and that desire to have a one-stop shop, how do we explain the sort of proliferation of these sort of ankle biters we've seen? You know, Mint is an example, right? Got a ton of coverage, mainly because it had a very famous investor. But how do the Mints of the world sort of pop up in the world that you just described?
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Pascal Desroches4:44
Here is the way to think about it. When you get to a point where in any industry you're close to 100% penetration, the providers of those services tend to find alternative means of distribution. So you may have somebody like a Mint that says, I'm okay with getting a small portion of the profit margins. And for the big providers, it is all incremental margins. They are basically selling, providing network access wholesale. And somebody else is reselling that at a very small margin. So yeah, you always have that when you get to near 100% penetration in an industry. And that happens across business. It's another way to monetize the significant investments we've made in our networks.
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Interviewer5:37
One area that's been important for AT&T has been spectrum acquisitions. Can you just break down for us what that is and why? There's some chatter at the moment that it might get harder to continue acquiring spectrum to connect consumers via your mobile services.
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Pascal Desroches5:55
There is a series of towers and radio access networks across the world. And importantly, there is spectrum position that allows working in conjunction with that. Those towers and small cell sites really facilitate that seamless connection from device to device. Spectrum allows in a very efficient way to fulfill demand for network services. It is a scarce resource. The government had a big auction back in 2021. Since then, no auction for new spectrum. We and others have been vocal about the need to add more spectrum to the pipeline to really allow a cost-effective expansion of delivering mobility services. Ultimately, the consumer will benefit from the telcos having access to that spectrum. It will allow delivery of the service in a much more efficient way, and the benefit ultimately accrues to the consumer.
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Interviewer7:06
And why has the government not been selling as much spectrum?
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Pascal Desroches7:09
I think the spectrum is very valuable not only for telecommunications but for the Department of Defense. It is critical in a lot of the work they're doing to defend the country. And so I think there's been a little bit of push-pull within the different government agencies. But we're hopeful with the new administration that will be an area where we have access to new spectrum inventory.
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Interviewer7:33
And what about other technologies that are trying to play where spectrum issues don't exist? Let's talk about satellite communications. Able to talk to us about what you're seeing with folks like Starlink coming into that space. What does that mean for your business?
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Pascal Desroches7:47
Yeah, if I zoom out a little bit, in order to set up communications, you can do it in a variety of different ways, whether it is through the network of mobile sites I described earlier, it could be by having a fixed broadband connection to your home that enables your Wi-Fi. Sometimes it could be through other means, like satellite. And satellite works in places that are sparsely populated, where the cost of deploying a wireless network or broadband becomes really expensive. And satellite is a fine alternative in those instances. It doesn't provide the same quality of service that you would get in a fixed or mobile, but it is fine for those who don't have other means to connect. And so Starlink is a fine way to tackle portions of the population that are very sparsely populated. But there will be other satellite companies, there's a company who's invested in AST, that's a public company that's also launching satellites, and there will be others. And our view is that competition and others bringing satellites to market will allow us to serve across the globe those parts that are really cost prohibitive to serve with the best technologies.
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Interviewer9:22
So let's use that as a segue to talk about where you've been investing very heavily. And that's in fiber. $22 billion a year of CapEx is a number that you've thrown out there to be invested annually through the end of 2027. That's a big number. Where is it going?
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Pascal Desroches9:35
Indeed it is. You know, you take a step back, as I said, to be in these businesses, you have to have the very best technology. So a lot of it is going to support our wireless. We are modernizing our wireless network. We are creating a much more open and modern architecture that will drive down the cost of delivering each bit of wireless connectivity. It will drive down back costs. Similarly, with fiber, we are only at 29 million homes. Our aspiration is to pass 50 million plus. And it's going towards that. It is incredibly expensive infrastructure to put in, but once you have it, it is an annuity stream that will serve the company and its shareholders for years to come, and it will provide absolutely critical services for consumers.
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Interviewer10:37
We talked a lot about consumers. Let's talk about businesses as well, also going through their own evolution. Business was a weaker part, a weaker division, if you look through the numbers there. Can we expect a different trajectory to the business profitability than we've seen?
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Pascal Desroches10:53
Sure thing. The dynamics that are happening at business, when it's all said and done, we are in the business of connecting not only consumers but businesses as well. We have more relationships with the Fortune 1000 than anybody else. So why is business in decline? Those relationships historically have been things like just phones, fax lines, legacy broadband. That's not as fast as the current broadband that we're deploying today. We went through the same transition on the consumer side, but on the business side, we are a little bit earlier in that evolution. Think about COVID from 2020 to probably 2022. No one was in the office or thinking about how to modernize their telecom infrastructure. Instead, that was delayed, and it wasn't until 2023 that started happening in earnest. And so what we're seeing is a decline in legacy services, which we will, because we had been such a leader in that space, but at the same time, an increase in the services that are growing like wireless, like fixed wireless, like fiber connections to businesses. And those we expect to continue to grow and have really great tailwinds. But right now, the tonnage of legacy revenues that are rationalizing is overwhelming that, but it's only a matter of time before we get to the other side. Importantly, during this period of transition, we can still grow the overall company's earnings and return meaningful amounts to shareholders and grow our EPS double digits.
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Interviewer12:42
So we'll come back to that, looks about return of capital to shareholders as well. But just to hone in for a second to remain on this business inflection point. There's still going to be some time with the burden of the legacy business running off. You're earlier in the cycle than in consumer for the most sophisticated technology adoption to happen. When do we get to the other side of it? When are you net growing faster on the business side than you're seeing the runoff?
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Pascal Desroches13:07
Here's what we have said publicly. We expect by the time we exit 2027, we should be approaching stabilization of that business, because you will have between the wireless relationships that business brings, coupled with the fiber and fixed wireless relationships that business brings, will offset the declines in legacy by that point. And we'll reach a plateau.
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Interviewer13:34
You've got a big cost-cutting target, $3.5 billion of run-rate cost savings. Is the target out there by the end of 2027? Break that down for us. How much of that is coming from retiring some of the legacy systems that were copper-based and decommissioning that? How much is it coming from productivity from new technologies like AI?
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Pascal Desroches13:57
It's a great question. So here's what we said publicly. We expect to have $3 billion plus of cost savings over the next three years. Where's that going to come from? A big part of what you said is we have a big legacy copper base of customers and underlying infrastructure. Over the next five years, we expect to largely get out of the copper business. So think of landlines, fax lines. We are largely going to be out of that business, and the underlying infrastructure will be rationalized. That will be part of the cost savings, but also new technology, new platforms enabled by AI, not only generative AI but the AI that's been around for years. We'll continue to get better customer service. You call in, having the virtual chat box assist our customer service reps has increased productivity significantly, has allowed us to answer customer inquiries the first time, put them in the right location to be solved. So despite the fact that our customers have grown significantly, we've seen a meaningful decline in call volumes. We would expect that to continue over time. We are also starting to see meaningful efficiencies in coding through the use of AI tools to help our software engineers, making them significantly more productive. Also, think about how much information about you that we have over time, the ability to drive more of our sales through the digital channels by recommending the right plan, the right devices for you and your family. Those are in the very early innings. So the efficiencies that can be garnered will be enormous.
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Interviewer15:57
Just for the record, I feel compelled to tell you I still have a landline. I'm very attached to my landline. When the zombies come, I'm going to be the last person with it.
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Pascal Desroches16:06
There you are, in good company. There are quite a few people, and historically, the government has made it very difficult for us to get out of the landline business.
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Interviewer16:16
Is that right? And in what way? Regulating the necessary infrastructure that supports it for some period of time?
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Pascal Desroches16:20
Yes. You cannot stop offering landlines unless the government says you can. Not only do you have to service the existing landline, but you have to continue to offer it as a service until the government tells you you don't need to. So it's been a regulatory burden. What we're encouraged by is that the current administration has pledged to work with us to really help speed up the modernization of US telecom infrastructure.
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Interviewer16:50
I had no idea about the landlines. Let's stay on the topic of political impact on your business. Remember that you referenced the current administration with respect to spectrum auctions, with respect now to the landline. There's one piece and I want to invoke Goldman Sachs on this. I went back and read a number of research reports about AT&T. And this is one assessment that Goldman Sachs made, which was to look at the impact of potential immigration policy on telecom companies. I'm just going to read it to give you the flavor. Goldman Sachs says we believe potential changes to immigration levels is a meaningful risk for the wireless industry that we think is little discussed and underappreciated by investors. Given an estimated 11 million unauthorized residents in the United States, many of whom are likely to have mobile phone service, we fielded investor questions around the potential impact of immigration outflows in the wireless industry. And Goldman goes on to do a bunch of sensitivity analysis. Pascal, which for the case of AT&T suggests that if there were a million immigrants no longer able to stay in the country, that would translate into a pretty meaningful reduction in the number of your subscribers. What do you say to that?
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Pascal Desroches17:59
Here's what I say. I think you go back to 2024, probably since the spring of 2024, the Biden administration started to really clamp down on immigration, and there have been less people crossing the border. And so we've been living with this for some time. You look at our customer base as a general matter, we are probably underpenetrated relative to our peers in the value base. What do I mean by value? Lower price plans, prepaid plans. So our peers are much more exposed than us. We still see that we have an opportunity to grow our share of the value base, even with any headwinds that immigration could provide.
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Interviewer18:49
Yeah, and to be fair to that point, actually the same report shows if there were, for example, a 10 million reduction in the immigrant base here in the US, the report does point to about a 2.25% drop in annualized service revenue growth for you, but significantly more for, for example, T-Mobile. To your point, that does come up in the discussion, but thank you for addressing the point. These aren't easy conversations.
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Pascal Desroches19:11
Oh, it's not, but look, we manage a really big business. We have every confidence that we can manage through what the future brings.
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Interviewer19:20
Let's switch gears a bit and let's go back to a point that you raised, which was talking about return of capital to shareholders. With the free cash flow that AT&T has been enjoying, you've achieved a net debt milestone, getting that EBITDA leverage ratio down to about 2.5 times. Feels like you're on track.
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Pascal Desroches19:37
We are on track to do that.
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Interviewer19:39
Talk to us then about buybacks and dividends. You've described a business model that really, you haven't used the word utility, but it is in fact a utility in many ways. And you referenced an annuity being generated as a result of that. How does that translate into your dividend and buybacks?
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Pascal Desroches19:55
Sure thing. There are a number of ways we make returns to our shareholders. Growing the business is probably the predominant way, and we've been investing significantly to do that. We also pay a meaningful dividend. Right now we're between 4 and 5% yield on our stock from the dividend. Plus, we've announced that we will begin to buy back shares. We have shares that are still outstanding from the acquisitions done with the Time Warner acquisition and DirecTV. We believe those assets have been spun off and separated, yet we still have those shares outstanding. So we think we have an opportunity to meaningfully lower the share count and give all the remaining shareholders a bigger piece of the pie. And we have pledged to return value in all three ways. We're going to grow the business, we're going to pay a healthy dividend, and we're going to buy back a portion of the shares, giving everyone a bigger piece of the company. And in the process, I think our shareholders will be rewarded handsomely.
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Interviewer21:12
On that note, let's switch gears and talk about some rapid-fire topics. What is the one question that investors should be asking you that they're not typically asking to better understand your share price?
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Pascal Desroches21:25
To me, a great question always is: what are you worried about?
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Interviewer21:29
What are you worried about? Oh, come on, we got a bonus question. What is the single most important thing that you're worried about? Let's get it.
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Pascal Desroches21:36
We have to grow this business, and it is finding ways to effectively grow the business in what is a mature industry. And we have shown that we are able to do it by a combination of increasing the number of customers that we serve, as well as the customers buying services that are more valuable to them and to us.
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Interviewer22:06
Second question, and I think this is fascinating. You all need to go and read Pascal's bio. Fantastic interview with Forbes magazine recently. You joined the Dallas Fed Board in 2024. What's the single most surprising thing you've learned in that experience?
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Pascal Desroches22:24
We run a national business. I always thought of business as being national inherently. When you look across this economy, the vast majority of industries, vast majority of geographic sectors, not everyone is behaving the same way. And really seeing the differences in sectors. One sector may be doing extremely well and the other is in decline. So really being able to parse through that and see what does it mean to the overall economic picture, because we often get a summarized view. But it's a lot more complicated, a lot more textured, the diversity of the economy, that enormous diversity.
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Interviewer23:08
Last question for you. Which company that is not AT&T do you most admire?
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Pascal Desroches23:14
I would say Apple. They have their customers love them. They love their devices. They love their services. And it is incredibly hard to get an Apple customer to change. That's what I aspire for the AT&T brand to be. And they've also done it while reinventing themselves over the years. So I think that is incredibly powerful and something to be admired.
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Interviewer23:42
Great answer and great conversation. Likewise. Thank you. Pascal Desroches, Chief Financial Officer of AT&T, thank you. Please come back again.
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Pascal Desroches23:51
I look forward to it. Take care.
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Interviewer23:52
I'm Barry, and thank you for tuning into After Earnings, the show that brings you up close and personal with the executives behind the world's most interesting publicly traded companies. If you learned something today, don't forget to like, subscribe, and share with your friends. Our upcoming episodes will feature CEOs and CFOs from Lucid, Adobe, and more.