AT&T Inc (T) — Q4 2019 Earnings Call Transcript

Thank you, and good morning, everyone. Welcome to our fourth quarter conference call. I'm Mike Viola, Head of Investor Relations for AT&T. And joining me on the call today is Randall Stephenson, AT&T's Chairman and CEO; John Stankey, Chief Operating Officer for AT&T; and John Stephens, AT&T's Chief Financial Officer. Randall will begin the call with a brief overview of the 2019 accomplishments and a look at our three-year plans. John Stephens will then discuss fourth quarter results and then John Stankey will walk you through key areas of our 2020 operating plan. John Stephens will then close the presentation with an update on our capital allocation plan and 2020 financial guidance. Then we'll take your questions. Before I begin, I want to call your attention to our safe harbor statement, which says that some of our comments today may be forward-looking and as such, they're subject to risks and uncertainties. Results may differ materially and additional information is available on the Investor Relations website. I also want to remind you that we're in the quiet period for the FCC Spectrum Auction 103, so we cannot address any questions about that today. As always, our earnings materials are available on the Investor Relations page of the AT&T website. That includes our news release, investor briefing, 8-K and other associated schedules. And so, with that, I'm going to turn the call over to Randall Stephenson.

Thanks, Mike. I want to start on slide three to close out 2019. Coming into 2019, we laid out a detailed plan for the year, and that plan was a series of specific steps necessary to exit 2019 on a path of sustained growth. A simple summary on slide three is that we met or exceeded every single one of those objectives and the roadmap is set for the next three years. I told you that our top priority for 2019 was to reduce our debt and exit the year at around 2.5 times debt to EBITDA, done. We have now reduced net debt by about $30 billion since we closed Time Warner. At the end of 2019, our net debt to adjusted EBITDA was about 2.5 times. We gave you the formula for exactly what it would take to get to this debt level. First, we would need to generate $26 billion of free cash flow, done. We exceeded that handily, generating a record $29 billion for the year. Second, we would need to monetize non-strategic assets and generate $6 billion to $8 billion of cash, done. We actually generated nearly $18 billion, more than double our target. We have already announced an additional $2 billion, which will close in 2020. On adjusted EPS, we came in right on plan, low single-digit growth. At WarnerMedia, we achieved the 2019 merger synergies, and we're preparing to launch HBO Max in May. Growing wireless service revenues was critical, and those revenues were up nearly 2% for the full year. We stabilized Entertainment Group EBITDA and brought in our capital investment right on plan. After sustained investment in our network, AT&T exited 2019 with the best and fastest wireless network in the United States. Our 5G network covers 50 million people today, and we expect to have nationwide 5G coverage in the second quarter. As we look forward, our 2019 performance positions us well for the next three years. Our plan is very straightforward and we've laid it out for you on slide four. We see revenue growth every year and expect a 1% to 2% three-year CAGR through 2022. By 2022, adjusted EBITDA margins expand by 200 basis points, adjusted EBITDA grows by about $6 billion, free cash flow is between $30 billion and $32 billion, and adjusted EPS grows to between $4.50 and $4.80. This is a plan that generates a lot of cash over the next three years. The Board has developed a very thoughtful capital allocation approach that will maintain a solid balance sheet and drive shareholder value. First, we'll continue to invest aggressively and at top-tier levels into our core businesses. We expect to invest $20 billion in 2020. Leading in 5G is critical for AT&T, and we're not slowing down. We're more than 75% complete on our FirstNet build, and that will continue. We're continuing to deploy fiber. In terms of our capital structure, over the last 18 months we've retired the lion's share of the debt we issued to acquire Time Warner. We'll continue to pay down debt but at a much slower pace. Our cash will be focused over the next three years on retiring the shares we issued to acquire Time Warner. By the end of 2022, we will have retired 100% of the debt and 70% of the shares from our Time Warner transaction. In fact, we retired 56 million of these shares in 2019. We also plan to retire about 100 million more in the first quarter of this year via a $4 billion accelerated share repurchase agreement. By 2022, our leverage target is a very comfortable net debt to adjusted EBITDA ratio of 2.0 to 2.25 times. You can also expect us to continue streamlining our portfolio as we monetize additional assets of $5 billion to $10 billion this year. As I said earlier, we've already executed agreements that will generate $2 billion this year. John Stephens will cover the specific steps in the plan later, but first, he's going to cover our fourth quarter results.

Thanks, Randall. Let me begin with the financial summary on slide 6. As Randall mentioned, we hit or exceeded all our 2019 targets. Let's take a closer look. We grew earnings. Adjusted EPS was $0.89, up 3.5% for the quarter and up 1.4% for the full year. Cash from operations came in strong at $11.9 billion for the quarter and $48.7 billion for the year. Free cash flow was a record $29 billion for the full-year, up 30%. The addition of WarnerMedia made an impact, as did adding their receivables to our securitization efforts. Our ability to generate cash continues to provide a strong foundation for our capital allocation plan. We continue to aggressively invest. CapEx was nearly $20 billion for the full year and total gross capital investment was $23.7 billion, when you include our investments in FirstNet and other vendor payments. Without the impact of foreign exchange and forgone licensing revenue in advance of our HBO Max launch, fourth quarter and full year revenues would have been $48 billion and about $184 billion, representing growth in both the quarter and the year. Even with these items, operating income margins were stable in the quarter and up 70 basis points for the year. All in all, a very good year as we hit our 2019 targets. Let's now look at our segment operating results, starting with our Communications segment on slide 7. In our Communications segment, mobility continues to build momentum and deliver solid results. Service revenue grew by about 2% in the quarter and for the year. EBITDA grew both in the quarter and for the year. EBITDA margins expanded by 40 basis points for the year, while service margins were stable even with a heavily promotional fourth quarter. Postpaid phone growth was solid adding 229,000 in the quarter. For the year, we had about one million phone net adds, both postpaid and prepaid. This strong performance was driven by our industry-leading network and came even while postpaid phone churn was up as competitors ramped up promotional efforts. Total churn, postpaid and prepaid combined improved year-over-year by 12 basis points. As Randall mentioned, our Entertainment Group hit its full year target of EBITDA stability. Long-term customer value continues to be our focus as we head into 2020. That focus has helped drive growth in video and IP broadband ARPUs. AT&T Fiber continues to grow adding nearly 200,000 customers. That brings us to nearly four million AT&T Fiber customers and we have lots of room left to grow. Premium video net losses improved sequentially by more than 200,000 subscribers, but video losses continue to impact our broadband numbers, especially our bundled customers. Our new simplified video offerings position us for the long term and our subscriber trends are improving. Let's turn to Business Wireline. The trends in Business Wireline continued to improve. Revenues grew sequentially and were down just 1.7% year-over-year. When you include wireless, Business Solutions grew 1.1%. EBITDA was relatively steady in the quarter and EBITDA margins were up 40 basis points. Let's move to WarnerMedia and Latin America results, which are on slide 8. WarnerMedia had a great quarter when you consider the decision to forego content licensing revenue. Subscriber revenue growth at both Turner and HBO combined with lower film and television production costs at Warner Bros. helped to offset that pressure. We made the strategic decision to give HBO Max exclusive streaming rights for top programs, including Friends, Big Bang Theory, and other popular shows. In the past, we would have sold these externally. Looking at the impact on the fourth quarter, WarnerMedia revenues would have grown by about 10% if these shows would have been sold. In fact, that 10% organic growth would represent WarnerMedia's best growth rate in three years. EBITDA would have increased by about $300 million, or about 11%. Obviously, this has an upfront cost for us, but we see this as an investment that makes HBO Max even stronger and will pay off over the long-term. The big news in our Latin American operations is Mexico turning EBITDA positive in the quarter. The team has done an excellent job of reducing costs and growing revenue in a challenging environment. Fourth quarter Mexico EBITDA improved nearly $200 million year-over-year and improved by more than $300 million for the full year. We continue to press for further gains. A new wholesale agreement with Telefónica will add to both revenues and EBITDA. Going forward, we expect continued improvement. Vrio continues to work against economic and foreign exchange headwinds. But even in this environment, it continues to be profitable and generate positive cash flows. Now, let me turn it over to John Stankey to cover our 2020 operating plan and then I'll come back and discuss a capital allocation update.

Thanks, John, and good morning, everyone. Starting on slide 10, these are the four key areas of our 2020 operating plan where we'll be focused on executing to drive our performance. Number one is continuing our momentum in mobility because we expect mobility will continue to be the biggest driver of revenue growth and profitability and be a key factor in meeting our 2020 goals. Second, a successful launch of HBO Max is critical to our plans in each of the next three years. Many of you were with us for the Analyst Day in October and have seen firsthand why we're so excited about HBO Max and the opportunities it gives us. We're right on track to launch it in May. Third, is growing our broadband revenues by increasing our fiber penetration. Key to this will be bundling our fiber broadband offer with AT&T TV, which is delivered over our software-based video architecture. Finally, we're laser focused on improving both the effectiveness and the efficiency of our overall operations and as a result, driving additional costs out of the business. Let me dive into each of these four drivers beginning with mobility on slide 11. Last year our wireless network was recognized as the nation's best and fastest, thanks in part to our FirstNet build. We conducted a few of our own spot tests in December to see how our existing nationwide 5G evolution network compared to the 5G network one of our competitors rolled out last month. In three out of the four test cities, our network had faster speeds and lower latency on average. The point is our strong spectrum position gives us a leg up and allows us to execute a different 5G deployment strategy than our competitors. We have the low and mid-band spectrum to deploy 5G nationwide. We cover 50 million people today and expect to be nationwide in the second quarter. We also have the millimeter wave spectrum we need to deploy 5G+ and its gigabit speeds and super low latency to more densely populated cities. We're in 35 cities today and we're adding more this year. There's an important point to be made here once we have 5G nationwide. Smartphone upgrades across the industry have been down for a while now. In fact, we're coming off a record low upgrade rate for any fourth quarter in our history. Fast forward to the back half of this year when popular 5G smartphones and devices should be more available at scale, and you can expect higher upgrade rates and equipment revenue growth. The timing for this upgrade cycle couldn't be more perfect when you consider that we'll be offering HBO Max on our highest ARPU wireless plans with features tuned for premium media consumption and at a time when people are coming into our stores to upgrade. It's a natural opportunity to further the distribution of HBO Max, while adding new mobility subscribers and improving our wireless ARPUs. HBO Max's content has something for everyone in the family, which makes it a natural fit for our nearly 25 million postpaid accounts that average more than three lines per account. As a result, we expect our wireless service revenue growth rate to be higher in 2020. After adding nearly 1 million phone net adds in 2019, we expect 2020 will be an even better year for net adds. FirstNet plays an important role here. We now serve more than 10,000 first responder agencies and more than 1 million connections with FirstNet. We expect those numbers will grow nicely as our FirstNet deployment reaches 80% and new devices and capabilities come to market in the coming months. We also expect a higher adoption of our unlimited plans. We're at a little more than 50% penetration today, but we expect the 5G device upgrade cycle will bring into our stores lots of customers not on unlimited plans today. Increasing the adoption of our best unlimited plans is obviously an ARPU growth opportunity for us. When you add into the mix the customers on select unlimited plans that will get HBO Max for free, it's a great opportunity to also improve our overall churn, which we've seen happen from giving HBO to current unlimited customers. A reduction of one basis point of wireless churn across the base is worth about $100 million to us annually. Sum it up; we're expecting growth of more than 2% in mobility service revenues this year. Let's go to slide 12 for the headlines on why we believe HBO Max will be a game-changer for our customers and for AT&T. I know many of you were at the HBO Max Analyst Day in October and you heard me talk about the three pillars required for success in streaming; premier content; the technology platform; and marketing and distribution. Only AT&T has a solid footing in all three. My excitement and confidence in the HBO Max opportunity have only grown since then. The team has made tremendous progress in every area and we're on track to launch in May with a unique offering. Quite simply, we believe HBO Max will be the highest quality premium SVOD in the market with a great experience, better curation, and a higher percentage of culturally relevant offerings than competing products. We're excited to launch HBO Max coming off the tail end of one of our strongest awards seasons ever with new and exciting breakthrough offerings leading the way. We captured an industry-leading 34 Emmys and six Golden Globe awards. Joker had more Academy Award nominations than any other film, highlighting our deep and diverse theatrical content. The awards are only the latest indicator that we continue to create high-quality, culturally relevant content that appeals to a broad consumer base. Our additional investment in great content is only going to expand the appeal of the service. With HBO Max, we'll offer consumers more than twice the amount of programming for the same price as HBO today. We're making great progress on the HBO product platform as well. Our controlled nonpublic beta is getting solid reviews, and we're gaining invaluable feedback on important but subtle issues like user navigation and screen layout. This work is no less important than award-winning content. Finally, we continue to fine-tune our go-to-market plans consistent with the unique position with which we enter the market, leveraging our extensive AT&T distribution and embedded base of more than 30 million domestic HBO subscribers. We're in active discussions across our potential distribution partners, both digital platforms and MVPDs. We're making progress and we expect we'll have deals to announce prior to launch. Our focus continues to be on providing a compelling value proposition for our HBO distribution partners and our mutual customers. Our more than 10 million HBO subscribers on AT&T distribution platforms will be offered immediate access to HBO Max at launch, so we'll get off to a fast start. To drive incremental growth, we have unique advantages when combining media and distribution including our 170 million direct customer relationships across mobile, pay TV, and broadband. Plus, we have 5,500 retail stores that will be focused on driving incremental HBO Max adoption by bundling it with premium-tiered wireless, broadband, or pay TV offers. We'll use AT&T customer insights for WarnerMedia advertising analytics and curation. We have very high expectations for HBO Max. At the same time, we're thrilled about the possibilities of increasing the adoption of higher ARPU services and strengthening the long-term value proposition of our highest quality and highest ARPU customers. We fully expect HBO Max will have a positive and immediate impact on the stickiness of our wireless and pay TV and broadband offerings. Now let's look at the Entertainment Group. Those details are on Slide 13. Our Entertainment Group team delivered our target of stable EBITDA last year. In 2020, you're going to see us apply the same high-value customer-centric focus while increasing our fiber customer base and launching AT&T TV. We'll see higher amortization costs in the video business in the first quarter, which creates some tough year-over-year comparisons for Entertainment Group EBITDA, but on a cash-from-operations basis, we expect Entertainment Group to be stable in 2020 versus last year. We believe the greatest opportunity within Entertainment Group is to significantly grow our AT&T Fiber customer base and broadband revenues. We have 4 million fiber customers today, and our recent fiber expansion gives us 14 million locations to sell into. Based on our fiber sales experience, we expect to exit 2022 with about 3 million more fiber customers than we have today, for a total of about 7 million. This will be a significant lift in market share compared to our traditional performance in our legacy hybrid fiber copper-based footprint. It represents an organic market share growth opportunity on an existing product that I've never experienced in my career. Where we offer competitive broadband speeds, you can expect that we'll lean into video acquisition given the better economics of our improved product portfolio, including AT&T TV and HBO Max, all software-based products with low acquisition costs. Within our broadband footprint, expected as we exit the year, our premium video subscriber declines will align more with overall video industry trends. Looking at our total premium video customer base, we expect year-over-year improvements in subscriber losses. Now let's turn to slide 14 to talk about our efficiency and cost initiatives. New work to improve the overall efficiency and effectiveness of our operations has progressed over the past few months. We previously shared with you that we're targeting an additional 4% reduction in labor-related costs, including benefits and contract employees in 2020 alone. That work will ramp quickly, and we plan for it to deliver $1.5 billion in additional cost savings. In fact, we've already identified and implemented about half of those savings. Another significant opportunity for us is product information technology rationalization. We feel comfortable that we can generate another $2 billion of annual run rate efficiencies exiting 2022. This will come from thinning our product portfolio, simplifying our market offers, rationalizing call centers, modernizing our information technology, and enhancing the level of customer self-support. In addition, streamlining will have the added benefit of enhancing our market agility and ultimately lead to improved market effectiveness. Our assessment work continues, and I expect in the next 90 days we'll have additional efficiency initiatives underway for some of our network, corporate, sales, and procurement functions. I'll turn it back to John now for his look at capital allocation and 2020 financial guidance.

Thanks, John. Strengthening our balance sheet was our top priority last year, and our teams did an excellent job of reducing debt and monetizing our asset portfolio. This allowed us to begin retiring shares at the end of last year while still meeting our net debt ratio goals. In 2020, you can expect that momentum to continue. It all starts with strong free cash flows. We had record free cash flow last year and expect to be in a similar range this year. We achieved this even with some voluntary funding for retiree medical costs and higher tax payments in the fourth quarter. We also overachieved on asset monetizations. We expect to do another $5 billion to $10 billion in net monetizations this year, with significant efforts already underway. At the same time, we continue to evolve our capital structure. We added more preferreds to our capital stack last year when we monetized more than $6 billion of our long-term tower purchase options. We also issued $1.2 billion of traditional preferred stock. The publicly traded preferred stock is new to us, but there is a market for it and it provides investors another alternative to invest with AT&T. In fact, these shares are currently trading at a premium to par. Investors are looking for secured, dependable returns, which is exactly what this offers. Dividend rates at less than our common stock dividend yield make it attractive for us. The tower preferreds also allow us to use very long-term assets to generate cash in a tax-efficient manner. We continue to focus on our three-year debt reduction targets. Depending on the timing of share retirements and asset monetizations, you will see our net debt to adjusted EBITDA ratios fluctuate throughout the year, but we expect to continue reducing debt for the full year and intend to target leverage in the 2.0 to 2.25 range by the end of 2022. Our share retirement has begun in earnest. We told you we wanted to buy shares as early in the year as possible, and that is what you're seeing. Thanks to our $4 billion ASR, we've already bought back about 85 million shares in January and expect to see another 20 million in the remainder of the first quarter. You can expect us to continue to buy back shares during the remainder of the year and meet or exceed our 250 million share retirement target for 2020. That's on top of the 56 million shares we bought back in 2019. We have a lot of levers we can pull to optimize our capital structure. We're focused on managing debt and have a wealth of opportunities with our balance sheet as we showed last year. You can expect us to continue to manage it in a prudent way, including issuing additional preferred shares. Now let me revisit our 2020 guidance on slide 17. Our guidance remains consistent with what we told you in October. This year, more so than most, our results will be more weighted to the second half of the year. For example, in the first part of the year, we expect pressure from heavy HBO Max investment, which you saw begin in the fourth quarter, along with higher content and noncash amortization costs, as well as continued pressure on video subs. But in the second half of the year, you will see our momentum build. For example, share retirements have been aggressive and will continue, and the EPS benefits will flow increasingly throughout the year. HBO Max will have launched, leading to strong subscriber growth. The run rate benefits of our cost reduction plans will be clearly visible. 5G combined with HBO Max will drive more upgrades and stronger wireless revenue growth later in the year. Again, all of this has been factored into our full-year guidance. With that in mind, here's what we've committed to: 1% to 2% revenue growth; adjusted EPS of $3.60 to $3.70 per share; stable adjusted EBITDA margins; free cash flow in the $28 billion range, with our dividend payout ratio in the low 50s; gross capital investment in the $20 billion range, and this doesn't include our investments in content; continued debt reduction, with share retirement of 250 million or more common shares in 2020; and our net asset monetizations between $5 billion and $10 billion.

That concludes our presentation. We're now ready for Q&A.

Thank you. I have a couple of questions for John Stankey. Thanks for the insights on the entertainment subscriber trends, but I would like some additional clarity. First, you mentioned a slowdown in fiber additions this quarter. What was the cause of that? Additionally, considering the guidance for improvements later in the year, do you anticipate that trend will reverse? How do you see those additions developing throughout the year, and what factors do you expect will contribute to any acceleration? Also, regarding the HBO Max guidance, will the $500 million in incremental expenses incurred in 2019 affect your $2 billion guidance for 2020? Thank you.

Hi, John. Happy New Year. So, first of all, the fourth quarter of 2019 is seasonally a slower quarter. December is a pretty slow month in general for home-based services, given the dynamics of the holiday and the like, so that's part of the contribution to the issue of the slowdown. The second is, our gross add performance on video wasn't strong. You see the subscriber trends. As we've shared with you, as we move through this year and we start shifting to AT&T TV, our gross add performance starts to get much stronger. Naturally, when you can put AT&T TV, a software-based product with fiber, it's a much more natural combination than a satellite dish and fiber. We expect to see much stronger performance on the fiber side. I'll tell you, as I look at where we are right now in current customer trends, I feel pretty good that that's, in fact, the case, and we're going to be where we need to be on that. Frankly, it's not a hard sell. It's a great product. It's a product that customers like. I think we could do very well with it, and I don't expect that we're going to see that trend continue through. So, that's what I would tell you. You're going to see a recovery in 2020. On the Max side, we gave you a range on what to expect in 2020 in terms of dilution, and that range is not changing. The range is a range for a reason. There's a lot of moving parts on Max introduction. It's a combination of both going to market with subscribers and it's a product that's going to continue to grow over the coming years. We may want the management team to have that flexibility to be able to balance those things out. We feel very strongly we're going to get back that investment as we build this new distribution platform over the coming years. That's why we're doing this.

Okay. Thanks, John.

Hi, guys. Thanks. John, can you update us on the WarnerMedia strategy from here, away from Max? We see video industry bundled units declining pretty quickly even away from you as you decelerate. How does that change your thoughts on Turner over time and the strategic value there? Can you also give us an update on the low-value video subs that are remaining in the base and how those should come out over the next few quarters? Thanks very much.

Sure. Happy to do that, Phil. Stepping back and considering our position in what I would call the traditional pay TV universe. Everyone knows it's in transition. It's a mature product working its way through the back end of a life cycle. I like where we stand and that our total percentage of cost of goods sold in that space relative to the size of the bundle that the customer buys is not huge. Our network portfolio is fairly concentrated. The bulk of our profitability comes from three primary networks: TNT, TBS, and CNN. If you look at trends, general entertainment content and the bundle is not performing as well. Our two general entertainment networks, TNT and TBS, are hybrids, combining general entertainment and sports. They historically perform at the upper end of desirability from a ratings perspective and attractiveness from an advertisers' perspective because of that mix of content we have. So, with more contained portfolios and that mix of content, I think we can ride through this transition and have some resiliency. As we go back out to negotiate carriage agreements, distributors see that, and understand those are important networks to carry forward. We continue to see that people place value on those things, even in a more skinny-down or smaller pay TV universe moving forward, so I feel comfortable about that. The reason we're doing Max is we know that new distribution platforms need to be out there that are the growth platforms that match general entertainment content with how consumers want to see them. The pivot between what we're doing with linear networks and what we're doing with Max is a key part of the WarnerMedia strategy. We spent a lot of time in the Investor Day to explain why we think it's a natural place to go. To keep the networks relevant, we will continue to invest in them and ensure they're viable for our distributors, but you'll see content shifts start to occur a little bit. Subscribers like news and sports, and they also like content that's socially relevant. Probably we'll start to see a little more unscripted content come in, things that cause people to go into the office and talk about it around the water cooler. We think that mix in conjunction with what we're doing with Max will allow us to ensure that the content we're producing across our different brands will have a market place we can monetize either through distributors in the traditional fashion or direct-to-consumer constructs. On the low-value video subscribers, generally, we're mostly through that. We have a little more work to do on some promotional roll-offs in the first quarter that is going to continue to show up. When we shared earlier, those subscriber trends are going to improve each quarter as we move through. We can't flip a switch and get there overnight, which is why we're on a glide path to get back to that ratable decline with subscriber base decline in the aggregate pay TV industry by the time we exit the year. Our heaviest losses will be in the first quarter. Looking at operational performance and gross add improvements, we expect those subscriber trends to incrementally improve as those capabilities start to roll into the base, and we will achieve that as we exit this year.

That’s helpful. Thanks, John.

Take the next question, Greg.

Great, good morning. Thank you. Randall, we put out a lot of targets here for 2020 and beyond. Perhaps you could just share about how the executive incentives are being set up for the year, what the KPIs and metrics are. I know last year deleveraging was, I think, 25% of the short-term comp. Any color you could give around what the two or three key focuses are for the year? One for John Stankey, you talked about the investment in the network, the capacity there. In the past, you've talked about the opportunities in the wholesale market. Perhaps you could just give us an update on how things are going there and the opportunity perhaps to sign up some cable companies. Thanks.

Hi, Simon this is Randall. As you articulated, coming into 2019, I told all of you that our number one priority was to reduce our debt and get our leverage ratios down to 2.5 times debt-to-EBITDA. This required strong cash flow generation and selling some non-core assets, instrumental in getting there. To drive at home, we set that debt-to-EBITDA target as a significant part of executive compensation, and mission accomplished. Our team executed at an amazing level in terms of identifying asset opportunities to dispose of, getting good prices for all of those assets, and driving just strong cash flows with impressive working capital opportunities we're taking advantage of. Those are repeatable initiatives. So I feel good about our ability to generate in 2020 with HBO Max investments another $28 billion of free cash flow. Coming into this year, the debt objective of 2.5 times isn't what we're working towards. What we're focusing on is continuing to generate the cash flow to execute the broader capital allocation strategy to retire the shares we issued for Time Warner. That is a focus, and our objective is to retire at least 250 million additional shares this year. We'll get about 100 million of those knocked out in the first quarter and at least 150 million more will come in the back part of the year to generate nice EPS accretion. The management team is focused on hitting earnings objectives and cash flow targets, and that is what compensation will be really focused on. I think it's going to be effective in generating the cash needed to execute the share buyback programs and capital allocation strategy.

Simon, thanks for asking the question, because I think it highlights a really important aspect of how we're going to grow wireless revenues next year, given the network performance and that perception. As we do research in the market, we're starting to see momentum in subscriber growth. We've got the tailwinds of FirstNet behind us, which are starting to help us dramatically. The coverage improvements that occur as we get into the second phase of FirstNet will allow us to move through that. I mentioned earlier the upgrade cycles and the Max launch. There's a lot of good things moving in the direction of the organic part of the wireless business to grow revenues. Over the last several years, our wholesale business had been a bit of a headwind in our wireless business. We needed to be guarded about our wholesale position because we needed capacity to support our retail base. Now, I think we're in a position to play in a different way in the wholesale space. We're focused on those kinds of distribution opportunities. We expect to lean into as a significant difference for us than what we've seen over the last couple of years that we've been managing inventory down.

To add to what John said, this is the first year that we've had stable reseller revenues throughout the year and in fact grew reseller revenues sequentially and year-over-year in the fourth quarter. What John is talking about, we are not only well positioned for but it's starting in a small way right now but with the opportunity to make it much bigger. It's already occurring and contributing to service revenue growth that we've had both in the quarter and the year.

Thanks and good morning. If you fast forward to the end of your financial plan in 2022, given the CapEx that you've articulated, can you frame what the network capabilities are going to look like for 5G mobile, fixed wireless broadband coverage, and fiber-to-the-home coverage? And then, could you unpack a little more of what you see driving the strength in industry wireless postpaid phone net adds? Are you seeing any meaningful differences in customers and markets that have 5G evolution versus those that haven't received it yet? Thanks.

Sure. Mike, let me see if I can hit a combination of things you laid out. We'll be in a much better position on macro coverage by 2022, not just in terms of square miles but in core interior performance given how we densify things to support our FirstNet subscribers and the agencies we have there. Last year was a year of us getting macro coverage in place, and this year is making the network better. We have made investments to allow us to turn up sites. That will improve performance in denser urban areas. We view the FirstNet building as a significant part of our macro coverage since we've completed the acquisition of the necessary spectrum. Our plan right now is we're not as optimistic as people say about the fixed wireless replacement construct. We believe that there is a portion of subscribers that will choose to not need a fixed broadband connection. That's likely in a couple of years to start to emerge when we get even better mid-band spectrum to complement how we position performance more consistently. I wouldn't tell you that we're out there expecting wonderful revenue increases from a push in the fixed wireless space. You should expect we'll continue to add to the fiber footprint. We have about 20 million locations across both our consumer and business segments, and we're working to get better returns on our deployments. At the same time, we could get natural growth from 350,000 to 500,000 new fiber locations just from natural population growth. If we felt we had the operating momentum, we would step it up. Our postpaid trends are transforming. The differences between prepaid and postpaid are getting closer as more subscribers move into postpaid given improvement in the economy and the networks performing better. We've seen our prepaid base now resemble a postpaid base in terms of subscriber demographics. We believe we have a strategy to capture more postpaid subscribers. Whether that reverses depends on economic headwinds, but we feel comfortable in catching a transition towards postpaid.

Thanks, Mike. Great. We'll take one more question.

Thank you. A couple if I could. Firstly, when you think about the decline rates of video at DIRECTV, although it will moderate over the course of 2020 based on your guidance. If at some point, DIRECTV becomes smaller than say Comcast because of the video losses and those lines cross, is there any kind of an impact on your programming cost because of the most stable nation clauses and others that you get on account of your scale? How does that impact margins if it does? Secondly, could you give us a sense of what the attach rates for broadband in video homes are? Within the homes that you've lost as a result of the promotional loss last year, is it in line with the average or higher or lower? That will help us get a sense of where trends are. Thanks.

The short answer is no. First of all, we went through a significant renegotiation cycle over the last 12 months, so those terms are all confirmed through the next three to five years of varying details depending on the particular content. I don't see any exposure in any of those agreements. I suggest we're not going to continue to pay the best part of the rate card given the size and scale of our business as we move forward. What I believe is more likely in pay TV moving forward is pruning and trimming of offers in the market. As customers move to manage their cost of goods sold on programming costs, they'll shift away from less trafficked networks. We spent significant effort ensuring we're in a good shape to navigate those costs. Our attach rates in the footprint where we offer broadband are quite high and haven't changed. We should see a modest step-up moving away from satellite combined with broadband into our software product, which will help firm those sales rates. We expect those sales rates will help us improve gross based on the fact that in our footprint, a solid 10% of those subscribers have line-of-sight issues on satellite. The software-driven product will help increase gross intake and that’s one of the outcomes we expect this year.

This is Randall. I just want to thank everybody for joining us again this morning for the call and your interest in AT&T. We're coming off of 2019 where we told you exactly what we were going to do. In terms of debt repayment, operational performance, capital allocation, we checked every box. We've now given you our playbook for 2020 through 2022. It's a playbook that we feel very confident that we can achieve. We're gaining momentum in our wireless business, and we feel good about that. We have a capital allocation plan that we have a high degree of confidence we'll be able to execute over the next three years. We have a media business that's performing at a very high level even in an industry that's in transition. With HBO Max coming and the investment we're making there, we're confident that it's just another growth vehicle for this business over the next three years. Bottom line, we have a plan that we think stacks up very nicely. We're confident in our ability to execute. We love the management team and look forward to 2020. Again, thank you for joining us this morning.

Thanks.