AT&T Inc (T) — Q4 2021 Earnings Call Transcript

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 is available on the Investor Relations website. And as always, our earnings materials are on our website. In addition, the FCC Spectrum Auction 110 results have been announced, but we're still in the quiet period, so we're limited in what we can say. With that, I'll turn the call over to John Stankey. John?

Thanks, Amir, and good morning, everyone. I hope you're all doing well, and a belated Happy New Year to all of you. 1.5 years ago, we began simplifying our business strategy to reposition AT&T for growth. As you can imagine, this was a significant undertaking requiring us to not only focus our operational efforts toward growing customers but also doing so in a manner that set us up for an improved profit trajectory in the coming years. Simultaneously, we took on the task of structuring our communications, video, and media businesses in a manner that ensured their future success with the right capital structures, access to capital, and most importantly, the ability to drive better returns in a manner consistent with their respective market opportunities. I'm pleased with the results our teams delivered last quarter, last year, and for the last six quarters while this repositioning was underway. We finished last year with strong momentum in growing customer relationships, achieving outstanding yearly subscriber growth across Mobility, fiber, and HBO Max. In Mobility, strong network performance and a consistent go-to-market strategy helped us lead the industry with about 3.2 million postpaid phone net adds. That's more customers than we added in the prior 10 years combined. We achieved this growth the right way with full year Mobility EBITDA up about $1 billion. In fiber, we ended the year with a great build velocity, passing more than 2.6 million additional customer locations. We added more than 1 million fiber subscribers for the fourth consecutive year, and full year broadband revenues were up 6.5% as we returned our Consumer Wireline business to revenue growth. We also surpassed our high-end guidance for global HBO Max and HBO subscribers, adding 13.1 million subscribers in 2021, more than any year in HBO's history. HBO Max and HBO now reach a base of 73.8 million subscribers globally. WarnerMedia is well positioned as a dynamic global business. In addition to growing customer relationships, we also continue to make great progress in repositioning our operations to be more effective and efficient. We achieved more than half of our $6 billion cost savings run rate target, which we've reinvested into operations supporting our growth. This includes simplifying and enhancing our customer experience, which has resulted in higher customer self-service, lower customer churn, and greatly improved Mobility NPS and industry-leading fiber NPS. We also continue to rationalize our low-margin Business Wireline services as we reinvest savings into segments that support improving returns. As you're familiar with the significant steps we've taken to reposition the company's assets for future success from our U.S. video assets in Vrio to our pending WarnerMedia transaction. Together, these and other asset monetizations will generate more than $50 billion, and AT&T shareholders will own 71% of one of the world's foremost media companies in the new Warner Bros. Discovery at close. We also continue to generate meaningful levels of free cash flow, nearly $27 billion in 2021, a number we feel good about when looking at our business after the WarnerMedia transaction. So to summarize, we did what we said we were going to do last year. I'm really proud of what our team has accomplished, and we're very pleased with the momentum we have. Turning the page to this year, we'll be consistent in focusing on these same three operational and business priorities. Now that our asset disposition initiatives are largely complete, I expect we'll take our execution to the next level. To that end, we're encouraged with how the process for the WarnerMedia deal is progressing and now expect the transaction to close in the second quarter. Going forward, we aim to be America's best broadband provider powered by 5G and fiber defined by greater ubiquity, reliability, capacity, and speed. We're confident we can achieve that because in wireless, our focus will be continuing our subscriber momentum while increasing the pace of our 5G deployment. We're confident in our ability to compete with 5G and our disciplined approach to selectively targeting and taking share in underpenetrated segments of the consumer and business marketplace. While we're still in the quiet period, I can share that we're very pleased with the results of Spectrum Auction 110. We received 40 megahertz of quality mid-band spectrum that we can begin to put into service this year, and we plan to efficiently deploy it with our C-band spectrum using just one tower climb. We're on track to cover 200 million POPs using mid-band spectrum by the end of 2023. Our network is only going to get better as we effectively deploy our new spectrum holdings. In wired broadband, we have the fastest-growing fiber network and expect to capitalize on the expansion of our fiber footprint and accelerate subscriber growth. The best-in-class experience we provide is getting even better with our multi-gig rollout, which brings the fastest Internet to AT&T fiber customers with symmetrical 2-gig and 5-gig speed tiers. This will truly differentiate how our customers experience the Internet. Coming off an outstanding year with HBO Max, we plan to hand off the business with a strong exit velocity, and we look to further our international momentum and deliver more world-class content for viewers. When the deal closes, the investments made in both content and HBO Max growth, coupled with strong execution by the team, will ensure Warner Bros. Discovery is positioned as a leading global media company with the depth of content and the capabilities required to lead in the next era of media. As we expand our customer base, we'll continue to responsibly remove costs from the business. We have a clear line of sight to achieving more than two-thirds of our $6 billion cost savings run rate target by the end of this year. And importantly, we expect the savings to start falling to our bottom line beginning in the back half of the year. Our increased ability to reinvest in our business will fuel growth and allow us to deliver an even better customer experience as we further improve NPS and sustain low churn levels. As we expand our fiber reach, we'll be orienting our business portfolio to leverage this opportunity and stabilize our Business Wireline unit by growing connectivity with small to midsized businesses. We also plan to use our strong fiber and wireless asset base, broad distribution, and converged product offers to strengthen our overall market position. We're now at the dawn of a new age of connectivity where customers want more consolidated and integrated offers, and we're well positioned to meet that demand. Our 5G network is already the best and most reliable. And it will be enhanced by our accelerated fiber expansion in 5G spectrum deployment, a great reputation for advanced and reliable networking, and our expertise to bring it all together for the customer. We remain laser-focused on reducing debt, and we'll strengthen our balance sheet by using proceeds from the WarnerMedia transaction to achieve a 2.5x net debt to adjusted EBITDA by the end of 2023. We also expect to remain a top dividend-paying company after the deal close, with a dividend payout in the $8 billion to $9 billion range where anywhere in that range should rank us among the best dividend yields in corporate America. We're now in the middle innings of our transformation, and the momentum we have is real and sustainable. We're well positioned post-deal close to have a capital structure and balance sheet that puts us in an attractive position relative to our peers. In addition, we believe it provides us with the financial flexibility to invest significantly in our business and the flexibility to pursue additional shareholder value creation initiatives over time. We look forward to giving you more detail at our virtual analyst event, which we expect to host in March.

Thank you, John, and good morning, everyone. Thanks for joining us. Slide 6 should look familiar. As our pre-release earlier this month already indicated, we continue to deliver growth in postpaid phones, fiber, and HBO Max. John just highlighted our full year results. We're really pleased with them and expect the momentum we've built in 2021 to carry over to 2022. Let's now take a look at our financial summary on Slide 7, starting with revenues. On a comparable basis, excluding DIRECTV and Vrio from both periods, consolidated revenues were up more than 4% for the quarter and about 6% for the year, thanks to growth in our market focus areas. Adjusted EBITDA was down 8% for the quarter on a comparable basis. Growth in Mobility was more than offset by a decline at WarnerMedia from the increased HBO Max investment, the new DIRECTV advertising channel arrangements, and lower contribution from basic networks. Our consolidated operating income results continue to be impacted by certain retained costs from DIRECTV that are in the process of being rationalized. Apart from WarnerMedia's contributions, our Communications segment EBITDA was up approximately 2% for the quarter. Adjusted EPS for the quarter was $0.78. In addition to merger amortization, adjustments for the quarter were made to exclude our proportionate share of DIRECTV intangible amortization and a gain in our benefit plan. For the year, EPS was up nearly 7% with strong organic growth in Mobility, lower interest, lower benefit costs, and higher investment gains. We exceeded our free cash flow guidance for the year. For the quarter, cash from operations was $11.3 billion, spending increased year-over-year with CapEx of $3.8 billion and gross capital investments totaling $4.9 billion. Free cash flow for the quarter was $8.7 billion, even with a year-over-year increase of $1.4 billion in CapEx. For the full year, free cash flow was $26.8 billion despite an increase in CapEx of about $900 million and more than $4 billion in higher cash content costs. Our total dividend payout ratio was about 56%. This included cash distributions from DIRECTV of $1.9 billion. Let's now look at our segment operating results, starting with our Communication business on Slide 8. For the second consecutive quarter, our Communications segment grew both revenues and EBITDA. A big part of that growth was driven by our increasing strength in Mobility, which turned in another solid quarter. Service revenues were up 4.6% for the quarter and 3.7% for the year driven by postpaid and prepaid subscriber gains. Postpaid phone churn continues to run at low levels and in fact, hit a record low for the full year. Our strong subscriber momentum continues with industry-leading postpaid phone growth. Prepaid also continues to deliver impressive results with phone churn less than 3% and revenues up mid-single digits. Cricket momentum continues with strong ads and phone churn substantially lower than 3%. Mobility EBITDA was up more than $300 million driven by growth in service revenues and transformation savings. This growth comes without a material return to international roaming and with 3G shutdown costs of about $130 million during the quarter. We remain on track to successfully shut down our 3G network next month and expect 3G shutdown impacts to peak in the first quarter of 2022 at about $250 million. In addition, we expect another $100 million of expense in the first quarter associated with investment in our FirstNet operations and the completion of support funding for the CAF II program. Business Wireline EBITDA margins continue to be stable as we rationalize our portfolio of low-margin products. In fact, margins were up 50 basis points year-over-year, thanks to our transformation process. This rationalization process will continue in 2022. And as we lap the beginning of this process, we should see improving revenue trends in Business Wireline in the latter part of 2022. We believe we're really well positioned in the enterprise space. And there is an interesting dynamic as public and private networking spots evolve. We have the account management infrastructure, the consulting expertise, and the capabilities to support those businesses through that evolution as converged wireline and wireless solutions become the norm. At the same time, we're energized by the opportunities that our fiber expansion creates in the small to midsized business segment, and we plan to be more active there going forward. Turning to Consumer Wireline. Our fiber customer growth and fiber network expansion continues. We continue to win share wherever we have fiber. We added 271,000 fiber customers even in a traditionally slow fourth quarter, and our fiber network continues to get even better with our new multi-gig speeds for AT&T fiber. Driven by our strength in fiber, total Consumer Wireline revenues were up for the third consecutive quarter. We had sequential EBITDA growth in the fourth quarter. Segment EBITDA did decline year-over-year due to a one-time pandemic-related benefit in last year's fourth quarter and higher network costs. Let's move to WarnerMedia's results, which are on Slide 9. WarnerMedia revenues were up 15.4%, led by strong content licensing and DTC growth. DTC subscription revenues grew 11%, reflecting continued success of HBO Max, partially offset by lower wholesale revenues related to the termination of our arrangement with Amazon at the end of the third quarter. Content and other revenues were up 45%, reflecting higher TV licensing and theatrical releases. Advertising revenues were down about 13% primarily due to lower audiences with tough comparisons to the political environment in last year's fourth quarter. Costs were up year-over-year due to a significant increase in programming and marketing, including the international launch costs for HBO Max. Incremental HBO Max investments for the quarter were approximately $500 million. The fourth quarter also included the impact of about $380 million in DIRECTV advertising revenue sharing costs. We also launched some incredible content in the fourth quarter, including the premiere of the hit series And Just Like That and the third season of Succession. With the production team operating close to full throttle, we expect peak content investment in 2022 with an even stronger release schedule, including The Batman, Winning Time: The Rise of Lakers Dynasty, and the highly anticipated Game of Thrones prequel House of the Dragon. Now let's look at our 2022 guidance on Slide 11. What we're showing you today is a full year view of our consolidated revenue outlook excluding DIRECTV and Vrio from both periods. Our outlook does include a full year of expected results for WarnerMedia and Xandr. We also included our full year expectation for WarnerMedia's stand-alone contribution to help you model post close. We now expect the WarnerMedia Discovery transaction to close in the second quarter. Given this, we plan to update guidance for RemainCo at our upcoming virtual analyst event in March. Until then, let me walk you through our expectations for the year. First, we expect consolidated revenue growth in the low single-digit range with wireless service revenue growth of about 3% plus for the full year. Mobility EBITDA is expected to grow low single digits plus over the course of the year as we continue to take disciplined share of subscribers with attractive long-term value. As noted earlier, several one-time related impacts such as peaking 3G network shutdown costs are expected to impact year-over-year EBITDA trends in the first quarter. Consumer Wireline revenues and EBITDA are expected to grow on improving fiber subscriber trends. However, we expect front-end loaded investments to impact first quarter year-over-year EBITDA trends as we ramp up promotional efforts around our new multi-gig offering. As noted earlier, we expect year-over-year comparison pressures to ease in our Business Wireline segment through the course of the year. However, we expect product rationalization to peak in the first quarter, resulting in more pronounced margin pressures in the first part of the year before recovering in the back half of the year. Consolidated adjusted EPS is expected to be in the $3.10 to $3.15 range. This guidance reflects WarnerMedia's declining contributions due to anticipated investment initiatives, a 200 basis point increase in our effective tax rate, and no anticipated investment gains. We also expect adjusted equity income contributions from DIRECTV to be about $3 billion for the year. Look for more details on our earnings outlook during our upcoming virtual analyst event. Gross capital investment is expected to be in the $24 billion range and capital expenditures in the $20 billion range. Free cash flow is expected to be in the $23 billion range. That includes expected DIRECTV cash distribution of approximately $4 billion and $2 billion in higher expected cash taxes in 2022, reflecting the expiration of the immediate expensing of R&D and lower limitations on interest expense deductions starting this year. We expect WarnerMedia's full year contributions, when including Xandr, to be revenues in the $37 billion to $39 billion range, EBITDA in the $6 billion to $7 billion range, and free cash flow contribution of approximately $3 billion as we expect 2022 to be the peak investment year for HBO Max.

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

Great. Thank you very much. Good morning. John, good to hear the updated timing on the deal close. Can you perhaps update us on your conversations with the regulators, and what gives you the confidence to move that up? And when do you expect to give us the clarity on how the deal will be structured, what the dividend policy will be? Is that going to be in the March meeting? And then if you could just give us color on what we should be expecting with the CapEx this year. What's the 5G build-out this year? What's the fiber build-out this year? Any color there would be great.

Simon, how are you doing? So first of all, where we are when we set the transaction up and announced it, I think I indicated it was really important for us to put a transaction out there that we felt like we had a high degree of confidence that we could work through the regulatory process. I'm really pleased the team has done exactly that. If you looked at the prototype of the time frame and when we expected various approvals and processes to work through, we have tracked right to the likely case analysis on that. We've had several milestones over the last couple of weeks, including clearance in the EU. We've gotten through our filing process with the SEC. When you look at where we are in other international regulatory domains and what our exchanges have been with domestic regulators, all that is going right to pattern as we expected. We don't see anything that causes us concern, which consequently raises our confidence level that we can tighten that time frame of when we believe we'll have everything kind of line up and be ready to go sometime during the second quarter. I'm really pleased about that. I think everybody feels pretty good about where things stand. There's still work to be done, always is. There's a lot of moving parts. But based on how these things go, I feel about as good as I can feel at this point in that time. Now we're moving into the mode of the cycle where we're making what I'll call the final preparations, as opposed to anticipating what we have to work through. In terms of clarity on structure, I would tell you, we're pretty close to giving you some guidance on that. I would certainly expect by the time we get together with you in March that you would have some understanding of where we're going; at least that's what I would expect. Ultimately, the Board has to make a call on that and has to make a final decision. Looking at it, handicapping it, and my sense of where they are in that cycle and what we know about how the markets have performed over the last couple of months, I think we're at a point right now where we're almost ready to call a question on that. Our desire and posture is that we'd like to let you know as soon as we conclude. Once the Board makes a final decision, we will carry it forward. I think we're tight enough to the close window right now that we could probably do that as soon as the Board is comfortable with the decision and what we want to do around that. They've, as you would expect, put a lot of diligence into this over the last several months. They've carefully considered a lot of different options. There are pros and cons to going either with a spin or a split. Certainly, it's attractive. The reason we kept this option open is at some point, I'd like to get the share count circulated on AT&T down. This was an opportunity for us to evaluate whether something like that could occur in order to do that. It's a bit of an unprecedented transaction in size. There's never been a split-off of anything close to this number of shares with this kind of a base. We also have a very large retail base, and we have to be mindful of the fact that the retail base sometimes doesn't go as deep on the puts and takes and ins and outs of things as the institutional base does. We need to make sure it's transparent and clear for everybody involved in this. As I step back and look at it, we need to be very thoughtful about what we started with as our watchword around this transaction, which was we want the shareholders to get value out of this. This is all about driving shareholder value. Given the size of the split, we know that there would have to be some leakage to kind of get that structure properly. As we step back, we want to do something that’s clean and delivered. The Board hasn't decided right now. There are pros and cons to both. But I think we'll probably be giving you some sense of what we want to do around that in fairly short order. While we do that, we'll also let you know about the dividend policy and where we're going on that. We've already told you it's going to be between $8 billion and $9 billion, and I think we know enough about the market where it stands right now that no matter where we are in that $8 billion to $9 billion range, even at the low end of that range, we're still going to be paying out at the top of corporate America from a yield perspective. So it makes for a very attractive value in the stock right now. There's a lot of optionality and upside, especially when I think about how the media asset is performing and what's going on in the growth of the direct-to-consumer business and what we have for value accretion that can occur as we start to move up the multiples that are warranted in that business. I think there's a good play either way around that. On the CapEx side, Simon, we're not going to break out specifically what we're doing in specific categories of the spend. What we've tried to give you a sense of is first of all, we've given you the guidance for the year. We told you how we're staging this. Our spend starts to get more aggressive in the wireless transition into the C-band in the Auction 110 Spectrum when we hit midyear. We are uniquely positioned to deploy both 40 megahertz of our A block from the C-band and our 40 megahertz from the Auction 110. I want to be careful about how far I go, but it's public and in the public domain that we've won 40 megahertz nationwide in that auction. Those radios become available in the early part of the summer, late spring. To do that together at one time with one tower climb allows us to start really going what I would call good guns on this in scaling that up. We'll be at 200 million POPs for mid-band deployment, which will be an 80 megahertz mid-band deployment by the end of next year. That's how you can think about the scaling and how we're going to deploy around that. Typically, when we’ve looked at an air interface change, it's been an $8 billion-ish round number to get through that transition over a number of years. I expect that that will probably be the case as we work through the next three-year deployment of this air interface change.

Okay. And on the fiber side?

Look, we've given you the direction of where we're heading. They're going to be at 30 million homes by the end of '25. You saw us pick up the pace in the fourth quarter. We wound up at 2.6 million passed locations. We feel like we're through the supply-related issues. The organization is executing in the field operationally at a very good clip on that. I feel very comfortable that we're going to hit that 30 million direction that we've given you by the end of '25. As I told you last quarter, I'd like to get off of the number of homes passed in any 90-day period discussion. What you should be looking at is, are we selling more end users? You are going to see us start to sell more end users each quarter as we move forward, and you're going to see our subscriber count start to ramp as that footprint gets larger. I couldn't be more excited, given our announcement this week on 2-gig and 5-gig offerings. We are going to be out in the market with a superior product. We've had great momentum finishing another year of 1 million-plus adds. Now with a product that's going to be even better, it will clearly demonstrate the superior capabilities and the infrastructure we're putting out there, plus the footprint expansion, and I feel really good about the momentum you're going to be seeing in our subscriber counts as we move through '22.

Your simplified mobile offers have obviously had a lot of traction in the market. At the same time, they've been out there for about 1.5 years. And so it seems like consumers who are uniquely attracted to that have had a lot of opportunity to avail themselves. And so the question would be, how are you thinking about evolving your mobile go-to-market strategy or your value proposition? Or maybe another way of asking that would be, what do you think the AT&T brand means to the mobile consumer? What do you think it should mean? And what is your tactic for driving that perception shift?

It's a good question, Brett. As we move through this year, I think you'll see us very definitively rotate into a position. First of all, I would tell you the strength of the period of time is that we've been on these offers for a while. I don't view that as something I'm concerned about; I actually view it as something that we're pleased about. It's basic, fundamental, easy for the customer to understand that we see no evidence whatsoever that we're losing traction in the value proposition that we have. I would point to what we did this week on our broadband offer and trying to go in with an everyday simple pricing construct. The reason we're doing that is based on what we learned from our wireless business, which is something that's very straightforward for the consumer to understand over time allows us to gain the right kind of momentum in the market that's sustainable. It drives up customer satisfaction and allows us to be consistent in our messaging that we carry out to the market. Every one of our employees knows the line and doesn't have to relearn something every 30, 60, or 90 days. We are very comfortable with the messaging we have right now. We're very comfortable that it still has room to run. When we talk about a focused, simplified business moving forward, part of what we're attempting to do is move our entire product portfolio into a position that we can represent it in a similar fashion. This week's move in our fixed broadband products is really important when you think about lining that up and carrying that message forward. When I think about how we communicate more effectively around the brand, I think you've heard me allude to this in some previous conversations, that there are a lot of things that I think the AT&T brand is very strong and does very well in the market: reliability, reputation for consistency, there's a perception within the business community about advanced networking and the strength that we have around that, trusted in those regards. However, I also believe we can do some things to start to manifest to the consumer some of those characteristics we just talked about in a more real way, which is a more straightforward, simplified, credible, reliable expert. I don't want to take away from anybody, but I think you should expect after we close the WarnerMedia Discovery transaction that you will see us begin to refine a bit of the messaging around the brand moving forward in the market that will carry forward the kind of characteristics in a bit more pointed fashion that we want to carry forward. I think that is underneath your question, and we've been doing a lot of work around this. I referred to it in previous remarks. This isn't an advertising campaign; it's about what we do behind the business structurally to operate in a way that we think will be relevant with the consumer and get the operations lined up around that. What we tell the customer is, in fact, represented in our product offers, our service support, and how they experience AT&T moving forward. We've been working really hard on that over the last year; we still have more work to finish. But I think by the mid-part of the year, you will see what that definition looks like and where we're going.

First, Pascal, thank you for the insights on the guidance and each segment. Can you share what the guidance for '22 anticipates for RemainCo EBITDA growth? Also, it seems you have reduced the losses in the business segment, and it sounds like you expect further improvement, possibly in the second half of next year. Could you explain what is happening in that segment? Do you anticipate it could return to EBITDA growth by the end of the year? Additionally, John, regarding those comments, when do you expect to launch these converged offers? Is that what you mean by refining the message around the brand and offering a package of fixed and mobile services?

Let me do the front end of this, John, and then I'll have Pascal just kind of walk you through the EBITDA dynamics. We're going to spend a lot of time on this in March when we're together with you to give you some color on the business market and where we're going. Here's what I would tell you; you should understand we've been executing on over the course of the last year and the process we're in. One, we've backed away from sales of revenues that are low margin, low strategic value products. We've been culling that out of the business profile, and some of that culling has manifested in the results that you've seen over the course of the last year. Where I want the organization to move is a much more crisp and intense focus on what I call owned and operated infrastructure. I want the foundation of what we're doing in the business segment to really start from we're always putting the customer on facilities and infrastructure that we own and operate, whether it be a wireless network or a fixed network. We've made progress in our distribution in emphasizing wireless distribution into those segments. We're now coming in behind that with some of our fixed capabilities as well. We're deploying to ensure we have the right fiber products available, and as we engineer it correctly, we are deploying to pick up the business segments where we can grow in the small and midsized segment. We've been sharpening our engineering to do that. So at the macro level, that's the reorientation that's going on. It doesn't mean we're backing away from the top end of the market. We still want to be a consulting expert for large enterprises and complex networking for those that need it. Those that need it are typically broad distributed companies. That distributed networking is our strength and where we'll focus. We can be a lot stronger in the mid and low end of the market. Tuning our distribution is where we had that strength so that we can get in with both wireless and fixed solutions is the pivot we need to make in that segment of the market to get back to the growth that we need. I don't expect in aggregate that we're going to see EBITDA growth in the business segment this year. I do expect we're going to see that turn next year. We're going to talk about that in March when we get together. But that's what I would say is the macro point of view of what's occurring. The converged offers in some cases are happening today, especially in the mid and upper part of the market. We're bundling both wireless and fixed together on the same paper. You're going to now start to see things in private networking that extend into the business space. We already are starting; I can't disclose a couple of larger customers we've signed yet at this point, but you're starting to see that combined fixed wireless converged networking become relevant in the upper part of the business space. I believe you will see more of that in the latter part of the year, us starting to use both our fixed wireless capability to pick up segments of the business community early to accelerate revenues, then back in behind it with fixed facilities as we gain scale over time. That should be something that becomes clearer to the customer where they're buying bandwidth from us and they're not caring about how we deliver. Pascal, do you want to add the EBITDA guidance?

Sure thing. Look, as you know, John, we did not give specific EBITDA guidance, but I think you can get pretty close with some of the information that we've given. Here are some dynamics to think about in each of our major businesses for RemainCo. Mobility, while we expect some comparison issues early in the year, we feel good about the organic trends in that business. We expect continued growth in wireless service revenues. Transformation continues, and we expect some operating leverage from that. Overall, we feel good about the trajectory that the Mobility business is on. You can get a good sense for where that should land given our wireless service revenue growth, given our fourth quarter performance. Consumer Wireline, the word here is scale. We feel really good about the build we had in 2021. As that business scales, the operating leverage is good. You couple that with transformation, the Consumer Wireline segment is also expected to grow. As you just heard from John, Business Wireline, we expect losses to moderate as we make our way through the year, but we don't expect that segment to grow. You layer on top of that an expectation of continued transformation savings on corporate and other. You can get a pretty fair sense that overall, the business is going to be, on an EBITDA basis, flattish to up modestly.

I'm curious if you could dive a little further into the wireless business? Specifically, if your growth guidance of 3% plus is respect to how you're thinking about volume, the opportunities to improve ARPU, and any contributions you would expect from a DISH wholesale deal that you previously announced? And then just separately on a higher level in terms of the asset mix, John, you mentioned that you were largely done with asset disposition. I'm just curious if there's any further optimization of the wireline footprint or thinking about future opportunities for your DIRECTV business and where that may fit strategically over time?

Mike, let me start. Here's the way to think about it. First and foremost, the market remains really healthy. Now for planning purposes, as you would expect, we are planning that the industry will continue to grow the way it has the last 1.5 years. The market remains healthy. In that environment, we're going to be disciplined, and we believe we will continue to take share in a very disciplined way. For planning purposes, we assumed that the overall industry normalizes to where it's been historically. In terms of ARPU, we've said this previously; the way we think about this is as we make our way through the year, we expect a continuing recovery in international roaming. We're also seeing our elite unlimited plan, our highest-priced ARPU plan, is our fastest growing. As a result of that, we expect to continue moving up the ARPU stack. That's going to be partially offset by the amortization of some promotional expenses. All in all, we feel really good about the trajectory of Mobility.

So Michael, on your second question, we set up the DIRECTV structure deliberately. When I say we're through the asset disposition, I draw a distinction there: the management team of AT&T RemainCo is not going to be distracted with having to work through restructuring the asset base of the company in the near term. That doesn't mean that the independent DIRECTV company and the management team that is operating that over there might not choose to do something in their business. I don't know of anything; I'm not announcing anything. But what I'm trying to distinguish is if that entity decided that there was value to be created by restructuring their business, it is a distinct group of individuals involved in doing that and executing it. It would not cause the AT&T management team to spend cycles and energy working through those kinds of issues. I think that's the distinction I want to draw. In terms of your question on the wireline footprint, we spend a lot of time constantly revisiting how we wanted to work through the transition of our business. I'm not a big believer right now that taking the less utilized parts of our wireline footprint and sending them out to somebody at a steep discount and continuing to operationally provide services to that entity for many years to come is right for a sustainable business. When I talk about transformation and shutting down products, that's about moving through a process of taking products that served us well for a long time and doing so in a smart way. As we sunset them, we take the high-cost operating model that supports them away. That's really walking away from square miles, infrastructure, and costs that have seen better days. We intend to capture that value and return it to shareholders, not do it in a front-end loaded transaction that's highly discounted and leaves us distracted with operating models.

I guess my first one for you, John, we saw about 2.5x more fiber homes passed in 2020. But over the course of the year, fiber net adds didn't really accelerate. And so as we look at even more acceleration in fiber, when should we start to see the acceleration in fiber net adds? What's the typical lag time from passing to a selling opportunity? And Pascal, I was a little surprised to see the $4 billion growth capital investment premium over CapEx because I think over most of the year, we've been talking about maybe weaning ourselves off that number. And I think that raises the question as we look into 2023 and as people have been trying to bridge from this year's $26 billion to the 2023 $20 billion guidance given the higher CapEx and the loss of the $3 billion WarnerMedia cash contribution. How much vendor financing is baked into that $20 billion that maybe we hadn't been thinking about?

I'll take the front end, Dave, and then you can get the color from Pascal on the EBITDA dynamic and cash flow. From the time we say go to about the time we're actually in the market selling is currently running about a year. I would like that at maturity to be 9 months. What’s worked against us to do better than a year right now has been a little bit of spottiness in the supply chain that we've shared with you. It's what drove some of the challenges to get to the 3 million objective last year that we ultimately achieved at 2.6. As a result, we were back-end loaded in the churn-up of the 2.6. The inventory became available for sale very late in the year. Now it's out in the market and available. What we have improved fairly dramatically over the years is the rate of penetration once it becomes available for sale. So my goal and challenge to the team is to move from engineering to availability in 9 months and achieve what we're doing right now on the penetration rates. You're going to see that acceleration start to happen because we've put that inventory in the market. A lot of it became available late last year. Starting in the second quarter, third quarter, you will see a change where we consistently put 3 handles on our net add numbers for broadband. That's where I want to see us get, and we should be able to as we move through this year. That's the color on it. What we've been characterizing for you is our rate of penetration; teams made a lot of progress on that. That's a huge economic driver of return given the pace and rate we're doing right now. It would be great to get 3 more months of the build cycle, depending on how the supply chain clears this year.

Dave, on your free cash flow question, you'll hear more from us at the Investor Day, but here's just to reiterate some of the piece parts. For 2022, we are guiding to the $23 billion range of free cash flow; WarnerMedia will contribute around $3 billion. We expect vendor financing to continue at around $4 billion for this year. You are correct in your recollection that we were going to look really hard to make sure that we were getting the best possible terms on vendor financing, and we felt we could get better financing sources otherwise. However, we have found that more of our vendors are willing to provide us attractive terms, and we're taking advantage of those. With all that said, the guidance we've given anticipates $20 billion of overall gross capital investment. Other piece parts to keep in mind as we close the WarnerMedia transaction, we should save significantly in interest expense and cash interest. We're going to hold ourselves accountable to grow EBITDA at RemainCo.

Pascal, I have a quick follow-up on that. Are you indicating that back in March 2021, when you were considering reducing vendor financing and set the $20 billion free cash flow target for 2023, the current attractiveness of vendor financing means that the CapEx associated with that $20 billion figure will decrease, being replaced by vendor financing, and that the actual free cash flow could be higher?

As I said, Dave, you'll hear from us. Today, we are giving guidance on 2022. You'll hear from us on 2023 at our Analyst Day in March.

It's funny. I know you're not going to own this forever, but a lot of moving pieces in the Warner side. Can you talk through what's going on in HBO and how we should think about this going forward? Obviously, a lot of issues with Amazon causing volatility through the quarter. But should we think of this HBO ARPU run rate as a good level going forward? Or is there still expected volatility? How do you think about the potential growth rate domestically for HBO from here now that the ad-driven product is launched? You also said peak content investment in 2022. Should we expect this to be a sort of negative EBITDA all year? Or do you think by the back half, we've got enough growth to get that back to positive?

Sure, Phil. Let me give you maybe some color on the front end, and we can go through it. First of all, as you know, there are a lot of moving parts on the ARPU side. One moving part is international ARPUs are different than domestic ARPUs. If you think about the growth internationally, where that will be a large part of the future growth given the new markets we're opening up, the product is sized differently and starts from a different place. You're going to see that impact. Generally speaking, international ARPUs are lower than domestic ARPUs. We launched, as I said earlier, the ad-supported product. I expect the ad-supported product as a percentage of mix domestically in the U.S. to increase this year. Part of this will be because the products have different characteristics. The subscription product had access to first-run movies; the ad-supported product did not. Effective January 1, the products are identical now. As a result of that, I expect there will be some customers that choose to go the ad-supported route. What will happen is it's not that one is less accretive than the other. The subscription line will possibly dilute a bit, but the advertising line will increase. When you look at the customer overall, they're no less profitable. It just books to two different places on the P&L. Our goal is to continue to add customers at a moderated pace. Domestic growth will be more suppressed than international growth as we move forward. We are sitting at a large domestic base with a very high ARPU. We have the struggles that maybe some other products that came in at very low prices will have to kind of try to move up that ARPU continuum. We're in a great position, and we are now no longer the high-priced offer in the market. That allows us to maintain domestic growth as we move forward. We don't have the struggles that maybe some other products will encounter. We felt that making the hard decision on Amazon was the right decision. Better to have customers where you have direct access and control, can market to them, and know what they're doing, rather than have it be in some black box where you have no idea what someone else is doing with aggregating your content. Pointing out, that is what our customer base is. There are a lot of businesses out there growing direct-to-consumer customers behind the screen of the Amazon marketplace. They’re not the media company's direct-to-consumer customers. Pascal, did you want to add anything on the EBITDA side?

Look, we provided guidance for WarnerMedia, what the contributions for the full year. Keep in mind, we are launching in several European territories and plan to launch CNN+ this year. We are entering the investment cycle. But overall, we feel really good about the underlying trends of our direct-to-consumer business, and the balance of the business is performing as expected.

Thanks very much, Phil. Operator? And we have time for one last question.

So Pascal, maybe one on free cash flow and a bit on the tender. But probably on the free cash flow side, if you think about the $20 billion kind of a number for this year, could you help us understand the breakdown? I mean, there's been some pushback; the $23 billion number may not be a real number clearly on the back of the telecom business. So if you could help us understand how much of the contribution comes from DIRECTV, the Xandr part as well as potential cash flow reversal because you might now get paid for HBO distribution instead of absorbing the working capital impact. So if you could just help us understand that, that would be useful. Then the other source of confusion, I think, has been the impact of vendor and the relationship across the three assets, across DIRECTV, AT&T, and WarnerMedia. So if you could just understand the puts and takes. I mean, what went away with the Microsoft transaction, how much cash flow comes into AT&T, and what moves out to DIRECTV, that would be useful context for the cash flow number.

Okay. So Kannan, I appreciate the question. For 2022, we are guiding to $23 billion of free cash flow. The contribution from WarnerMedia is about $3 billion. The remainder of the company, including the contributions from DIRECTV, make up the balance. Both will continue post-separation. The piece to think about this year relative to the past is we're going to have higher CapEx. As John explained earlier, that CapEx is related to our payment of spectrum as well as our continuing and accelerated rollout of fiber. We're going to have higher CapEx. As we make our way through the year, we expect that our cash interest costs should decline because of the deleveraging that is happening at the company. We expect RemainCo to be flat to modestly up on EBITDA overall. The way to think about Xandr separately: you have two pieces; the AppNexus business is in the midst of being sold to Microsoft. We have an agreement for that. The DIRECTV advertising inventory before the separation was managed and included within WarnerMedia's results. Upon separation, there was a new agreement struck. WarnerMedia would continue to sell DIRECTV advertising inventory until close. In exchange, WarnerMedia would receive an ad share. The majority of the economics of DIRECTV advertising inventory is going back to DIRECTV. Only a commission is staying with WarnerMedia. Those are the parts for Xandr and free cash flow dynamics.

Could I ask a follow-up about HBO? Regarding the Amazon deal, which likely led to some volatility this quarter. Revenues were down sequentially, despite an increase in subscribers, and the ARPU also showed weakness sequentially. Looking at the revenue trends going forward, is this decline a one-time occurrence? How should we anticipate the revenue progression from here?

Yes. Kannan, yes, we expected that we would take a decline as a result of Amazon. It is a one-time decline as we move forward, and we expect that growth from here.

Thanks very much, Kannan. I'll turn it over to John for some final comments.

Thank you very much for joining us today. I'm really pleased with how 2021 turned out. As I started in my opening comments, we outlined what we intended to do through the course of the year, and I think we checked the box across the board on every commitment that we made to you. I'm really proud of what our team has accomplished. Given the number of moving parts going on in restructuring this business to get the operational focus we asked for, I think four quarters of results here demonstrate that. I'm really pleased we're on the doorstep of completing the transactions in front of us and allowing both management teams to focus on moving things forward in a clean operating environment. The best days are ahead as a result of that. Thanks; have a good year, and we'll see you in 90 days.