AT&T Inc. (NYSE:T) Bank of America Merrill Lynch 2014 Media, Communications and Entertainment Conference Call September 16, 2014 12:30 PM ET
John Stankey - Group President and Chief Strategy Officer
All right. Thanks everybody for joining us here for our first telecom track keynote in the ballroom. We're very excited to have with us John Stankey, who is the President and Chief Strategy Officer at AT&T.
I think most of you probably know John from his time both as head of the business unit and his extended tenure as kind of a chief bottle washer on the network for the last many years.
So, we are really excited to have him here in his role as Chief Strategy Officer because I think so many moving parts are going on in the sector right now. I would just like to say welcome, John, thank you for coming. Appreciate it.
Thanks. Good to be here.
I think maybe the right thing to do to kind of kick off the conversation would be to ask you as Chief Strategy Officer what is on your plate. I can't imagine that much really. What is on your plate that's keeping you busy day to day on the strategy front at AT&T?
So, the right thing to do is probably to make my safe harbor statement before I get going here because I am very likely to make some forward-looking statements at some point today, and you know that those may be materially wrong or right depending on what happens and, if you would like additional information, you can go to the AT&T website or look at our SEC filings.
And I want to just make one other caveat today if I could. As you know, we're in the quiet period for the upcoming spectrum auction at the FCC, and I am not going to make any comments today on spectrum as a result of that.
So with that, to answer your question around what we're spending a lot of time on is obviously how do we get the right kind of growth profile in the business, and driving that given that we're a capital intensive company is how do you get the right kind of allocation and the portfolio to drive that growth.
And as you know, we're business of businesses, and it's trying to understand where the shared resources play to add value into the different lines of business that we support. So a lot of that gets into infrastructure, and we've been spending a fair amount of time understanding where we want to be on access technologies.
Certainly, radio access technologies and how things like spectrum and density and footprint play into wireless business, and the growth that's ready for the next phase of wireless in machine to machine and what's occurring in the enterprise space, as well as how GPON and fiber infrastructure and our core wire line business enable the next growth phase for virtualization, as well as more distributed access technologies on wireless and have been spending a fair amount of time on those aspects, as well as the reality that the industry structure is changing pretty dramatically, we're spending a lot of time understanding how we enable ultimate monetization in our business.
We've been largely a subscription-based business over a number of decades, and we understand that as we move forward, we're going to need to have a variety of models to be able to monetize traffic on the network, including advertising big data capabilities and instrumenting our network and our internal infrastructure in a fashion that allows for these alternate models has been a key focus area.
And I would say finally if you kind of think about where we've been putting a lot of energy and time as you might guess is understanding how things like content and affinity for people making decisions around acquiring transport or acquiring connectivity will change over time.
And so, a key driver behind what we've been doing with efforts like our DIRECTV transaction as well as our investment in the (inaudible) Company and our efforts to develop new media sources is about that content and the affinity that it drives in the consumer space, but ultimately making connectivity decisions over time.
So I wanted to maybe start off with that DIRECTV kind of being the front and center strategic action that AT&T is working on right now. There really seem to be kind of two sides to that equation as benefits to AT&T. One is on the content side and then one potentially on the cost structure side, and I want to talk about both.
But first on the cost structure side, it seems to me that there is a big opportunity for AT&T to make a decision as to whether DIRECTV should be more unionized and work with the unions to maybe try to get concessions as a carrot.
Alternatively, there is an opportunity potentially for AT&T to be less unionized and to use the DIRECTV field workforce as a potential stick to negotiate less union participation in the business big picture. Which one of those is the right answer for AT&T in terms of business and cost mix?
The right answer is the answer that we've pursued over our history, which is we're going to work with our label partners to find the right solution to be competitive in the market, and we have a good history of doing that.
We have an award winning U-verse product today. You better take the top off, it works better.
You captivated it.
We have an award-winning U-verse product in the market today and it’s based on the support that we get from great group of frontline employees that understand that satisfying customers and doing what they want them to and what they want us to do is important to grow that business.
And the cost structure is competitive and the workloads are competitive, and we won JD Power awards, and when we do our net promoter score surveys, our customers come back and tell us the number one thing they like is the technician and the courtesy and professionalism that he demonstrated when he or she came up with their labor partners to put the right construct in place.
DIRECTV has not had the same organized labor emphasis for whatever reason. We'll do what we've always done in the past. We'll work with our labor partners. We'll give them the right to organize if employees want to organize.
If they don’t, they don’t. But we're certainly not going to get in the way of that occurring, and we will work with them aggressively to get the right kind of construct in place as we blend the two businesses to make sure that we can run it effectively.
Do I believe something good will come out of this? Is there an opportunity for us to continue to run an effective cost structure as DIRECTV has done and a great service operation as DIRECTV has done, I don’t see that changing, I see that still being in the cards. We're clearly not going to do something that would cause us to take a step back in that regard.
So you would argue that the perspective of kind of layering on a union presence inside what has been a super high quality effective business to this point in time would not be subtractive but could conceivably be additive?
Absolutely. You know our labor partners are investing in our business in a lot of different ways. They're not only investing in doing the work every day, but they are invested with us on a policy perspective as well. They want the business to do well and they want to move forward with the right policies that stimulate investment in telecommunications in the United States, and they’ve been a great advocate to move those policies forward and help us influence decision makers in that regard, and we're going to continue to work with them on that front to ensure that the right policies on net neutrality and merger approval and everything else that shows up in front of these bodies is heard and done in the right way that allows people to continue to work in the United States and have meaningful jobs.
So I want to shift to the content side a little bit. The content side of it in terms of the benefits AT&T seems to have two parts, one is the cost of the content and one is the totality of the content access itself.
And I wanted to talk about the access to content itself, because it’s frequently stated AT&T is going to get access to more contents than it has today, which seems hard to understand because if I have a wireless device and I want to watch game of thrones, I can go to HBO Go.
If I want to watch Two Broke Girls, I can get on ABC.com. It doesn’t really seem that there are a lot of barriers to me getting the content I want whether you have improved rights or not. So what is it exactly that you're getting when you do this transaction and you get access to content.
So, I think there's couple different angles you should come at this time. One of them first series that you mentioned out of your mouth happens to be a series that is produced for a particular distributor and is exclusive to that distributor.
And I think I would point out that if you want to think about those kind of things that are creating buzz in the subscribership and interest, the economics of doing those kinds of proprietary deals, Game of Thrones or House of Cards or if you think about what goes on with Orange is the New Black, monetizing those over 28 million subscribers is a totally different animal than trying to monetize them over six million subscribers, and you guys are all smart finance people and you know what happens when you have a fixed cost investment like developing a series or a show.
And if you can spread that over a larger subscriber base, and the economics of scale are quite a bit different. And just like there is scale in the linear business and acquiring content, there will be scale in the over-the-top business that probably doesn’t take a rocket scientist to look at the networks model and realize that they are are developing scale on the over top business right now that other people don’t enjoy, and there probably isn’t room to have 10 skilled players in that space.
So the first point I would make is this transaction allows you to do some things on proprietary content and spread even across the 100 million handsets across 27 million, 28 million vertical TV subscribers, and who knows how many new model subscribers that change our perspective on how we might go about doing that in creating meaningful experiences that might be unique to an AT&T subscriber as a result of the ability to spread that scale.
The second point I would say is if you are an individual creating really meaningful content, you get energy around working with people to do those kinds of things that can give you distribution, and naturally speaking, you usually look the way you get scale distribution first, and so you see from a deal flow perspective and your discussions with people around creating these new models and tweaking the distribution model.
They want to work with people who can bring them that distribution, and we think it's a great marriage of both on mobile and our fixed line distribution the number of broadband subscribers we have, the number of linear TV subscribers we have, the number of mobile subscribers that we have that very few people can offer in that distribution model, and the distribution models are changing and the content will change for those distribution models.
So yes, you can go out and every day get access to more content on your mobile devices today, no doubt about that, but what we're also interested is the next generation of content that's going to be tuned for mobile devices, more short form.
There is all kinds of new genres that are starting to develop and the people who are doing the best work in those areas are going to work -- want to work with the companies that can give them the most and broadest distribution first.
So, is it fair to summarize the strategy by saying that maybe using the DIRECTV NFL funded ticket as an anchor tenant for exclusive content, that you want to build a portfolio that gets larger around that along a couple different legs of the stool so to speak.
I would say that it's very fair that we expect we want to build multiple legs of a stool portfolio. Certainly continuing to evolve a premium position in sports is something that would -- would be certainly if we didn't examine and take a look at and understand what we could do around that given the franchise that DIRECTV brings with Sunday ticket.
And I would tell you that's not just football, that's sports of all sorts, but when you think about what we're doing with the (inaudible) Company, our intent of that is to build three other legs of that stool and the other legs of that stool are what we're doing and what we call second TV (inaudible) and that's very niche oriented, specialized content that will not be well suited to liner distribution, but it has very passionate audiences, maybe four or five million people that want to go in and learn and subscribe the content that's tuned to a particular area, maybe it is Korean melodramas, maybe it is crafts, maybe it's a foreign sports league. Those kind of things are very well suited to over the top, and that's one vector of investment.
Second vector is some of these new forms of content, so the investment in full screen and what you see us doing with (inaudible) on the full screen side, which is getting some of the best non-professionally produced content although because of the money that's being generated, many professional folks are starting to move into it.
Oftentimes short form, oftentimes millennial-driven, usually consumed over mobile, a great opportunity to start building audiences in that 100 million handset mobile space that allows for some of those ultimate monetization models I referred to.
And the third, the premium over-the-top content, I don't want to say it's like Netflix, but certainly a subscription-based capability that is high value premium content that allows for a subscription service and an advertising based service that starts to get us into that place of scale and over the top that we think is essential over time that allows us to move that liner business and gracefully migrate it as customer behavior shifts.
And on the cost side, I think that you’ve highlighted as one of the anchor tenants for the synergies, $1.6 billion annually in the DTV deal, it was harmonizing, the cost of content as we understand it today at the AT&T six million customer level with the DTV 20 million customer level.
It sounds like a plausible thing to do over the contract cycles that you're going to engage in, but when I listen to you talk, it almost sounds to me like yes, there is going to be some synergies on the legacy spending on content, but that may be content spending overall could actually go up as you guys kind of hunt and peck for these opportunities with the churn in or developing a premium OTT model, it's content cost -- our content cost net of the DTV deal is going to go down, stay flat or go up as you guys try to do it.
It's a really good question. Look we don't walk into this with a mindset this is a winner talk all mentality. We see this as a win-win proposition.
Obviously, we want to normalize our content cost for that six million subscriber base for AT&T. We've paid daily through the nose to grow that business and we want to now get ourselves into a position where we’re paying what we consider to be competitive economic cost for content to stay in that business.
And that savings that we get in normalizing that six million subscriber base, reiterating those customers to a content structure that DirecTV has already achieved on their base, nothing more than that is just the six million AT&T subscribers, reiterating them to the AT&T -- to the DirecTV base. That cash that’s generated allows us to go back in and push more fibre broadband into our base that then supports the business over the long haul.
To win in this for the content provider is there can be broader distribution. There can be more distribution. There can be distribution to broadband only customers. There could be distribution over mobile.
That distribution comes with revenue profiles, which means that yes, absolute dollar amount spent on content in the business will probably go up, but they are going to go up with additional business models that support the fact that you're investing in it and that probably also acknowledged that if you think about what’s going to happen over time, I think you’re going to see content of what people can do to entertain themselves with any broadband connection, whether it would be a wired broadband connection or a mobile broadband connection, be it determiner of purchase.
It is today when somebody buys a wired broadband connection, they don’t buy wired broadband typically without finding entertainment-based 500 channels of linear TV to go with it. It’s a very high correlation.
The same thing is going to happen over time in the mobile space. It's not 500 channels; but people are going to be making decisions on their broadband access to their mobile devices based on what they can do to entertain themselves and we feel it’s really important that we play in that ecosystem to ensure we can keep pace with our customers.
The last piece on the DTV side before maybe we shift gears and talk a little bit about mobile and the mobile environment right now is just on the Latin America side, there was an article out today that AMX has reached out AT&T to discuss and formerly how AT&T and AMX might work together to allow AMX to fit within the new regulatory boundaries that are being established in Mexico.
I know you are not going to comment on that, but big picture two questions, number one, is Latin America interesting enough to put more energy and money into it? And number two, if the opportunities came up sooner rather than later, can you juggle doing the DTV deal and doing Latin America deal if it’s the right deal to do?
You are right. I’m not going to comment about the speculation and reports that showed up this morning in the newspaper and I’m sure there will be something else tomorrow and something else later.
What I will say is, two and a half years ago when I came into this job, I sat down with my supervisor and we talked about what the appropriate priorities were and you know one was spectrum, two was the restructuring of assets in the business and making sure we had the business structured properly for the next 10 years around.
Do we like wire-line assets? Do we like wireless assets? How do we have them configured? And three was diversifying the revenue streams of AT&T so that we weren’t as domestically focused.
We love the U.S. market. It’s a great market to be in. It’s one of the best telecom markets in the world. We'll continue to invest in it. But our view of where the industry was going over the long haul is that any global player in telecommunications was going to have to have more diversified revenue streams over time and be able to operate outside of their own native footprint in time to be successful.
And at that time we gave you our viewpoints publicly on what we saw in the scan of the globe and we said there are probably two markets that we found intriguing. One was Europe and the other was Latin America.
And we talked about why we didn’t like Africa so much. We didn’t like Asia so much. And that today it doesn’t know that things don’t change over time. But today, we like Latin America, we like Europe and we comment a bit Latin America was the domain of our partner that we had an investment in.
The DIRECTV transaction is significant from the perspective as we move from a passive investor in Latin America to an active investor in Latin America and that was a conscious decision to do that and where we do believe that there is an opportunity that warrants a harder look.
It’s a place where the middle class is growing. It’s a place where penetration levels are low. It’s a place where regulatory constructs are decent in many of the countries. It is a place of higher volatility acknowledging that, but that’s the norm. You’re not going to find other markets outside of the U.S. that don’t have higher volatility and you have to plan for volatility and work around it.
And in particular Mexico, if you step back and think about Mexico, is the place that’s prone to move into an incredible growth cycle. It’s quite admirable what the political system has generated in Mexico in terms of reform over the last couple of months, not just in telecom, across every major sector of the economy and society, education, petroleum, what they’re doing in telecom.
This is a place that’s poised to see increased growth and increased investment that I do believe the telecommunications environment will change in Mexico. I think the regulators are serious about that. I think they have the ability and the wherewithal to make a difference.
And given our base of what we have now in Latin America and given the proximity of Mexico to the United States if we weren’t looking at Mexico and Latin America more broadly what opportunities there were to further shareholder returns down there and begin to diversify our revenue sources, I think we would be asleep at the wheel and we’re not historically known to do that. So, yeah, we are intrigued by it.
And in terms of just resources, capacity both manpower wise and financially can -- is now a time while you’re in the middle of the DTV deal that you could really be seriously contemplating transaction, just the right transactions were out there to be done or is it really you have to sequence these things it's just how it works?
Every transaction -- every inorganic transaction requires to deliberate thought process on sequencing. There is no question about that. You just don't cavalierly walk into it and say, can I execute on it and what else is going on?
And there is very deliberate thoughts given to that. There are lot of different options and there are variant sizes and scale, and that would impact any decision around whether something could be done in the near term or in longer term.
I wouldn’t rule anything out. I think there’s possibility that depending on the circumstances and valuation and size and regulatory dynamics that something could happen in shorter quarter and something could longer.
And I think when you are in the M&A game you learn that you can't always force your timing. Sometimes timing has to come to you. And exactly how that’s going to work out who knows, but I wouldn’t foreclose anything, but I would also tell you we don’t just cavalierly walk in and say, oh sure, it’s great.
We’re a big company. We have a lot of talent on the bench. We have a lot of capabilities. We’ve been very disciplined about the structure of our balance sheet to make sure that when opportunities come along, we can take advantage of them, because sometimes you don’t get the pick when they show up, they show up. And that’s why we like that flexibility on our balance sheet. But if they show up and if they make sense for our shareholder, we give them a hard look and think about them and then decide if we can execute around them.
Obviously before you ever get to Latin America, the DTV deal has to close. There have been some states that are starting to weigh in on evaluating the deal. Is your comfort level still at course on speed. We’re going to have this deal closed in the first half of the next year?
It’s a great deal. It’s a great deal for the consumer. It’s a complimentary deal. It’s a standalone video provider marrying a broadband provider and a mobile broadband provider and so they’re very complimentary assets. It’s a very different deal than the other large deal as out there being contemplated right now.
My sense is and looking at the media reports and speaking with the regulators and looking at the flow of questions and information that they’ve been requesting, they understand that, and they’re getting the information that demonstrates that. We think it’s a great transaction for rural America in terms of bringing more options for broadband.
And we think it’s a great transaction to keep a lid on this content cost over time. The scale that I talked about earlier will be essential in making that happen. And so it’s been a very constructive exchange with the regulators. It’s moving along at a good pace. Don’t see any trouble signs. Right now, we’re still very early in the process.
We’ve just gone through the second request with DOJ. We’re in the process of assembling and submitting the last of that material. We've produced a tremendous amount of information.
We are anxious for the DOJ to move through their process and they appear to be poised to do that. We don’t see any timeframe changes at this point that would cause us to move off of our second quarter 2015 projections of when this thing might get closed.
And as you know and has been reported we’ve been having really good success of getting movement outside the U.S. where Brazil is near final on their approval there. They are just waiting for an administrative order to move forward on something. In Mexico we’ve made tremendous progress and feel pretty comfortable that that’s coming along quickly as well.
So I’d like to spend the next hour of our time on wireless.
Is it going to be lonely?
No. I’ll keep you. Look. There’s a lot of things to talk about on the wireless front, but I guess the question that at least I hear the investors asking the most is, is the U.S. wireless market is in a significantly different spot than it’s been in the few years where we’ve got four big national carriers, all of them carrying a big new iconic phone all at the same time and we’ve got two very different kind of pricing strategies in the market.
There is Verizon AT&T and then there is the Sprint T-Mobile discount strategy and there is two different perspectives on this. One is history would show that there’s a finite number of price sensitive customers that are willing to take the risk to go save that 10 or 15 bucks a month.
The other is that, we’re now in a new world where marketing and perceptions are blurred and the market is just much more price sensitive than it used to be. How does AT&T think about the competitive situation that we’re in from a strategic standpoint?
Well, it is an incredibly competitive market and as a result of it being incredibly competitive market, it is in a different situation because competitive markets evolve and change and as we talk about what’s going on today, we’ll be talking about something different a year from now.
There’ll be new innovations, new vectors of attack, new opportunities that pop up and that’s what happens in competitive markets and it’s a tangible existence everyday is to why I think regulators should take a step back and understand that there’s really nothing to be done here.
There is no need to be talking about structures of net neutrality and there’s no need to go in and try to figure out are there changes that have to occur and other structures in the market in handicapping different entities -- I got to be -- I can't say that word, and acquiring certain assets that are necessary to run a business, how’s that?
So I would tell you my belief is that we’re in a moment right now where there is a little bit of a supply and demand dynamic going on. Some networks are more empty than others and pricing is probably adjusting as a result of that, but to your point, it’s not only the consumer dynamic of understanding value and which consumers are willing to take a lesser experience for a lower price.
But you also have the dynamic of what’s necessary to invest in infrastructure to refresh it as technology changes, as demand increases and as over time customers do with their mobile devices what they want to do and that cash is required means that any operator who operates in this market have to put themselves in a position where they can run a business to generate cash to reinvest.
And if we talk about and take what I discussed earlier, which is what the people want to do on their mobile devices, left to their own desires, they want to entertain themselves. They want to watch video, and if we think about what’s scaled video consumption looks like over the next five years in this industry and the kind of network infrastructure that’s going to be necessary to truly enable that, and the cost structure that will be required to manufacture the bits that can carry that kind of traffic, we’re playing this for the long haul and the long haul is we generate cash, we reinvest the number one or two position in capital investment in the industry and we believe that that is a sustainable equation with competitive ROIC returns.
And so while you’ll see these temporary imbalances, you’ll get a lot of noise. Our job now is to shift the attack vectors. It’s to take it to the next generation. It’s not just price but its price, service, coverage and what else people can do with their devices. How well they can bundle up with other services. How they can get more utility out of it and watch more entertainment and do it effectively in places.
And a year from now, that’s what we’re going to be talking about. We’re not going to be talking about subsidy on handsets as being the only criteria.
Earlier this year, you guys made a decision to address some of the pricing deltas between AT&T and their competitors by proactively pricing some customers, I guess you’ve forward-priced them to lower price points on the AT&T Next platform.
I guess what was the thought process between doing that presumable lowering churn, hold then your customer base and maybe choosing not to do that and take the incremental money that you would have generated and reinvested at a higher level in the network to create an even better experience more quickly. Why was that the right trade-off?
I don’t think it’s either or I think we do both. So first of all, the decision to restructure our pricing had a lot of benefits to it, right? Three years ago, I come to one of these things and the first question was what you’re going to do about subsidies? Subsidy is going to kill your business and so we’ve managed to make this pivot out of the subsidy structure where now we’re much more transparent on the cost of handsets and customers choosing to step-up for a lot of decision making on their own. I think that is a good thing in the long run for the business.
The second piece is churns down because you indicated and customer acquisition costs are really high. We made a conscious decision that this price value equation, where is it in check, where we think we could sell the value of the network and making sure that that delta wasn’t too large and that was a management decision.
But whether or not we’ve set that right point will be something you’ll probably opining on for quarters to come.
The third thing I would tell you is you go back and look at it is what did the better value allow the customer to do? Bringing more devices on to the network? Whether they be tablets or other handsets and increase the number of users in their family and buy up on data.
And so there hasn’t been the kind of write-down when you consider the fact that we’ve got trade up going on some of the consumption levels and where we can manufacture that bit more efficiently, we think that’s a reasonable trade up as long as the customer continues to pay us a reasonable return for it.
So it’s a balancing act. Every day is a new dynamic as I said, I think time will tell whether we did it right. We’re at record low churn. We expect this quarter to continue to be really, really strong on the churn side. Customer satisfaction is increasing as a result of it. That’s got to be good over time. That drives loyalty. We think we’ll do just fine in this refresh on the Apple device. So that’s our formula and that’s how we’re looking at it.
Just to kind of add to that conversation and then I'll invite the audiences if they have questions. We have guys with microphones in the aisles. I think maybe to put you on the spot just a little bit, this is not your territory, but in the last week or so, we’ve definitely heard a lot of chest thumping about how well all the different carriers are doing, risen up 30% or 40% in net adds year-over-year and T-Mobile had its best gross add period ever and Sprint’s had a couple of days report positive and people are trying to characterize themselves for this “I’m not the victim here” in the quarter.
And I don’t know that we’ve actually kind of heard AT&T put a placeholder in the market and I think in the absence of that, there’s a lot of question marks about whether AT&T really did hold on to those customers that it wanted to hold on to. Is this effective with its network where it wants to be wants to be in the quarter.
It’s a quarter question but everyone else is talking and AT&T isn’t. Does AT&T has something to say,
We're not the victim in the quarter.
We’re too deep into the quarter to provide any specific statistics on where we are. Obviously we’ve got guidance out there and things that we’re talking about and we stand by that guidance and haven’t change anything and I haven’t seen anything trajectory wise that would suggest to me that we’re seeing any significant shift around there.
I’m very pleased with how the network is performing. As I told you just a few seconds ago, I think the biggest stick I just put in the ground is we’re still seeing great churn levels, right? We’re still seeing really solid performance on churn better than what we’ve historically seen, that tells me the network’s holding up really well. The service experience and value equation is holding up really well.
Do we have a question in the audience for John or I have got plenty more? We’ve got one I guess here in the side.
Thank you. Just in terms of the OTT initiative. Just help me explain how I guess the DBS transport medium with DIRECTV helps with your OTT initiative in terms really up the scale over their subscriber base.
We don’t. So DBS in using satellite for the purpose of delivering that is not the approach. OTT by definition is going to come over a different kind of delivery medium.
What we’re doing with the churn and organization is not reserved for AT&T customers where they have a free rating to go and distribute the content in the offerings broadly across any broadband connection across any customer, whether they are an AT&T customer or not.
We’re clearly going to use AT&T distribution to jumpstart this. We want it to be something that allows us to get the scale faster but we don’t necessarily see DBS as the medium for delivery in OTT. We absolutely want DBS customers to start thinking about when they are rightsizing or cord trimming that this offering might be the right supplement with their linear TV any service delivered over whatever broadband connection.
In many instances an AT&T broadband connection but in many instances not an AT&T broadband connection to sell them that incremental service.
In the back.
A question on Latin America specifically Sky Mexico, John you mentioned the opportunity of Mexico and the growth you could have there. How do you reconcile Sky Mexico? AT&T is 40% assuming the approval from directory comes.
It’s a minority stake therefore with the opportunity of buying fixed line and wireless assets from American Mobile. Is the idea is to combine both in order to make Sky Mexico more competitive or that is a completely independent decision.
No, right now our partner has operating control over the asset. We’re slightly over 40% in terms of the ownership structure. I don’t that expect that to change in the near term. That doesn’t mean that there aren’t opportunities to find other assets that we compare with our partner and do things with.
One more out there, rather on the right.
Any thoughts on what Slim may do with $17 billion or $20 billion?
I’m not sure where $17 billion or $20 billion comes from and I’ve kind of learned over time it’s probably not wise to try to outguess people who have been as successful as he has.
So I don’t know what his plans are or where he wants to go. We’re 100% out of our relationship at this point. We have nobody involved in the day to day management. We have no professional staff on hand. We’re no longer involved in any way, shape or form in the governing structure and I have no better information around what his intent is and you might have is public entity.
How do you think you would feel about the American cellular market at this point, the American mobile market?
I don’t know. You’d probably want to check with him and see how he feels about it. He’s in it today. As you know, we’ve tracked on and he has had a good deal of success in that segment of the market and whether he is satisfied with that and wants to go further, I really can’t say.
Me and John, I’ll maybe just kind of wrap up with the last minute or so on the wireline business. Obviously Project VIP was the big part of that -- a part of that was wireless, a part of that was wireline.
Are you satisfied that the returns that you wanted to get from the increasing capital expenditure are going to come through and what’s your comfort level that CapEx can come back down on the far side of it given the competitive situation in both wireless and wireline?
I’m satisfied that the returns are there on the projects that we’ve put in place, so we obviously have finished the LTE expansion we characterized. We’ve reached 300 million pops, which is essentially the United States.
We’re getting the kind of traction we expected in the movement of wireline subscribers in those rural areas over to the wireless networks so that we can start getting ourselves into position where we have an opportunity to begin bringing down that less dense wireline infrastructure over time.
We still have regulatory work to go through to kind of get that complete and as you know we’re working actively with stay regulators in the FCC to kind of get to the final point of the technology. Is working well and we feel good about that transition that’s occurring today on a customer’s voluntary basis.
On the wireline side, we’re not completely done with our investments. We’ve on pace with everything we said we wanted to do with fiber to the building on the building on the business side and we’re on pace with what we’ve said we wanted to do in additional U-verse coverage as well as additional broadband coverage on the consumer side.
The penetration assumptions we made in the business case on all those are tracking to our expectations. The ARPU are tracking to our expectations. In fact in some cases, we’re ahead of plan on that. So we feel really good that the validation on investing in broadband and investing additional bandwidth and infrastructure was the right thing to do and it’s bearing the fruits that we need to do on that.
The third leg of the stool on VIP is about getting the costs out, changing the TDM infrastructure and the migration. We’ve had really good success getting the plans built. We are starting to see the momentum in the enterprise base of moving customers off those legacy services. You’re seeing that in our quarterly reporting of our growth and strategic services.
But as I said earlier, we still have some regulatory work to do and button this up completely. We are in the middle of the trials with the FCC. Each date has a little bit of a different take on it.
In my view both technology and customer interest are on the right side of this ultimately happening. We just need to finish the work with the regulators on the actual rule set around how you actually get the shutting that TV and infrastructure once and for all and then changing the cost structure and we still got some work to do on that, but we've always said that, that was something that was going to take us all the way through 2020 to get done and we're making progress, but we're not there yet.
I think we'll have to leave it there John. Thank you so much for coming here.
Appreciate for the time.
Thank you very much.