AT&T's (T) Presents at JPMorgan Global Technology, Media and Communications Broker Conference - (Transcript)

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About: AT&T Inc. (T)
by: SA Transcripts

AT&T, Inc. (NYSE:T) JPMorgan Global Technology, Media and Communications Broker Conference May 15, 2018 8:00 AM ET

Executives

Randall Stephenson - Chairman, CEO & President

Analysts

Philip Cusick - JPMorgan Chase & Co.

Philip Cusick

Good morning. Thank you for joining us. My name's Phil Cusick. I cover the communications side of the telecom, technology, media and communications conference. This is the 46th Annual JPMorgan Telecom Media & Technology Conference. My name is Phil Cusick again. I follow the communications part. I'm excited to welcome back AT&T Chairman and CEO, Randall Stephenson. Randall has been Chairman and CEO since 2007 and with the company for 36 years. Randall, thanks for joining us.

Randall Stephenson

Thank you.

Philip Cusick

I think you have some housekeeping to do, and then we'll get into it.

Randall Stephenson

Yes. If you wouldn't mind, put the safe harbor statement up. Just point your attention to that. Some of my comments may have forward-looking comments and subject to risk and uncertainties. Results may differ materially. You can find further information on our website or SEC filings.

Question-and-Answer Session

Q - Philip Cusick

Okay. Well -- so let's start with a broad view. What are your priorities for the rest of the year?

Randall Stephenson

2018, my priorities from this moment forward is, first and foremost, get the Time Warner deal closed. And we are now at that place where the -- all of the arguing and explaining is done. It's now in the hands of Judge Leon, and he has committed to having a ruling in order out on June 12. And in that regard, we stand ready to close. We're ready to close the transaction, so we're all sitting and waiting for the final order. So that's, obviously, priority #1. And then priority #2 is just flow from that, doing the integration and getting the companies put together and integrated. And that's going to be a couple of year effort, as you might guess. On the heels of that and building off that is building a nationwide gigabit network and predominantly wireless-centric. And FirstNet, obviously, is the core of doing that. That was established as a must-win back in 2016. And so having won FirstNet, going out and deploying nationwide this capability. As we're deploying FirstNet, we're actually equipping every cell site for 2 things. First is 5G. So all of the technical work is being done at the cell site. So when 5G is out, we literally have a software upgrade to move to true 5G, but then also working our 5G evolution.

As we're on the cell site, we will be deploying all of the spectrum that we have in the portfolio now. And it's 60 megahertz of spectrum that we'll be deploying. But standing up a nationwide gigabit network is critical, and FirstNet being the core of that. Building off of that, third priority, obviously, is the streaming TV product, the next-generation TV product. And the first iteration, obviously, being DIRECTV NOW, which everybody is familiar with. We will be releasing today the next version of DIRECTV NOW. It's the next generation of DIRECTV NOW. And a lot of new functionality. User interface is a radical upgrade. It's a substantially improved user interface. Additional streams will now be available.

We allow two streams today. You can do three streams with this release later today. Cloud-based DVR will be a part and parcel to that. The key point of this is it begins to fill out a portfolio of video I'm sure you'll want to talk more about, but ensuring that we have a video product all the way down the spectrum or segmentation of our customer base from the very lowest-use customers with the $15 packages all the way up to the traditional DIRECTV and the streaming products all in between. The new DIRECTV NOW product, by the way, when we launch it, I got to tell you, we look at it, we think it is best-in-class in the industry now. We are priced at a discount. And so as we roll this new functionality out, $40 is kind of the price point in the marketplace. You'll see us begin to charge for the new functionality and move the price point up and move the profitability equation more in line with what you would expect. But the new TV streaming product is critical in standing that up, and today is a big part of that, the announcement today.

Working down that, as you bring premium content, massive distribution of content, wireless network capable of streaming video, 40 million pay TV customers, on top of this, standing up an advertising model. And we have done a lot of work here. We've hired some great talent to stand up our advertising platform. We'll probably talk more about this, but you'll see a lot of investment as we close Time Warner on standing up the advertising platform to basically do in the world of premium content what you see happening in the world of digital today. And so stand up the advertising product. The next is Mexico. This year, Mexico goes from being a boat anchor on profitability to actually moving to profitability, EBITDA positive as we exit this year. That creates some serious tailwind on earnings growth and earnings opportunity as we move out of '18 and into 2019. And then continuing the work on cost structure is kind of the last in terms of when you think about priorities. John Donovan and his team, with software-defined networking and all of the innovation and automation they've done, are doing an amazing job on cost structure. And I call it our big iron cost structure, the really big elements of our cost, network and IT. We're now several quarters consecutively of taking the cost structure in absolute terms down. It continues to trend down and is providing a lot of opportunity to compete in the marketplace. The same thing is happening on our customer sales and distribution, just seeing continued decreases in absolute dollars of costs. So those are kind of the big items that we'll be focused on the rest of this year.

Philip Cusick

So there's a lot to go into there, but what I keep trying to come back to is where do you want this company to really be? So 5 years from now, all this is integrated, what does the company look like? And what's the selling proposition?

Randall Stephenson

Look, our objective is straightforward. It's we want to transform how video is distributed, how video is monetized or paid for, how video is consumed and how video is created. So you bring Time Warner and you bring the big distribution business of AT&T together, how can you change, first of all, how video is distributed? And I commented on DIRECTV NOW, the new platform that's being released today, but it's really important to understand how we view video. And what we're doing with today's release and what we'll be doing over the rest of this year is ensuring that if you're today's DIRECTV customer and you're paying anywhere -- or $110 to $200 a month, there's a very important market of people who want that big bundle of content. They want access to that kind of bundle of content. It's everything from Sunday ticket to HBO and all the premium content, multiple streams into a household and so forth. That will be there, and it will be there for a long time, but the streaming development is going to give us the opportunity then to step down from there, and we will be launching in the fourth quarter off the DIRECTV NOW platform a premium streaming product.

And basically, what this is, is think about our traditional DIRECTV product at a much lower cost point, meaning you don't have satellites on roofs. You don't have truck rolls. In fact, to provision this, the only truck roll required is going to be a UPS truck to deliver a very thin piece of hardware that you plug into your TV and your broadband outlet. And once you've done that, you have the full DIRECTV experience over any broadband service that you might have in your home. So a premium video experience is going to be rather than $110 to $200, it's going to be in that $80 to $90 area because the cost structure comes way down. The subscriber acquisition costs are literally 1/4 of what you see today. It's just a very nominal subscriber acquisition cost. That lower cost gives us the ability to price at a much lower level to capture a different part of the market, and we actually do this. And it's looking like we can do this at margins comparable to what we've experienced in DIRECTV.

And with those margins and low capital requirements, returns on capital, we think, should actually go up on this product. So you hit that segment of the market with a premium streaming product, DIRECTV NOW sits then right below that, a more limited bundle of content to the customers, and this begins to be in that $40 to $60 price point with full cloud DVR and so forth. So a nice place for DIRECTV NOW to sit right in here. And then WatchTV is a product that as soon as Time Warner is closed, we'll be launching this. We've talked a little bit about this, but this is literally a $15 product. The content is a very skinny bundle. There is no sports. There are no local channels. This is pretty much entertainment and the Time Warner content. We obviously can't launch this until the Time Warner deal is closed. But all of a sudden, you now have a TV product at the lowest segment, midsegment, premium segment and then the big bundle DIRECTV.

And so now you can change how you're distributing video. There's video packets for everybody. You build a network to accommodate this. You want that. That is really core to what we're trying to accomplish. That's how it's distributed. How is it paid for? It's paid for with advertising. And as you look 3 to 5 years out, advertising becomes a significant part of this equation because think about what you're bringing together when you put these 2 businesses together. We will have a formidable inventory of advertising, and that advertising is that in the form of Turner. Turner has massive inventory of advertising. And then on DIRECTV NOW, U-verse, DIRECTV NOW, WatchTV, this low-end product, all of these are going to have significant advertising inventories. They have them today, and so you're going to have a really large inventory of advertising that you pair now with a formidable capability in terms of data and analytics. 159 million mobile subscribers, 400 million pay TV subscribers, all the DIRECTV NOW digital subscribers, HBO Go with 5 million subscribers.

There is a really significant amount of data in our distribution business. Pairing that data, the viewership insights, the location data with the premium inventory, ad inventory, we are actually very convicted that there's a sizable monetary opportunity. In fact, if you look at what we're doing just with our DIRECTV inventory, when you are a distributor and you do a deal with pick your premium content, CNN, you get 2 hours -- or pardon me, 2 minutes per hour of advertising inventory. We go out and we sell that in the marketplace today where we use our data. We're selling that at yields that are 3 to 5x what the average in the industry is, particularly as it relates to the content players. Can we take the Turner content up? We can't get it to that level. I'm not suggesting we can. But you can take it up significantly when you pair it with the data. And so how is content monetized? Advertising is going to be a critical element to this, and we're very motivated. We hired a guy, Brian Lesser. He has hired a team around him that are experts in the advertising industry, and they have stood up platforms themselves.

We hired him from WPP. He is sitting and idle, ready to go after we close the Time Warner transaction. This will require some investment. It will undoubtedly require some degree of M&A. It will take a bit of time, but the opportunity is significant. The intent is to change how content is consumed or viewed. It is streamed, all right? Content of the future from this moment forward, we're focused on streaming. It's not traditional linear distribution. It is streaming content on mobile devices, on smart TVs. Last week, Jeff Green at Trade Desk released his earnings, and he made a statement that it was -- that kind of stunned a lot of people in this industry. The results were blowout, and he said the amount of ad load delivered to smart TVs and smart devices was up 535% in the first quarter. That gives you an indication as to how fast the ad load is moving to premium video in these various forms. This is why this is so important for us to be a part of this. And then, obviously, as you think about how content is created, bringing the data insights to Warner Bros., to HBO, we just think it's going to have a fundamental impact on how they think about, how they do capital allocation around content creation. And so video is a critical element of all of this. And you go 3 to 5 years downstream, video is just a major platform play sitting on top of this gigabit network that we've talked about, and I'm happy to go more into the network elements if you wish. But that is kind of the view of what we're creating on the consumer side of the house.

Philip Cusick

Right. And you can see this transition happening from linear to over-the-top. I'm curious about the pace and how much of this pace you're driving yourself and how much is sort of being driven externally by the industry. And what surprised you here? The profitability of a linear business is tremendous. And at least so far, the profitability of over-the-top has been 0 or negative for most people. How is that being managed by AT&T? And where are we in that transition?

Randall Stephenson

It's interesting. As you watch this shift -- and I find it interesting that if you look at our pay TV base -- subscriber base, it has been remarkably stable. I mean, it's been 25 million subscribers for the last 3 or 4 years. But to your point, there's a shift away from traditional linear to over-the-top DIRECTV NOW. And as we stand up these premium streaming services, we expect more and more to be in the area of streaming. So obviously, the focus is how do you shore up the profitability of the streaming products? And we actually have a lot of conviction that the profitability side of the equational streaming is going to be good, much lower capital requirements. That's the beauty of it. Traditional linear, you have big set-top boxes, multiples of them going into each home. You're rolling trucks to do installations and so forth. The new products are -- I mean, there are no upfront costs. There are some, but there are limited upfront costs. And so as you get this pricing right up and down the spectrum, you have the ability to now take the streaming product to some nice profitability levels over the next couple of years. And again, as we exit this year, these segmentations of the videos base will be in place.

So DIRECTV NOW, it's priced $30 to $35 today. It is a premium service. The market's at $40. As these new functionalities rolled out, we expect to charge for that, and so the price points on the DIRECTV NOW will be moving up. That will shore up profitability. The premium product, $80 to $90 with limited subscriber acquisition cost, that should be a fairly profitable product. It should be a nice -- have nice profitability around it with low capital costs. And actually at the low end, it's interesting. $15, how can you make money at that? It's a very skinny bundle, and we're beginning to change the model in terms of how we pay for content down at that end of the market, meaning the compensation to content providers will be a function of how it is engaged. Does the customer engage in the content? That is when you pay for the content. And so you're changing the model for how you pay for content, the ability to charge for additional streams, all of these work together to bring the profitability of video over all up over the next couple of years, and we exit this year with all of this in place.

Philip Cusick

And can we think about that before advertising and advertising is on top of that? Or advertising is an integral part of having profitable video over-the-top?

Randall Stephenson

Advertising is in addition to this. And so when you think of industry averages for content players getting $7 to $8 per CPM of advertising. And our experience is when we use the data to pair with the advertising inventory like on DIRECTV and you get very targeted on advertising, those areas where you have the ability to get very targeted, you're getting $30 to $33 per CPM. And so that's why keeping this subscriber -- video subscriber base stable and growing, we'd like to exit this year with a subscriber base growing, and we did that in the first quarter. I think we can be -- second quarter is always seasonally low, but it'll be stable in the second quarter, then grow the rest of the year. It's critical for driving these advertising revenues. So advertising is additive to that. And especially if you can with advertising, with some M&A, stand up a full programmatic ability for advertisers to engage with our products. And what I mean by that is if you're an advertiser and there's a supply over here of whether it's CNN advertising or ESPN or whatnot, if an advertiser can come in and programmatically, meaning without a lot of hands involved, a lot of people involved, design a campaign around premium video, design a campaign, launch a campaign, measure a campaign, get feedback on a campaign and then manage the campaign on their own, this is really significant. And this is taking to the world of premium video what Facebook and Google have done so expertly in the world of digital. And so that's what the objective is on advertising.

Philip Cusick

You've warned us twice in the last few months about M&A. Is this something that's sort of capabilities driven and is relatively small deal? Or do you think it's something bigger?

Randall Stephenson

Well, it's not a warning.

Philip Cusick

Okay. It's what it sounds like.

Randall Stephenson

No, it's not. It's not a warning. It's -- we're going to stand the platform up. And Bryan Lesser and his team have a very clear charge that is stand up this platform. These platforms, it's not -- there's not a new rocket science here. It can be developed, and it can be created on our own. The time-to-market's really important here. And this industry is moving really, really fast. We've been delayed 18 months by a lawsuit, and we're pulling this together. And we've been literally in standdown mode waiting for the lawsuit to wind its way to the courts. Once the lawsuit is done and assuming we get the answer that we want, we will launch. Time-to-market is critical here, and time-to-market means stand up the platforms quick. And M&A can obviously accelerate how you do this. So we'll be active in that area to try to help move faster into the marketplace and then get time-to-market thresholds down.

Philip Cusick

Okay. So as we go back to that profitability weakness in entertainment that was accelerated this quarter. As the new products come through, the new pricing comes through, should we think that we're nearing the sort of worst of that and starting to get through it?

Randall Stephenson

Yes, 2017 was an interesting year in video. We have had, since the day we acquired DIRECTV, an expectation that traditional linear video would decline, and we had our expectations on what that decline look like. We had ranges around it. 2017 took a precipitous drop. I mean, it dropped. And so with the drop, though, it's now back on the decline pace that we were anticipating. And so we had a -- 2017 was just kind of interesting that you just had this precipitous drop, and now you're back on kind of the pace. You're at a lower level, but you're back at the pace that we were expecting from the very beginning. And so the shift from traditional to over-the-top was much greater than we expected. But now we're kind of back where we expected, and so the objective is shore up the profitability on the streaming. That's how you keep the equation in check. So to answer your question, yes, I think 2018 is probably going to be the worst of it. And as we stand up the new capabilities, ARPUs are higher, returns on capital are higher, we should see better going forward.

Philip Cusick

Okay, makes sense. You mentioned maintaining that video base is important for advertising. How does maintaining the wireless base play into the same thing?

Randall Stephenson

It's critical. The whole thesis around Time Warner is having premium content and driving value into a premium content acquisition by virtue of having a really large base of subscribers and a big distribution engine, namely, our wireless business. And so keeping the wireless subscriber base in check and growing it is critical. And then we came out of Q3, and after a lot of turmoil in the marketplace over the last few years, we went through 2017. We came out of Q3 at record-low churn levels. We had margins that were 50% service EBITDA margins. And we said, "Okay, it's time now to move back into the marketplace and aggressively move on shoring up the subscriber base and now growing." And fourth quarter, had a respectable quarter. And then first quarter, we continued to invest here. So we're investing some of the margins -- 50% service EBITDA margins back into the business. And in addition, first quarter, we had some rather sizable benefits from tax reform. We said we're going to use some of this to invest in the customer base as well.

So we've been investing fourth and first quarter in promotional activities and keeping the subscriber base growing. What we're expecting is as we get to second quarter, the move that was made last year to unlimited pricing, we lapped that in second quarter. And so service revenues, which have been in decline, but actually the declines have continued to improve, second quarter, those get to roughly flat. Hopefully, we can get them to flat. Third and fourth quarter service revenues are growing again. And so that becomes a tailwind for the mobile subscriber -- for the mobile business, and so keep subscribers growing. We should grow postpaid phone subscribers this year. The prepaid business is doing really, really well. Happy with it, and so feel pretty good about the back part of this year and how the wireless business is set up.

Philip Cusick

As you see cable coming into the wireless base, do you think that impacts the sort of pace of healing in neither other revenue or subscribers?

Randall Stephenson

No. I mean, look, they're going to come, and they're -- we expect them to invest heavily in this, the cable guys, in terms of wireless. They're being very targeted, being very smart. You think about if I were them, what would I do, it'd probably look a lot like what they're doing. If you don't own a wireless business, how would you go at this? And so everybody in this industry has, at one time or another, done MVNO-type arrangements and moved into the wireless business without owners economics. In the world of streaming video, that becomes even more challenging, and so their approach to the market is rational. It makes sense. So far, it's been very targeted. And the dilemma by folks doing MVNO arrangements is the faster you scale, you don't get to a place where it becomes more profitable. It probably just becomes more dilutive for periods of time. So it's just an interesting situation, but I get what they're doing. It makes sense, but it's going to be a challenging road.

Philip Cusick

Because otherwise, the level of competitiveness in the industry seems fairly benign lately. Is that what you...

Randall Stephenson

I don't think I would characterize it as benign. I see a pink T-shirt out there. They're anything but benign. And so it's -- benign is not a term I would ever use. It's just darn competitive, and people are kind of -- the industry is kind of settling in, you're seeing a lot of guerrilla warfare and so forth in terms of the competitive environment. But it's still very, very competitive.

Philip Cusick

Okay. And do you anticipate using more of the tax reform to drive subs? Is it -- with tax reform, you have a much bigger sort of post-tax margin. Does it make sense to keep driving subs a little bit harder through the year? Or is first quarter a bit of an anomaly?

Randall Stephenson

Fourth and first quarter were probably as heavy as you would expect. You're starting to see the marketing become far more targeted by market, and that's a far more efficient way of marketing. It's far more effective way of marketing. But you'll also see far more extensive use post-Time Warner of video and using video as a key differentiator in the marketplace and driving share by virtue of integrating video and different experiences with video. And so integrating across the product set is really important to us. And as you see in Chicago, pairing with broadband, your wireless broadband, having success there in New York, it's pairing your wireless with aggressive promotions around DIRECTV NOW. In L.A., it's a very different market, and so using promotional aspects, BOGOs and so forth to the iPhone X. And so those are the kind of approaches you'll see.

Philip Cusick

Okay. You mentioned FirstNet. Let's dig back into that a little bit. And I think people don't -- there's a lot about 5G. I get a ton of questions about 5G, but I think people don't understand the different carriers have different strategies and depending on your assets, will really drive your 5G strategy. So how does FirstNet really work its way into 5G as well for you?

Randall Stephenson

Yes. To your point, we can't talk about FirstNet without talking about our fiber deployment without talking about our 5G deployment. They all go hand in hand and without talking about carrier aggregation and standing up all the spectrum in our portfolio because here's what happens. When we won the FirstNet bid, we were given a charge by the U.S. government to extend our network, to densify our network, more cell site coverage throughout rural America to harden our network, meaning making it resilient in storms and so forth, especially in the hurricane corridor, the earthquake corridors and so forth, the tornado corridors, harden the network. And so the government is compensating us to go and do this to our network. And they also -- we were awarded a very long license on 20 megahertz of very rich spectrum, 700 megahertz spectrum, that we have to put to use as we're going out and deploying this network technology. That means we have to climb every cell site to deploy the FirstNet architecture.

As we're climbing every single cell site, putting up somebody on every single tower, we will be, by virtue of carrier aggregation, standing up all of the spectrum in our portfolio. We now have, with FirstNet, 60 megahertz of fallow spectrum. As people are up on the tower, we'll be launching the carriers to stand up all of that spectrum put [Technical Difficulty] all of that as you're climbing these cell sites. As we exit this year, we will have 500 markets with that full capability in place, where our LTE speeds will double, literally double, coming out of this year in 500 markets. Now take that across the entire footprint. Before you've even gotten to 5G, you have now doubled your LTE's performance by virtue of the FirstNet deployment. Also, while you are on every single cell site because of FirstNet, we will be equipping every single cell site for 5G. So that when 5G is ready to roll, the technology is ready and standards-based 5G deployment. What will be required from us is a software upgrade. We don't have to go back and touch cell sites. So we're going to touch the cell sites onetime to deploy FirstNet, to deploy LTE evolution and to deploy 5G. And so you put all this together, it's a very robust plan over the next 2 to 3 years to put all this in place, and all of it rolls together. And so you pick your head up at the end of 3 years, and our objective, quite literally, is to have the best-performing network not only in the U.S. But if you set the standard in the U.S., you set the standard in the world. That's our ambition at the end of 3 years.

Philip Cusick

And we've been hearing about FirstNet for, I don't know, 6 or 7 years. You got awarded a year ago -- or not even a year ago. Are you still in planning process? Or is it now sort of go?

Randall Stephenson

No, we're in deployment mode. All the cell site work that I discussed is being done. People are out literally doing that work right now. We had to stand up a core, meaning an IP backbone, a backbone for the FirstNet network that is dedicated to the first responder community. So there is a core routing infrastructure in place, stood up, totally independent from our traditional basic core routing structure infrastructure just for the first responders. Why is that important? Because with this core routing infrastructure, you now have capabilities of new services for the first responders. But specifically, we call it ruthless preemption. If there is a bad event, if there is a major hurricane, if there is a major event of something -- a man-made event of some kind, then the ability to literally ensure first responders have first access to the network, no congestion, no disruption, that is now in place. As a result, we're starting to put subscribers on. We have added customers from 650 agencies across 48 states in the United States already onto the mobile network because the core has stood up. We're marketing and promoting, and we have salespeople on the ground. And we're actually selling and actively in the marketplace on this today.

Philip Cusick

And are these devices that are coming off of like a legacy Motorola radio? Or are they coming off of your competitors?

Randall Stephenson

Some of both. The Motorola will have to work with our first responder community. It's on a transition off the LMRS. That's a very stable, resilient infrastructure, and then they like that. But putting the data capability and ruthless preemption and so forth will require a different handset. And so you'll see us seeding different handsets throughout the country in the first responder community over the next year or 2, but it will be a mix of all of these. Not -- interestingly enough, all of these first responder communities and agencies, they contract differently, and all of them have different needs and different use cases and so forth. So no 2 agencies will be exactly the same. But that's one thing we love about this. We're way underindexed in terms of market share in the first responder community, and so this is an all upside opportunity for AT&T. It's a really significant opportunity. So that we can garner the first responder community, number one; and then family of first responder community, number two, the ability to literally market to the family of first responders. And so this is going better than we hoped. The deployment is going really, really well. We are on plan. We are on target. We'd like to accelerate it and go faster if possible. There's just a lot of hands in the plant kind of activities involved in doing this, but the marketing is going quite well also.

Philip Cusick

Okay. The other side of 5G is the sort of IoT future devices national competitiveness side that the administration is focused on. As you look out in your deployment, how do you think about the United States and 5G? How is AT&T working toward this? And what can the administration do to help sort of drive this along?

Randall Stephenson

Well, you look around the globe in terms of 5G deployment, the U.S., first of all, led the world in terms of developing the standards around 5G. And from our standpoint, that's always step 1, get the standards right and get the standards right in terms of ensuring security and safety of U.S. networks and ensuring the ability to mass produce and commercialize the technology. So the standards work was done coming out of last year. That's really an important variable to this. Standard work is done. We're now -- equipment manufacturers are going, handsets, everybody's getting ready, getting the millimeter wave spectrum in place because getting to 5G -- we can deploy the 5G technology. That will be great, but getting to the true gigabit throughputs that we're all talking about for all the applications you discussed is going to involve deploying this over millimeter wave spectrum. And we, AT&T, acquired FiberTower last year. And that was really important because it gave us a nationwide, really large block of 39 gigahertz spectrum, very deep portfolio of 39 gigahertz spectrum. And getting to the true GB speeds requires it to be deployed at that level, small cell deployments.

These are cells that are every 200 meters, not every mile or 2. And so what can the U.S. government do? The U.S. government can help in terms of permitting and licensing, helping get the municipalities and so forth cooperating to deploy this. Because at the end of the day, the difficult part of this is deploying hundreds of thousands of small cells, and the permitting municipality by municipality is going to be what takes the most time. It's the long pole in the tent. But in terms of what does USD do, where is the U.S., the U.S. will lead this charge. Verizon is investing heavily here. AT&T, we're investing $25 billion -- somewhere in the order of $25 billion this year to deploy this kind of technology. Obviously, we see T-Mobile and Sprint have ambitions, and they're using the merger as kind of their launching pad for doing it. But at the end of the day, just kind of make sure -- tax reform is a big piece of it, by the way. It freed up a lot of capital for this kind of deployment. And so I do think it's important that the U.S. leads here. But so far, the U.S. is leading. Leading in terms of standards development, leading in terms of deployment. And so now what can we do to accelerate? It's an infrastructure thing right now. It's not some kind of new rocket science. It's infrastructure building, and so what can we do to facilitate that.

Philip Cusick

All right. Lightning round. We're out of time, but I want you to just take a quick last message. Your stock's above a 6% yield for the first time sustainably that I remember, and investors are freaked out by the profitability drop in the first quarter. How do you think again about the pace of the business? And what's your comfort with that dividend over the next few years?

Randall Stephenson

Comfort of the dividend? We came into this year and committed that we would do somewhere in the order of $21 billion of free cash flow. That's before Time Warner. And so yes, we took the drop on video in 2017. The cost structure work that Donovan and team are doing, it's a profitability equation. That's not what keeps me awake at night. It's how do you work this transition of the products from the traditional linear to the stream products. But we are still committed to $21 billion range of free cash flow for the year. We also -- if you close Time Warner, the $21 billion goes up by order of magnitude. To make your own forecast, I have no better intelligence than you on what that is for the rest of the year, but $23 billion, $24 billion of free cash flow. We had 3 or 4 years ago -- 4 or 5 years ago as a result of a lot of the investments we had made in acquisitions, the dividend payout had moved up to a level that, candidly, I wasn't comfortable with. So we have been on an aggressive effort to work the dividend payout ratio down. Mission accomplished.

We're at now a level in terms of dividend payout ratio that I'm very, very comfortable with. And with Time Warner, it goes down even lower. In fact, it gets to levels we haven't seen in a long time with Time Warner. So any concerns with the dividend, I kind of set those aside. The ability to finance the dividend is terrific. With Time Warner, we will lever up to acquire Time Warner. Our debt-to-EBITDA ratio gets up to levels that you'd like to get worked down. By the first year after Time Warner closes, we'll be down to 2.5x EBITDA -- debt-to-EBITDA. Within 4 years, back to our historical levels. So the financial profile of the business is good. Shoring up the video profitability, we feel really good about that. Good line of sight to doing that. Cash flows continue to be strong and feel really good about where the business is.

Philip Cusick

Good. Thanks, Randall.

Randall Stephenson

Thank you, Phil.

Philip Cusick

Thank you.

Randall Stephenson

Appreciate it. Thank you.