AT&T Inc. (T) Presents at Citi 2019 Global TMT West Conference (Transcript)

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About: AT&T Inc. (T)
by: SA Transcripts
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AT&T Inc. (NYSE:T) Citi 2019 Global TMT West Conference Call January 9, 2019 12:30 PM ET

Company Participants

John Stephens - Senior Executive Vice President and Chief Financial Officer

Conference Call Participants

Michael Rollins - Citigroup

Michael Rollins

[Starts Abruptly] disclosures at the registration desk. And for those joining us via the webcast, I'm Mike Rollins, and I cover telecom and communications infrastructure category for Citi Research.

It's a pleasure to welcome as our next keynote discussion, John Stephens, CFO of AT&T. John, thank you very much for joining us today.

John Stephens

Thank you for having me. And thanks, everybody, here in the room and on the Web. If I can start off with our Safe Harbor just really quick, today’s discussions may include forward-looking statements that have risks and uncertainty. We’d ask you to refer to our SEC filings and information on our website. And with that, I’ll turn it back over to you and thank you for having me here.

Michael Rollins

Well, thank you. So, just to get us kicked off, we’re now in the new year, so maybe you can talk about the priorities for the operations and the underlying strategy for AT&T.

John Stephens

Sounds great. And we did welcome in 2019, feel good about where we’re going. First and foremost, we’re going to generate a lot of cash, free cash flow, $26 billion. Free cash flow after dividends, $12 billion. And we’re expecting to monetize a whole collection of assets in that $6 billion to $8 billion range. That'll give us the cash capabilities to pay down debt.

If you will, from overall company perspective and from what we’re focused on, at Randall and his team, we’re going to get those things done.

Secondly, if you look at wireless, we’re enjoying a good, solid wireless performance. You saw in the third quarter wireless service revenue growth. You saw EBITDA growth. We feel good about that business and look forward to better things to come, particularly as we put into this service a whole lot more spectrum, and we continue to build on the momentum from our FirstNet. So, feel good about that.

Entertainment is going to be a driver to stabilize margins, to stabilize EBITDA, I should say. We’ve got a plan in place to do that. We feel good about that and feel good about being able to provide the video products that our customers want.

You’ll see us look towards integrating Warner Media. It’s been a great asset. Team’s performing well. “Aquaman” is my new favorite movie. But “A Star Is Born” and “The Mule”, and the whole collection of other things, even the “Kominsky Report” was a Warner Bros. produced television show even though somebody else got credit for showing it.

So, I’d just tell you that we’re thrilled with Warner Media’s performance, and we’re looking forward to the opportunity to integrate that. We had an announcement today on our advertising business that talks about one of those steps that we’re going through. So, we feel really good about that.

We need to keep slogging it out in the wireless business segment. The team there has been doing a good job in cutting costs and maintaining EBITDA contribution in a tough environment. They are leading on first, I have to say absolutely, but they're also doing a really great job. We’ll continue that.

And then, we need to keep slugging it out in Vrio and continue to generate simple free cash flow as well as get Mexico to EBITDA positive, which is clearly our goal.

So, those are – that’s kind of probably a little bit long answer, but on the topside we’re going to generate a lot of cash, pay down some debt. And on the business side, as I said, we’re at a good spot with wireless growing, with a plan to improve Entertainment, with a wonderful asset in Warner Media, and really good opportunities in business and internationally.

Michael Rollins

So, you mentioned – we’ll start with the wireless business and the return to revenue growth, and talk about the durability and the opportunities to grow revenues in 2019 within the wireless business.

John Stephens

So, getting to that wireless service revenue growth was a real inflection point. We actually hit it slightly in the second quarter, but in the third quarter, we saw in that 3% range. That's a very solid number. We’ve done new product offerings. We’ve bundled things to push – to encourage customers get to unlimited and higher priced and premium bundles. We’re going to create growth in prepaid.

And then, as we roll out the new network and 5G opportunities, we see real opportunities for revenue growth. So, it's real. We’re optimistic about it, not talking about any fourth-quarter results today. So, I don't want to – I'm going to make sure that’s clear I don't have anything to preannounce, but feel really good about it, as we said in our analyst conference about the opportunity to grow service revenues on a going forward basis, so that's a real important piece of it as well as if you see what’s happened with our prepaid customer accounts, if you see what’s happened with our other things. If you know what's happening with – it’s really a dramatic improvement in the coverage quality, speeds, and this evolution of our network as well as the fact that we now have 5G up and running in 12 markets, heading towards near 20 by the end of – early this year. So, we’re working really well. That gives me all the optimism about wireless.

Competitive environment is still there. We’ll continue to slug it out, looking for a – hopeful for rational competition as we go forward.

Michael Rollins

Investors ask in response to the recent wireless performance, what about cable MVNOs in 2019 and the risk that they take more share. What about just the risks related to – if a Sprint/T-Mo deal happens or doesn't happen, do you have some thoughts on just how you would frame those issues in the context of the wireless growth opportunities?

John Stephens

I would say, on the MVNO deals, we’ve had that already, right? The cable guys have added customers, and we turned in the second quarter to growth and in the third quarter to 3% service revenue growth. So, we are doing it while that is part of the impact. And, remember, they don't have networks, so they are still using someone to carry their signals and to carry their traffic. So, maybe not the retail, maybe wholesale revenues.

But my point is that, yes, it's there. Don't mean to begrudge them or that at all, but we are growing with that happening already, particularly at that standpoint.

On transactional aspects or structural aspects in the industry, as I’ve said this, we’re all ready to compete no matter what happens. We feel like with the assets we have, with the spectrum we have, with the rollout plan we have really generated in part by FirstNet and that momentum, we feel very good about how we can compete today.

And then, if you look at the fact that we really do have a significant lead in what we’re doing with regard to 5G rollout in the market, testing with automated factories, working with augmented and virtual reality that we've already done, what we do in the IoT industry today whether it be in autos or industrials as those opportunities – may not be in 2019 for significant revenues, but as those opportunities, they were really the ones we believe best positioned to work with our customers to provide those solutions. That's why the wireline business is so important that they continue to serve all of those customers who will need that business IoT solution, and we’re positioned to do that better than anybody.

Michael Rollins

And as it relates to 5G, you've also launched the 5GE network, 5G Evolution, and how should investors think about AT&T's interest to monetize that as a brand or as an opportunity to change the dynamics for the customer?

John Stephens

So, that 5G Evolution is a real today event. Right. We are getting carrier aggregation out there. We are getting 256 QAM. We are getting more spectrum out . It's happening today and it's happening in our core network, and when you see that symbol show up on your phone, you're getting that quality right now. So, this is part of that process of evolving into a full 5G, but it's real. It goes to quality service, it goes to capabilities for our customers. That should impact our ability to retain customers. That should impact our ability to add to existing customer accounts. That should add to our ability to gain customers.

It is also being done when we’re expanding our footprint extensively because of the FirstNet coverage. So, we’re going into, if you will, greenfields where we haven't sold before, not only in greenfield markets like the first responder market, but in greenfield geography. And so, that's an important part.

The other piece from just kind of a network guy’s perspective, and I'm not a network guy, but I think my network guys would say, John, it’s also part of this evolution because as we build our FirstNet, we’re doing everything we can with our truck roll not only to put the spectrum in place, but to put the equipment in place and the capabilities in place that when 5G is ready for mass deployment, it's a software upgrade, so it's part of this conversion of network function virtualization, it is part of that turning our network more into a software-focused capabilities for upgrades.

So, this is part of that evolution to 5G, because we’re doing all that work today even though 5G is available in 12 of our markets, this will allow us to get to full implementation of 5G in the future on a very capital efficient basis.

So, it's real. It's helping our customers today. It will help – I would hope – I would expect it will impact churn. I expect it will impact our ability to attract customers in markets we participate today, but it will also help us attract customers in greenfield geography markets, and greenfield, if you will, customer category markets. So, it's real important and we love what's going on with the network, combining our spectrum purchases, our FirstNet commitments, and our network build is really going to be a long-term winner for us and our customers particularly. But when you do that, that is for your shareholders.

Michael Rollins

So, to round out the conversation on the wireless side, AT&T has had considerable experience bundling in video content with wireless over the last couple of years. And so, can you talk to us about how the inclusion of video content has impacted the mobile business and what do you see from the different metrics, whether it's the gross adds, the churn, the ARPU? How should investors think about this bundle going forward?

John Stephens

Yeah. The reality of it’s, this is in a bundle. When you talk about fiber, when you talk about broadband, or when you talk about mobile, when you talk about video or highest LTV, highest lifetime value customers, our lowest churn, our most valuable, we measure that. We pay a lot of attention to that. And so, it goes to that strategy of having this video available for us, having more fiber out there and it continually focuses on the best quality network we can provide on the mobile. So, that aspect of it, we manage and we pay attention to and it's real and it's the highest value.

Going forward, I think you will continue to see us take advantage of things like AT&T Watch where a key component of that is the Warner Media asset and the ability to provide on an owners’ economics, an additional distribution point for them, but also an additional traction point for wireless customers, and a way to keep it. And possibly maybe getting into customers that we can increase our share of depending upon the demographics and the age groups.

I think if you think about wireless with HBO and what we are offering today with regard to some of the premium customers on the premium wireless offerings, unlimited offerings and so forth and being able to provide an HBO connection to them, that's high quality asset incentive.

So, we believe in this. We see it working, and we’re going to continue to focus on it. When you ask me about how does the beancounters, so to speak, value, we look at the impacts of churn that we see with the triple play, we look at the impacts of long-term valuation, particularly on total revenues, and with this unique set of assets, i.e. this really high-quality Warner Media capabilities, we believe that this is something that will serve us well in a long time.

Michael Rollins

You’ve had a chance since announcing the goal to generate $10 billion of EBITDA in the entertainment group to get out, talk to investors. If you think about those conversations, what are some of the additional details that everyone should be keeping in mind in the ways that AT&T can improve profitability for the entertainment group?

John Stephens

I think it's really watching us do what we’re doing. I think there's a general understanding that when you're going to be much more thoughtful about promotional pricing, which means you're going to get away from two-year price locks, for example, and you’re going to have normal pricing increases on the traditional video side, I think people have a – can understand and can put the math to it.

And when they think about not only the changes we made in some of those two-year price locks this year, but the fact that there will be a full-year impact next year for the ones that we had done even before our November conference.

So, I think there's an acceptance of that. It's a, okay now, let’s see and follow through with it, kind of regular, modest pricing with regard to the content cost increases in covering those.

When I think about the OTT, I think it's – what you’re seeing is – I think we’ve proven, kind of move away from the very promotional. I think last year, about this time, we had about a third of our customer base on kind of three-month promotions in the half a million customer range. We stopped doing three-month promotions for 10 bucks.

So, you have a risk of those customers choosing not to renew or you have the hopes of those customers buying up and getting a full package. But either way, you significantly improve your profitability by moving away from that intensely promotional environment.

You've seen us do that. I think we just need to – there will be impacts there. There will be customer account impacts of that, but there's going to be profitability. We’re certainly focused on that profitability piece.

I think as we continue to roll out broadband and we continue to see a movement towards fiber-based customers and that ARPU growth, and then as you watch us continue to be pretty relentless on cost management – those can include a whole host of things. And I think you’ve seen a lot of that from us.

But, for us, those four things, showing you what we said we were going to do is really, I think, the key. I don't know that there's any surprises in the sense of doing it. It's just a matter of putting into action what we’ve talked about and we believe we can do that.

Michael Rollins

And how do you view the opportunity to extend the cost-cutting that you're doing beyond 2019 and into future years?

John Stephens

Well, you can imagine how the finance guys of the team and the leadership team feels about that opportunity, the management, that we want to continue on that, but we’re going to stay focused on making predictions on the commitments we've already made and we’re committed to getting EBITDA. In fact, next year, we believe we can do that.

Certainly, the momentum that these things provides and this collection of assets, that we have this data, we know what people want, we know what they watch, we know how to sculpt, we can continue to increase advertising revenues because we have this information because of the development of products and services out of Xander, because we can continue to make those improvements, certainly, we’re optimistic about a longer-term basis and really believe in it.

But from a – kind of like in the same light of fourth-quarter activity, we’re not going to make any – I'm not going to make preannouncements on that today. But you can tell this from my – tell from my voice and my body language, I'm really excited about the opportunity that we can continue to do really good things.

Michael Rollins

And how does AT&T look at this bigger transition from a satellite-based video product to an Internet-based video product?

John Stephens

I think we look at it primarily from a customer focus. How do to the customers want them and where and what's the best way to deliver it on a cost-efficient basis for them – for us and for them in the sense of [indiscernible] pricing.

So, in those situations where there is ample capabilities to provide it on a streaming basis, that would be great and it has a lower subscriber acquisition cost and continues to provide the same value. So, it's really an efficiency for us and a convenience. You have to wait until somebody comes to your house and put up a satellite dish. You can just plug in, self-install the box. That’s a great thing.

From a traditional linear provider, someone like me has a home in a location where it's much easier, much better, much higher quality and doesn't absorb speeds on alternative broadband solutions to have the satellite, we’ll continue to have that. Geographically, that will demand a lot of that.

If you think about people who look at things differently and say, you know what, I want to streamline package. I've got the linear package, the full boat, when I might have – I have the streaming package. Let us just deliver the full package. Just deliver it in a different way.

And then, there’s an over-the-top solution that maybe streamline. Much more directed towards the content that people want to watch and at a much more pragmatic profitability for all concerned, lower price for customers, but a sustainable product offering that can be supported.

And then, there will be the kind of AT&T Watch, the really skinny package that we’ll have that will be a much less expensive, but solves some people's needs. We’ll continue to see those four things drive our business offerings and drive that part of the business.

Michael Rollins

How important is exclusive content in these packages? And as you look at bending the cost curve for content, does that include opportunities and deals that you have, for example, with the NFL?

John Stephens

Yeah. So, I’ll say it this way. We continue to look and measure. We have that data. So, we can continue to measure and make determinations on that. I'll say it a different way. I think when you're Warner Media, is one of your companies – and they've been a studio for well over, like, 70, 80 years, and they've got this treasure trove of quality content that's been built up over decades and decades. “Aquaman” and “A Star is Born” isn't their first hits, right? They’ve been doing this forever. You're in a different spot than other people that we’re trying to compete with. They have made that investment in high quality content capabilities. It's just now put it to use. So, you have a different view maybe than others who don't have that history, don't have that library, that inventory of the highest quality.

So, we’ll work through that and we’ll make those measured, thoughtful business decisions as we go through this. But I really – when we talk about – Warner Media is a wonderful company. We've been very direct in the third quarter about how much accretion it added. You've seen the success they've had in the fourth quarter. It's a great business. It’s a good people, good management team. And as such, we feel very – that we prefer the right strategy, in the sense that getting that content capability that takes us in a different spot than many of the other folks when you talk about exclusive content.

Michael Rollins

And so, that brings us to the question of just the overall philosophy on how to manage Warner Media and how you see the opportunities to grow that business over time.

John Stephens

Yeah. And I just – since I kind of said, certainly, the ability to take advantage, utilize their treasure trove of IP properties is really important. I think that's key. HBO is still just the highest-quality brand, recognized name, wonderful property, and has already provided this benefit in our wireless business that we need to think about how we can do more of that.

Turner, I think we had an announcement today where we’re now taking our Xander data and information that’s starting in a really – delivering that data, so that Turner is going to have the capabilities to utilize that, maximizing their advertising revenues.

So, all of those kinds of things are going on, as well as the normal kind of headquarters, supply chain and some of those other things. I will tell you, those things are all really exciting and we’re just – we are getting started. They are happening, but we’ve got more to do.

With that being said, Warner Media is a division, business. They've got their team. John Stankey is going to run it. Kevin is out there running the studios, as he always is. Richard Plepler is running HBO. We've got to – we recognize the fact that there's a lot of really great talent there that we need to work with.

And I can tell you, personally, I've been thrilled with getting to the other folks and how culturally consistent we are. And so, we’ll continue to manage kind of as a standalone operational aspect. Not too different than maybe was managed by the prior owners. And we’ll continue to work towards integrating it to take care of the value and to really give a different opportunity for Warner Media to value their assets.

Michael Rollins

And on the broadband business, maybe shifting gears for a moment, so AT&T has a goal to pass 14 million homes with fiber. What’s the incremental subscription and revenue opportunity as you complete that build? And then, what do you view as the competitive standing for the other homes? I think it's about 45 million locations. They're fed with a combination of copper, fiber to the node, and what happens in that portion of the portfolio over time?

John Stephens

Yeah. So, first and foremost, what we’re seeing is, we’ve been growing fiber, but it's been the key to getting our broadband to growth or stabilizing the DSL and some of the legacies that we had challenges with. And we’ll continue to see some of that. That's okay. That’s a good thing. If you’ve seen recently, you've seen our ARPU go up, and that's because we have the ability to higher offers – higher speeds and higher quality. And we’d expect that to continue. But as I mentioned earlier in the discussion, having this fiber gives that quality product, to allow us bundling the video and mobility to really be that linchpin to the long-term value maximization for each and every customer we get on.

So, what I would suggest you'll see is we’ll continue to push our – transition our customers on to fiber and attract new customers. We’ll get to that 14 million because we made a commitment and – 12.5 million commitment in specific areas, and we’ll get there. That leads us to the 14 in July of next year. And then, we’ll make decisions on how we’re building out and whether there's additional ones to pass.

So, I can see us doing more. We’re not committing to that, but it's just normal as you build out further fiber to do back haul and you pass houses. Why not do that at the same time, very efficient. You've been doing fiber for your core business, wireline business, why not cover other areas? All those kinds of things.

Secondly, I think you'll see – and so, we’ll migrate out to additional areas. Secondly, I think you'll see, as this high-speed wireless network – and with us, it’s 5G Evolution, which is reality in many locations today, and will be 5G as it gets fully rolled out, you'll see there's some customers, as there are today who will use their phone as their major computer source or their major connectivity source. Economically, that's the case. It’s why we added a prepaid. It's a different slice of the customer base. And you will see them use that.

And then, in between, there will be those decision points for us to make on investment, on what customers want, what they need, what's the best way to serve them, and we’ll listen to customer demands on that. We’ll have that capability because we have the owners’ economics over on these assets to do this efficiently.

I will tell you, though, the one thing with all of that wireless is, as you all know, at the end of the day, getting it back on to fiber and on to the spectral world is really important and we, clearly, have a huge advantage because of our legacy with regard to that ability to utilize it. And once again, it’s kind of where our business wireline comes in as a benefit to the whole rest of the business because we have a lot of that big fiber, big pipes because of serving those big high-end corporate customers.

Michael Rollins

Let's shift gears to the survey for a few moments, if we could. We’ll pull up the first question. You have remote controls in front of you. How do you view AT&T's vertically integrated assets for future revenue and cash flow growth? The choices are: net positive, neutral or net negative. And, John, if you like, you're welcome to vote too.

John Stephens

I think I'm going to weigh here too. We’ll listen to how everybody else says. You guys’ opinions are going to be more important than mine. I've already spoken on the issue, right?

Michael Rollins

So, just take a moment to collect the feedback. So, for those joining us via the webcast, 32%, net positive; 38%, neutral; 29%, net negative.

So, John, as you've been operating the portfolio in a variety of different vertically integrated fashions over the last few years, what do you think gets missed the most in terms of the benefits of the portfolio that you put together?

John Stephens

Everybody's got their own flavors on. I think the issue is that we have had so much change going on that, while we’re getting real benefits and real good results with customers, with utilization of assets, there's been – we have had a lot of activity because of that. I think as we go through 2019, we’ll have much better opportunity on a consistent asset basis and, hopefully, a more consistent economic and marketplace perspective to show these benefits. We truly believe that will happen.

But I think that's more – there’s just been so much change going on.

Michael Rollins

We’ll go to the second question. Can AT&T sustainably generate annual EBITDA of $10 billion in the entertainment group? So, the choices are: yes for one to two years; yes for three to five years; no only for 2019; no, I expect less than $10 billion in 2019. And we’ll go to the polls.

Again, for those joining us via the webcast, 20% say yes for one or two years; 16%, yes for three to five years; 34%, no only for 2019; and 30%, no, I expect less than $10 million in 2019.

John Stephens

So, if we can get 70% of the people to agree with you on what you’ve said publicly that we’re going to get to stability in 2019, we’re going to get to $10 billion, I feel pretty good about that result. 70% of the people agree. That's wonderful. As I mentioned, we’re not giving any guidance past 2019, but you can tell, as I said, I'm certainly very positive about our opportunity to continue success over the long term. We’re a company that's been around over 100 years. We do our work and effort and our plans to benefit our shareholders, our customers, our employees over the long term. That's what we always focus on. It’s who we are.

Michael Rollins

And we’ll get to the third survey question. So, third one is, what is appropriate net debt leverage for AT&T? Two times or less; over to 2 to 2.2; over 2.2 to 2.4; over 2.4 to 2.6; over 2.6.

And the results are: 35%, two times or less; 16, over 2% to 2.2%; 28%, 2.2 to 2.4; 11 at 2.4 to 2.6; and another 11% for over 2.6.

The question, John, that we get, you have your goals out there for 2019. Maybe you could talk to those a little bit, but also talk about where you see leverage over time which is a question that we do get from investors.

John Stephens

As on 2019, the 2.5, such as we laid out at the analyst conference, we need to generate that free cash flow after dividends in that $12 billion. And our guidance is in the 2.5 range. So, I’d say that in the sense that we’re coming at 2.51, I'm going to feel good about it. If we come in at 2.49, I'm not going to – we’re not going to brag about it. We’re coming at the 2.5 range, whatever that might be.

But we’ve got to generate that $12 billion of free cash flow after dividends. I feel really good about that in getting it done.

And remember, we’ve got to monetize some assets. And we’ve got to monetize some assets over and above what we invest outside of CapEx, but whatever else might happen. And so on, on that basis, we’ve got to get that $6 billion to $8 billion. With a $500 billion balance sheet, half a trillion dollar balance sheet, you think about a 1% monetization, we’ve talked about things like real estate and new headquarter buildings. We’ve talked about – I’ve mentioned in the past Hulu or Sky Mexico or some of these other things, not suggesting any one of them is going to happen today, but suggesting that there's just this whole host of just some examples. But with a company our size, there's just a whole host of assets. So, feel really good about getting that.

That will get us to that 2.5 range. We feel good about that. And then, as we committed, we’re going to continue to pay it down later on. I will tell you, right now, we’re still staying with – over the long term, we’re thinking that 1.8 range, is kind of in that range, is where we’d like to be. That's the last thing we said. We haven't change that.

I would tell you this. Everybody knows it. It’s a different time from those traditional measurements. And I'm not suggesting that – other than just – I understand why people may have different answers or higher levels because interest rates really are at historically low levels.

So, most net debt to EBITDA or all net debt to EBITDA ratios exclude interest. But interest is at historically low level and they exclude taxes. And taxes just got cut by 40%. So, people can have different views that vary from historical standard metrics just because two of the biggest things that are going on in the economy, the reduction in the US federal tax rate by 40% -- and remember, folks, 90% of our revenue kind of thing is domestic and a much higher part of our EBITDA is domestic. So, we’re still a domestic company. That's a good thing when you're talking about tariffs and trade. It’s a wonderful thing. But it's also one of those things where you lower your federal tax rate by 40%, it has an impact. And it's real. And it's economic. It's cash.

And so, when you think about those two changes in rates and taxes, I understand how people might have a differing view on leverage levels. We’re sticking to what we’ve told you and we’re really focused – laser focused on 2019 and getting it into that 2.5 range.

Michael Rollins

You brought up your exposure to the US economy. Have you seen any changes in customer behavior across the businesses that you operate?

John Stephens

Sure. Those are how much more exposure to foreign operations, and particularly some of the Asian – we see them being careful. I don't think that's news to anybody. And I don't mean in a dramatic way. But, certainly, you see it – but, remember, we continue to see good activity, solid activity here in the United States. It's just a matter of – in this kind of environment, everybody goes through their own levels of carefulness. And so, we are not surprised by anything.

Michael Rollins

Advertising's been something that you’ve been making a push with the Time Warner acquisition. Can you give us an update of what's happening on the advertising front and how investors should think about the quantum of dollar opportunity to migrate to the newer platforms that you're creating?

John Stephens

Yeah. So, a couple of things. One, when you had asked Michael Fore [ph] about EBITDA in the entertainment business, people have to realize, there's a lot of advertising revenues, almost a couple of billion, that go through that. And last quarter, Xander advertising business grew by 30%. Some of that was impacted by the AppNexus acquisition. But if you get down to kind of the core advertising, which was generally the entertainment group’s advertising on the DTV platform or the U-verse platform, grew about 20%, a little over 20%.

So, first and foremost, when you say, gosh, you’re going to make that EBITDA number on entertainment, well, that’s going to get helped by that advertising business.

Second piece for me is to say just look at the numbers, it's working. We’ve had some – there’s some seasonality and there's political advertising, there's this and that. But the reality of it is even before the political season came in, that business was growing 10%. They're in the 10%, 9%, 11% depending upon the quarters.

So, we feel really good about – they've got that focus. They're using the inventory to continue to build on that.

Secondly, we’ve got AppNexus. So, now that we have this opportunity to lay out this platform, really high-quality, number one, if you will, supply side with a developing growing demand-side platform. You take us, utilizing it and putting our internal, so to speak, advertising, not only our inventory of minutes, but also what we buy across all of our businesses, and certainly have the ability to make that business much more substantial just internally.

Then you look at – so, we feel really good about that platform, that exchange, building up that marketplace. And then, when you get LTC, you get front tier and you get them to join in with you and you say they're going to add to it. And we’d welcome opportunities to add a whole lot more at the distributors’ end. You can understand where we’re headed and what we’re thinking. So, that's going well. Feel really good about that.

When you think about the data development and the ability to come up with products based on analytical information, that's what's driving in part that 10% revenue growth or with the political stuff over 20% revenue growth last quarter. If you then say, okay, now you can take this data information and I can give it, like we’ve just publicly announced, send it over to Turner, arm's-length whatever, but we’ll provide it to Turner to allow Turner to use it.

They've got about closer to a $5 billion advertising revenue stream. They're not going to change that overnight. This will take time. But giving them that ability, think about if you can turn that growth percentage towards what we’re seeing on the other side. That will give you a sense of how we feel about this and the opportunity that’s there. And quite frankly, the fact that we are really doing what we said we're going to do because now we are taking that activity and providing that data products and capabilities to Turner.

I will tell you, this isn't going to happen overnight. This product development, this data analytics, this growing the platform is going to continue take time and investment and effort. Teams all over feel good about attracting other partners and still going to take some time. But we’re well on our way and I think you will continue to see good results from that advertising capability. So, I'm really excited about it. You guys can imagine. It's a business with solid margins and CapEx lite that provides a diversity to our revenue streams and a diversity to our source of revenue. It’s not coming from the guy buying my mobile phones. They are coming from the guy who is paying for my video. It is coming from a separate source. So, it allows me flexibility with pricing competitiveness across the board, and that's really good.

Michael Rollins

And just extending off of that, as you think about what you're doing in advertising and with Time Warner broadly, how does AT&T view the change in who may be a partner for you in the future versus who may be a competitor in the future?

John Stephens

Yeah. I would stay away [indiscernible], but I’ll give you the – the advertising world, we have announced royalties and front tier working with them. And so, that's out there. We’ll do that. We’re going to be unique in that. We are DTV and U-verse and big distribution and mobility. Huge distribution. And we’re Turner. And we’re HBO. And we’re Warner Media. So, I would suggest to you, we’ll just be real pragmatic about going through the business cycles of doing what benefits customers, so therefore benefits the business and benefits yourselves and your partners. We’ll be real pragmatic about it. But I won’t suggest that there's any one party or another. That would be inappropriate at this time.

Question-and-Answer Session

John, thank you for your time.

John Stephens

Thank you. Thank you all.