AT&T, Inc. (T) Management Presents at Credit Suisse Communications Conference Call (Transcript)

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About: AT&T Inc. (T)
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Earning Call Audio

AT&T, Inc. (NYSE:T) Credit Suisse Communications Conference Call June 5, 2019 1:05 PM ET

Company Participants

John Donovan - CEO, AT&T Communications, LLC

Conference Call Participants

Douglas Mitchelson - Crédit Suisse

Douglas Mitchelson

All right. Welcome to our keynote lunch with John Donovan, CEO of AT&T Communications, which is not all of AT&T. John, thank you very much for coming today. Really appreciate it.

John Donovan

Great to be here.

Question-and-Answer Session

Q - Douglas Mitchelson

So first question, CEO of AT&T Communications, talk about your role a little bit and then extend that into what are your key priorities for the rest of 2019? What do you feel has been achieved so far?

John Donovan

Yes. Great. Well, before I start, I have the safe harbor statement up, and I want to call your attention to the safe harbor statement, which says some of my comments may be forward-looking, subject to risks and uncertainties, and results may differ materially. And you can find further information on our website or in our SEC filings. That's my favorite part.

So I run the communications business, which is roughly 80% of the overall company results, responsibilities for the wireless business, the enterprise business, both obviously wired and wireless, the Entertainment Group, which is TV, broadband and home voice lines.

Douglas Mitchelson

So key priorities for the rest of 2019 and what do you feel has been achieved so far this year.

John Donovan

Well, much like we laid out last fall, the priorities within the communications organization really align to what we're trying to accomplish overall. First and foremost, get the debt paydown to that 2.5-ish number by the end of the year. We're obviously a big part of that, the cash generation machine operationally. And so we've got to have a really good execution year for us and feel very, very good about where we are. We're in a very good first quarter from that dimension.

We obviously have to maintain wireless momentum in the entire mobility business. That's clearly the engine of cash flow and growth. That is the backbone, if you will, of our business. And so we want to stay -- keep that momentum. The Entertainment Group, get ourselves to flattish EBITDA for 2019. We had a really good first quarter and actually showed EBITDA growth year-over-year.

And then last two items that maybe get a little less attention is the factory itself, we've got a lower cost. We're in a business that will always have a need to ingest Moore's law and get a lower cost structure. And then the enterprise business. And so the enterprise business is one that has been generating roughly $2.5 billion of cash flow every quarter, and it's a business that we've executed some big conversions for customers to get from old technology to new and manage to -- that decline curve, I think, very effectively from a margin and profitability standpoint.

Now underneath those big financial objectives, there's amazing things going on with FirstNet and 5G and all that stuff. And I'm sure you'll get to those questions. But those are -- if you look at the financial outcomes, those big priorities are the ones that we're focused on.

Douglas Mitchelson

Yes, they were an item, each of those. Let's start with wireless. And you mentioned sort of the focus on debt paydown. So I want to sort of just from a strategic standpoint, in that business, how do you balance growth and profitability in the wireless business?

John Donovan

Well, I think that you -- the wireless business is one that's fiercely competitive and it's very dynamic. And so it moves very quickly. You have competitors that can put offers on, put them off, take them off. You have migrations from postpaid to prepaid, prepaid to postpaid. You have fraud schemes that jump up. And so that's a business you really have to be on your toes and keep a really close eye on. And so what we've been focused on there is we've had -- we have brand advertising now as a result of having the best network, which was done really on the backs of the FirstNet build. We're at 50% of the FirstNet build. We expect, by the end of the third quarter, we'll be at 60%. But what that allows us to do is get all our assets into play. So we get one touch on the tower, and we can deploy all of this spectrum that we bought. So spectrum goes from a theoretical advantage on paper to a practical advantage in the marketplace.

So if you noticed, our advertising has focused to best network, fastest network, 5G now and the best network. We haven't had sustainable big network claims that are brand halos, if you will, since almost a decade, since the launch of the iPhone when it was more bars and more places. So that gives us an underlying message that we could stay with tonally throughout -- we have the FirstNet build, which is not just about building a network for FirstNet. It is. It's not only building a network for first responders. It's by first responders. So they were integrally involved in the design. But once we light up the network in those areas, we're building retail. So we have retail store growth into some of these areas that had been whitespace for us. And so as you start to think about sustainable advantage in the wireless business, the brand and the network were in great shape. FirstNet provides a great opportunity in an area where we were really under dimension on market share, and then the rural build that goes with it and the expansion of distribution. Those are not like dependent upon an offer of the month. Those are really sustainable things that we think are going to provide us measured and sustained growth.

Douglas Mitchelson

You sort of talked about FirstNet. Other future catalysts for service revenue and subscriber growth that you see?

John Donovan

Well, you have FirstNet, but you also have the friends and families that go with FirstNet. So that's certainly an important element. I think that what we're seeing with 5G is providing us a growth opportunity. And I think a lot of folks are kind of lulled into sleep and saying, well, with the 3G launch and the 4G launch, the center of the world was the device. And we got into this habit of saying, if I can't imagine it as a consumer, then it must not be there. And I think 5G, we're going to go back to where -- how technology deployed pre-2005, which is things back then used to be R&D-ed by the government, bought by enterprises, gotten on a better cost and scale curve and then moved to consumers. That's how we see 5G playing out.

And if you look at 5G, right now, I would argue, we're the world leader. I think we're certainly the leader in the U.S. We've launched in 19 markets. And instead of launching in a market where you'd allow -- you try to build a network and then you sell a handset and have a consumer walking in the street trying to find a network, we've been focused on 5G being an enterprise play. So every time -- if you noticed, the cities that we announced and the deals we announced are aligned.

So let me give you an example. You announced Chicago. Rush hospital, we're going to go put -- do advanced 5G in the patient intake and ambulatory care. We announced Austin as a 5G market. We're doing Samsung robotic manufacturing deployment. And we're building the campus out for Magic Leap to do their next-generation headset with 5G. So everything that we have done has not been to scattershot a city. It's been designed around the enterprise play. And then when you do that, then when you have a handset available and you sell them to the enterprises, that's -- it's for a known application, and normally, the average user is probably spending 70% of their time on a 5G network because that's what they have at work. And that's the strategy that we're doing, and it fits right in with the earlier comment about our enterprise business. We've stayed committed to that enterprise business. We haven't sort of thought about, well, let's get out of the rural stuff. We have been committed in investing in that enterprise business. In particular, we've stayed committed to the channel and the sales force. And so it provides us a great opportunity now with 5G dovetailing it with the sales force and a solution approach to go-to-market, that provides us a great opportunity.

So I'm so enthusiastic about 5G for reasons I don't read much about because I think it's going to transform the enterprise. And so that wireless growth will obviously do some things that are going to be a challenged in the marketplace. It's likely to be the WiFi killer. It's likely to be the next-generation local area network. So it's going to be a disruptive thing.

Douglas Mitchelson

And when is the revenue streams for 5G that you're excited about to be visible to the investors and the crowd here?

John Donovan

Well, we're starting to process this year of getting a revenue ramp-up on. And I think that when you start to look at it, the bigger number, obviously, in the long run, will be with consumers. So you look at handsets, we'll have three handsets out the back half of this year. We'll start that. So I would suspect that we can start modeling this thing in 2020. We'll have a really good idea of how to deploy these use cases.

So when people say, what can 5G do? What's more important is what is it doing for health care? What is it doing? Then you would really size it based on its impact and a little less on how much network coverage do you have and how many consumers do you have on a 5G network. But I think if the apps come along the way that they always do, I think there's going to be value in the 5G network, which will allow it to be premium-priced network. Certainly, that's the intention we've got right now is to look at it as a premium-priced network.

Douglas Mitchelson

And I was asking about consumer pricing, and I guess you sort of gave the answer in a way, any chance you want to sort of opine on whether that's sort of a $10 price premium for consumers? Or is that difficult to ascertain at this point?

John Donovan

Ultimately, it's going to be a function of the value to the consumers and your competition. So it's hard to say. You look at it, and you -- I think certain applications will be worth a lot. And certain applications, it will be worth a little. It's not even clear yet that it would show up in a plan as, oh, this one just cost $5 more for the month. It may be embedded in applications that carry with it a different economic model. So I think the 5G has the opportunity not only to put more value in the network, but to alter what the business model is to maybe be more of a three-sided business model than a two-sided business model, so that's not really all that clear yet.

Douglas Mitchelson

Not clear yet. So can you remind us of the 5G rollout, you sort of mentioned you're cherrypicking markets based on opportunities for driving enterprise application. But is there -- should investors be thinking about a nationwide rollout and when you're flipping the switch and saying, okay, we're everywhere?

John Donovan

Yes. I think it's more of gold mining than cherrypicking, but it is designed in alignment between the enterprise success and otherwise. So when we started the underlying network upgrade we've called 5G Evolution, and that is a whole bunch of things that set the stage for us to get 5G. So we've launched 5G on millimeter wave in cities. We've announced, so far, 21 cities. We're up live in production in nine of those -- I'm sorry, 19 of those 21. By the end of this year, we'll be announced and launched in 29 cities. That's the plan.

First half of next year, we expect we'll have nationwide 5G because we'll drop it into sub-6. And you'd look and say, why would you go out millimeter wave first because it's more of a rifle shot and then follow up with a broad ubiquitous footprint? And the answer is that's the way the standards were done. And so we felt confident enough that with the millimeter wave and the enterprise marketplace, we had all we needed to get an effective deployment done.

So if you think about timing, that's where we are. We launched in December of last year. We added seven new markets in the first quarter. We'll announce our way up to 29 by year-end, and then we'll do the sub-6 version next year, which will be nationwide first half of next year.

Douglas Mitchelson

You mentioned FirstNet earlier, how would you say your engagement agencies and First Responders are at this point? And how should we think about the TAM and sort of including families?

John Donovan

Yes. So we have -- the process of FirstNet was a long one because it's comprehensive and localized. If you think about one of the things FirstNet was doing, it was bringing interoperability and a lot of brand new functionality to First Responders that would allow them to communicate between police and fire and crisis. And so the very problem you are solving was its fragmentation. A local municipality with the police department that doesn't -- footprint doesn't match exactly with the fire department. And so we've had to not only build a network for them, we now have to sell agency by agency.

And so in the beginning, what I've been watching closely is how many agencies do we have signed up with a permission slip to sell? That number is 7,500 agencies. Now if you look at the size of this marketplace, it's -- there are different estimates, depending on what you include in. But if you take what we think is addressable by us, and that is First Responders, the ecosystem around them and then their friends and family, we think the addressable market is about 11 million subscribers. And those we were significantly under dimensioned with our existing share. So that's what we're excited about. This isn't a migration journey.

Right now, half of everything we're bringing on to FirstNet, which is roughly 600,000 subscribers, about half of them are migrations, and that number has been inching. Now obviously, the first person in the door is going to say, look, I've been an AT&T customer forever, I want that -- I want the private encrypted core and ruthless preemption and all those benefits of this advanced network. And so that migration percentage has kind of worked its way down to 50-50. But at some point, it's going to be mostly new customer acquisition. And I think that's going to be a big part of our growth story in wireless going forward.

Douglas Mitchelson

And the other thing in FirstNet you've talked about quite a bit is how it has improved your network capacity. Is there a clear correlation between network improvements and subscriber and revenue trends? Is that something you can measure?

John Donovan

Yes. I think if you go back and you look, it's challenging to de-average everything in a business of that scale. But the things that you can look at is take the average industry EBITDA profitability at 3G and 4G, and each time, the profitability of the industry went up. So obviously, there's more value to the customer despite it being fiercely competitive. Those were very good return businesses for us. And so if you look at FirstNet, those network enhancements for us give us a sustainable brand advantage that we're going to continue to press in the marketplace. It gives us a sales channel, but it also covers a bunch of the white spaces that we've got.

And so when you look at the full breadth of FirstNet, it's a sustainable network advantage. Matter of fact, what I'd tell the team internally is one way to think about it is we're now almost contractually obligated to have the best network because we -- the FirstNet includes SLAs. So I feel like the FirstNet foundation has allowed us with one touch to go deploy the FirstNet Tower. While we were there, we're going to climb the tower. We're going to take in some markets as much as 50 megahertz that's unused and build that highway. And so you start to really have a lot of tangible benefit not only in speed and reliability, but also some of the advantages that you've got is that you can be a little more creative in your business model. You can think about things a little bit differently because you have the capacity, the wiggle room, if you will, and the capacity.

Douglas Mitchelson

I want to talk about a few more wireless topics. One is bundling. Can you just talk about the pros and cons of bundling a little bit? Obviously, versus doing things like BOGOs, you've got DIRECTV and a pay-TV product you can bundle in. Now Time Warner is coming in, you can think about doing creative things with content in HBO. Is that something, again, that you can sort of measure that helping the wireless business?

John Donovan

Yes. It is worth the journey. Bundling has -- doesn't have a -- it has an offer dimension, which everybody thinks about, and you bundle things up. And you have potentially a financial benefit to the customer and the idea is, well, you could have sold three separately and you put three together and you give them a discount. That's just a fancy name for a price discount. But what we see is that in the early days, that is a true thing because the first people that come to bundle up are those who already have the services and they love your brand and they've been with you a very long time. Then as you get deeper in the second year and the third year and your sales channel knows how to effectively bundle them up and sell them, we are seeing lower churn, higher lifetime values and more consumption.

And I'll tell you why and why wireless is central to it, is the average wireless customer visits our store on average 3x a year and spends an average of half an hour. So when you look at the whole changing landscape of media and how dynamic wireless is and the app economy and FirstNet and all of that kind of stuff, when we get them in the store, you don't have to get them this visit, you can get -- talk to them on the next visit, you get those opportunities. And I would feel less good about where I was if I didn't have a retail presence like that. So that retail presence, which is wireless by construction design and inheritance becomes a great outlet for us to do things like have -- we had Crimes of Grindelwald, we were giving away movie tickets; Game of Thrones, we had some flagship activity there. That drives traffic for us, provides more exposure to the media business, and you start to see these symbiotic relationships.

So a business that does direct response, run a commercial, call an 800 number is not going to get the same opportunity as the three store visits a year and 90 minutes of, let's say, non-pressured familiarity with, hey, what's going on with AT&T. And I think what we're seeing, that there's a burn-in on bundling that your sales channel has to get better at it. You have to work through all the little nuances of getting bills that line up on the same day of the month and all that kind of stuff. So there's operational execution. Once you have it up and running, it's just second nature.

So if you walk in one of our stores today, I'd love to go up to some of the store employees and just say, hey, do you know when the Game of Thrones started? They always knew. They talk to customers about it. And so they're getting very familiar now with our whole portfolio, and then it just gets to be easier. It doesn't look like you're trying to sell or force fit something.

Douglas Mitchelson

And in creative, perhaps coming with a Time Warner content or properties?

John Donovan

I think that it's very reasonable that you should expect that. I mean we might make news today. We're not going to make news on that. So yes, it's -- here's what we think about, like we want traffic in the stores, and you pay money, a currency, advertising to get foot traffic in the store. You have offers to get foot traffic in the store. Content is a natural draw into the stores. So take the Michigan Avenue store. We had -- last year, we had the Batmobile. And so when I went to visit them on Michigan Avenue, they say, can you gets us something like the Batmobile back? We had 70,000 door swings, and we averaged 40,000. We had 30,000 extra door swings. Do you know what that's worth to us? I have an idea. So those things are real. Like this is real stuff. And so we're learning as a company what are these new currencies that you have and how to manage them and execute them. And so we're very, very enthused about what WarnerMedia is going to do for the wireless business, for the TV business and so on.

Douglas Mitchelson

Talking about spectrum a little bit. Potentially, a bunch of spectrum coming in the market the next 12, 24 months, C-band, CBRS. Can you talk about the relative attractiveness to AT&T of those different bands?

John Donovan

Well, we're in a quiet period, so I can't talk much about it -- our spectrum strategy. I know that a lot was published this week. Let me just start with what has been published this week and came out as that we spent some money for some spectrum in the auction. We feel very good. I think we got more than we expected for less than we expected to spend. That spend on spectrum was contemplated into the targets that we've set for our cash flow for the year. So it wasn't an unexpected expense. So we did really well. So when you look at it, low, mid and high-band spectrum is becoming a portfolio game. So it used to be, in wireless, there was no such thing as a spectrum strategy. You just grab all you could, then you call the vendors, you said make this thing work. But I think we've settled into a world where your coverage fabric needs to be at low-band spectrum. The mid-band spectrum is ideal for many of the traditional data applications. But when you get into video and you're looking for the superfast speeds, the mid- and higher-band spectrums are better for that. And so it's the portfolio.

And so if you think about it as a business, what do you want? You want a rock-solid coverage footprint. You want network claims, and then you don't want to give up the claims, so you have to have enough capacity -- spectrum capacity to launch the next generation of network and handle the first few years of capacity. So I think, from -- I've been with AT&T for 11 years and joined running the network. So I think we're in the best shape we've been spectrum-wise in quite some time. As you say, there's more coming out there. We may or may not participate in those. We can't really talk about our strategy in that. As I said, we're in a quiet period. But just suffice it to say, we feel good about where we are.

Douglas Mitchelson

Investors continue to worry about the build-out cost to 5G, particularly because it's not always sort of necessarily well-defined and where the endpoint is and how many cell sites you need and everything else. Anything on your end as you're starting to ramp 5G applications and getting more excited about revenue that we should be worried about in terms of CapEx spend?

John Donovan

No. I think there are three reasons that you shouldn't worry, particularly in our case because the first one is we have some big investment cycles that are falling off. We had the fiber build that was a merger condition that is -- that ends next month. We had the network build-out in Mexico. That's behind us now. So we'll continue to invest in fiber, but we'll do it based on the incremental economic case. We're not running to any household target. So that, you should feel good about.

The second thing that you should feel good about is a lot of the early stage foundation of 5G is tower climbs that are part -- that are being done for FirstNet, which have a commercial opportunity for us, but the funding mechanism sits within the FirstNet contract. And so that's an extremely big benefit. And the third thing is software-defined networking and open source, I think we're the world leader in our industry in that. And so as the -- as we get into the denser builds of 5G, that's going to be software. It's going to be heavily software. And I think we're uniquely positioned as the premier global wireless company as it relates to infrastructure software. And so I think that the 5G is going to be on a decline curve of cost per megabyte, cost per subscriber that drops much faster than previous technologies as a result of that. And I think those three things really map effectively the short, medium and long-term. So I think in the short run, the FirstNet touches, you get into the intermediate term and you start to get the benefits of -- and when I say the short term, the roll-off comes. In the intermediate term, you get the benefits of some of the spectrum deployed. And then in the long-term, you're just cheaper because you're doing it in software.

Douglas Mitchelson

So let's shift over to the Entertainment Group. So I've heard that there's been some video subscriber declines. What's driving the higher losses?

John Donovan

I think that the -- we've really looked into the base of what we had. We started to reevaluate the secular decline in the industry and where we were. And so we needed to do some customer cleanup where we looked, and there are set of customers that for whom they're going to only be in the market to buy below the cost that it takes to serve them. And I think that, that was a phenomenon that was out there in the industry. Result of the industry dynamics in the early days of a decline curve, first thing you want to do is you want to grab all the customers. Now that's really good logic because if you're going to make a big technology shift, you want to do that with the customer. And so that was the first reaction. I think now we're getting a lot better handle on the sub-segmentation of this to understand who gets the most value from the product. But the fundamental issue around TV is, just using broadbrush numbers, you have to know what the customer is willing to pay $100 for, and trying to give them $100 of value for $40 or $50 or $60, that's not going to be a fit that's going to work for both the customer and the organization in the long run.

So in that cleanup exercise, what we've said is that we think that'll go on through the most of this year. The second quarter obviously also has seasonally a bigger challenge just because so many moves occur in May and June. So we're going to -- that number this year is -- will have both elements, the secular decline curve, which is the cord cutters, plus some of the cleanup of the customer base that we've got.

Douglas Mitchelson

So how would you articulate the strategy for the linear video business at this point?

John Donovan

Well, the linear video business is -- traditionally, it was only probably five years ago, it was a marketing feature to say I have 300 channels. And I think, right now, the average customer saying I only want to watch 12, so not only do I not want to pay for the 300, I don't want to have to mind through the 300. So we're in a secular change where folks are saying the value formula for me is a little bit different. The total hours of viewing are actually up, but they start to sit across different platforms and different screens. And so the fundamental value to the customer in the minds of the customer is being reevaluated. And I think the whole industry, the content side, the distribution side, the emerging players, we're all working our way towards trying to find out what's going to be the right model to serve customers. But I think the most important thing is that what we've got to do is we've got to address price points that are much broader than simply you saying do you want HBO and CINEMAX or not? Do you want the upgrade sports package or not? Because that's how we differentiated before. Good, better, best was just three content offers. But those didn't stretch far enough and so we're going to have to build new products that stretch across a wider range because some people, the affordability of their budgets says I can spend $20 a month on video and I need to fit stuff in there. And others will say, I can spend $40 or $50 a month. And I think we went through a period of time where we tried to squeeze in everything that was there and just put it into a smaller, lower price point. And I don't think that's going to ultimately be the solution.

Douglas Mitchelson

And part of that sort of differentiation between linear and streaming is sort of all one business in a way. But you've been excited about the thin client DIRECTV service that's coming later this year. You've changed packaging on DIRECTV NOW and changed pricing. Anything you want to share with us in terms of the streaming strategy?

John Donovan

Well, the streaming strategy, the -- whether you call it an OTT or IPTV or thin client, we're going to transform our product. And that's -- we've been saying that's going to be due the back half of the year, it's going to be out in the third quarter, and it's the most -- it's the thing -- it's the consumer product I'm most excited about since the iPhone. It radically reshapes what your concept of television is.

And so we're going to -- we think we're going to really be disruptive in the market on features and capability, but we need to evolve our product, and that's the way we want do it because if you think about satellite, roughly 20% of U.S. households for one reason or another can't get satellite, so we miss a bunch of addressable market with all of our branding and all that sort of stuff. And we have -- if you think about it in economic terms, we spend the money to get you off the couch. We get you over the phone, you call in, we schedule you up, and then we get to your house and find out we can't get the line of sight to work. So we spent a fair amount of the cost, and so all of those things have been part of our standard how you run the business, the subscriber acquisition cost, but then also the trips out that didn't yield a connection and a customer. So this product takes -- adds that addressable market. And that's not immaterial. I mean, we have a database of customers that have called trying to get our product for whom we weren't able to serve and we can now call them back up and say, hey, look, we've got a great opportunity for you.

Douglas Mitchelson

And you talked about that product being innovative. Anything you want to share on that front today?

John Donovan

No. I love how about you ask no matter -- you know the answer, but you ask anyhow. You could be a reporter.

Douglas Mitchelson

It's my job to ask. So the NFL SUNDAY TICKET, on the conference call, I thought Randall said either it'd be sustaining exclusivity. And when I heard him say that, I wasn't sure if he was thinking exclusivity amongst sort of linear traditional pay-TV providers versus overall. I guess the question is, trying to ask that way you can answer is, is the product still valuable for growth and retention? And has that changed if it's not exclusive?

John Donovan

The product itself during the time when the industry was growing was a vehicle for growth. And the brands of DIRECTV and NFL SUNDAY TICKET were almost linked. And so a lot of people got introduced to satellite television by linking it to watching the out-of-market games. And so that strengthened -- the relationship of us and the NFL is strong. And so -- but the viewing platforms are starting to change. And you've seen the NFL go to Thursday night with some of -- they've done work with Amazon and Web players.

And so from our standpoint, though, it is an acquisition vehicle, but there's also more ways to get the game. And so it's not what it once was, which was a big subscriber addition engine, but it still is a strong co-brand with us. It's a really strong relationship, and those customers who have it, it's essential to them. So with that as a building block, what might one do? So we're trying not to solve a theoretical problem with a theoretical answer. Like if a customer is using it, then it's valuable. If they're watching it every week, it's more valuable. But if they're watching a bunch of the games in other platforms, then I think it's in the interest of NFL and us to say, is there another way to do this? But that would be something we would do mutually. That wouldn't be something that either of us would do indiscriminately.

Douglas Mitchelson

Looking at the fiber and the broadband side of the Entertainment Group, I guess I wanted ask how important the broadband contribution is to the overall segment and any line of sight for wired connectivity within the Entertainment Group for EBITDA?

John Donovan

Yes. So I mean, if you look right now, the -- we're in the middle of a pretty big move in speeds and pricing and all that sort of stuff. It sort of manifests as really competitive bundling with us and cable. Where we have fiber, we're doing exceedingly well. Where we have slower speed, sub-40 megabits per second, that's where the majority of our churn is.

But right now, if you look this year, we'll add 1 million high-speed fiber broadband subs and roughly 2/3 of those come from cable. So we're doing extremely well. And then we're managing the decline side, and we're trying to build the footprint out in a reasonable and practical fashion. But we're -- when we put fiber in a market, how long it took us to get to 30% market share is no longer as long nor is 30% where we are, we're starting to find that we can get markets to 50% and 55% and not do it in 36 months, do it in 24 months.

So I really like the cadence and the momentum that we've got our brand as AT&T fiber. Straightforward as that is, it's really strong in those markets. So I think we've been doing very well. And we built a bunch of inventory up. Like we -- the merger commitment was 12.5 million by this July of '19. We're going to be closer to 14.5 million. So we got a lot of inventory now.

And so as our CFO always says, you have a hotel with a lot of rooms, get out and sell them. So that's why we can both sustain broadband growth but have some of the capital intensity of our business overall on the broadband side relieved in order to find room for 5G because we have a footprint to sell into that we can sell into for certainly the back half of this year and all of 2020 because we did an accelerated build.

Douglas Mitchelson

On the overall Entertainment Group side EBITDA, the guidance for flat this year. I imagine you're feeling pretty good about that. But any reaffirmation? And as importantly, you guys are starting to sort of have some rumblings around potentially flattish again next year. How do you drive to that?

John Donovan

Yes. I think we're confident in it that if you look at what keeps you at flattish, there's a handful of things that are pretty straightforward. The first is when we talk about subscriber losses, the subscriber losses that we've seen have been more of the economically lower end of our margin pool. So the higher subscriber losses have not resulted in commensurate declines in our average EBITDA because they're not -- our average customer that's going off, it's sort of economically the much less profitable. So that's one impact that we've got.

But on the positive side, we've got the thin client coming out, which I think is going to be a great opportunity for us to have a product that's not only competitive, but one that we would expect to take some share with. We've got the resurgence, if you will, of bundling. We took a little bit of a pause -- I won't say a pause, but like if you think about a store employee the last year, you have learned how to sell FirstNet, you had to learn all the nuances of FirstNet, you had to learn all of our media stuff, the television changes. And so we haven't lost the emphasis that we're going to have on getting video and broadband bundled up. And then there's -- it's no secret. We have to bend the cost curve on content, and that's been not only an objective, it's been a passion of ours. Not saying that you necessarily have to have every deal match your revenue line item, but you're going to have to blend your way to a different cost curve that looks very different the next 3 years than it did the last three years.

Douglas Mitchelson

So with time with left, let's switch over to Business Solutions.

John Donovan

Sure.

Douglas Mitchelson

How do you maintain margins, offset revenue declines from the legacy products with the growth that you have there?

John Donovan

Well, one thing is we've stayed committed. So if you look at the customers out there that are trying to connect up seven data centers in major metro areas, that's a business that we're in and we do very well in, but it's a lot more challenging than someone who has 10,000 locations nationally. And so because our owned and operated footprint and our fiber footprint and the number of buildings connected is much denser than our competition, it allows us to evolve in the roadmap holding share.

And I think that when you look at pricing in the marketplace and how things have occurred, I think the buyer in enterprises is shifting from a telecom manager to a business person, from a person who, on average, was closer to 50, then now 35. And so you're starting to see a shift in who's buying, what they're buying and things have gone a lot more to a solution. They want -- they don't want to just buy an ethernet circuit or a VPN connection, they want to buy a voice suite and security and all those other services that are value-added. And so the way we've been able to sustain it is we've been having growth services plus frugality equal the decline. But if you look at the business overall, wired and wireless, we're on the cusp of growing that on a combined basis for the first time in a decade, it's really remarkable. So...

Douglas Mitchelson

And once you're there, that should sustain?

John Donovan

Well, I mean, it's hard to say what competitors are going to do. But as I've said, we've continued to invest on not only having the sales force density and the coverage model, the fiber that's there, the solution suite that's there, but also having the full breadth of products like not just wired, but wired plus wireless and so on. And if you look at all those ingredients, that would be about as well as we've been sitting in the enterprise business in at least 11 years I've been at AT&T.

Douglas Mitchelson

So look, we've covered a lot of ground, and I wanted to sort of end by asking you, given all the change taking place at AT&T, what you're most excited about the next 18 months?

John Donovan

I think if you were to sum up the major businesses in the wireless area, having this network advantage, FirstNet and store expansion, that's a three-legged stool that feels really good for sustained growth. As I said, we haven't had that kind of story in the marketplace for quite some time. If you look at EG, I am so excited about this, the IPTV, OTT, thin client, whatever you want to call it, I think we're going to transform television. And then when you look at enterprise phase, the enterprise space is going to grow on the backs of FirstNet and a lot of this solutioning. And so you go out an 18-month horizon and you add to that 5G and its launch trajectory, I think it's the most exciting time that we've had since I've joined the company. And it's one of those things where I always tell the team internally, when you're talking to your great grandkids, you say I was there when. I think you're going to probably characterize this period, from the iPhone until 2020, is that period. I was there when all this stuff spun itself up. And it's exciting.

So Randall has gotten us the best assets in the industry. We're reshaping the landscape. We're redefining it, which is why you cover us now instead of somebody else because analyst communities are starting to cover TMT as TMT. So for us to be in the front end of that curve, to have people doubting us, like that's the best motivation as a leader you can have in the business because you can say to your people, there's folks out there who think we're dead wrong, they think you can't execute, they think this is too complicated, and so we not only have that good stuff on the roadmap I just talked about, we're probably the most motivated we have been ever. And that makes a big difference when you're trying to get out there and execute these kinds of programs.

Douglas Mitchelson

John, thanks so much for being here.

John Donovan

Doug, thank you. Enjoyed being here.