John Stephens, chief financial officer of AT&T (No. 3 on the DiversityInc Top 50 Companies list), discussed the company's priorities for the coming year while speaking at the UBS Global Media and Communications Conference in New York.
AT&T announced earlier that its over-the-top video service, DIRECTV NOW, passed the 1 million subscriber mark. Stephens said that in 2018, the company expects to address losses in the company's traditional video customer base and continue to expand DIRECTV NOW in the rapidly growing OTT market. The company continues to expect net video gains in the fourth quarter of 2017, including DIRECTV NOW. AT&T is also on track to achieve $2.5 billion or more in annualized cost synergies from the DIRECTV acquisition by mid-2018.
AT&T's other 2018 priorities include building out the FirstNet network — the country's only communications platform purpose-built with public safety, for public safety. To date, 35 states and territories have announced their decisions to opt in to FirstNet. The deadline for states' decisions is Dec. 28. States that don't act by that date will automatically be opted in.
The company also plans to build on its momentum in key strategic areas in wireless in the coming year. It will maintain its strategy of bundling wireless services with video. When customers bundle DIRECTV satellite service with wireless, their churn goes down significantly and the long-term value of the customer relationship increases. AT&T will continue to work through the transition from feature phones to smartphones, and remain focused on competing in the prepaid market.
Stephens said that while the company expects sales volumes to increase during the holidays, assuming no supply constraints, it also expects that the smartphone upgrade rate will remain lower than historical levels.
The company also plans to continue its push to bring high-speed internet to more customers. Stephens reiterated the company's commitment to reach 12.5 million customer locations by mid-2019 as part of its acquisition of DIRECTV and said he expects to exceed that target. AT&T now markets its 100% fiber network to 7 million customer locations in 62 markets. AT&T's penetration rate in markets with fiber is significantly higher than in other areas. Across the company's fiber footprint, penetration rates are in the mid-30% range, and penetration is closer to 50% in markets in which fiber has been marketed for 24 months or more.
Stephens reiterated the company's longer-term plan to cover more than 50 million locations with high-speed internet. The company expects to accomplish this while maintaining capital expenditures at a rate of 15% of service revenues or lower. Cost savings enabled by the company's network virtualization initiative may enable AT&T to keep capital expenditures below 15%.
In its Business Solutions organization, AT&T will focus on continued growth in strategic services to offset declines in legacy wirelines revenues. And in Mexico, AT&T plans to complete the buildout of its 4G LTE network to 100 million people and expects EBITDA and operating income from Mexico wireless operations to improve in 2018.
If a new tax bill is not signed into law this year, AT&T will continue to push for meaningful tax reform in 2018. The company previously announced that if the corporate tax rate is permanently lowered to 20%, it would increase investment in the United States by $1 billion in the first year in which the new rate is in place. According to research, every $1 billion in capital invested in the telecom industry creates about 7,000 middle class jobs.
A replay of the webcast will be available later today at https://investors.att.com/.