Ladies and gentlemen, thank you for standing by and welcome to the AT&T first quarter 2015 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. At this time, I'll turn the conference over to your host, Senior Vice President of Investor Relations for AT&T, Mr. Mike Viola. Please go ahead, sir. Michael J. Viola - Senior Vice President of Corporate Finance, AT&T, Inc.: Okay, thanks, Tony, and good afternoon, everyone. Welcome to our first quarter conference call. Thanks for joining us. Joining on the call today is John Stephens, AT&T's Chief Financial Officer. John will provide an update with perspective on the quarter, and then we'll follow that was Qs and As. One reminder, our earnings material is available on the Investor Relations page of AT&T's website, and that's att.com/investor.relations. Before we begin, I need to call your attention to our Safe Harbor statement. The Safe Harbor statement says that some of our comments today may be forward looking. As such, they're subject to risks, uncertainties. Results may differ materially, and additional information is available on the Investor Relations page of AT&T's website. So with that as an overview, I'll now turn the call over to AT&T's Chief Financial Officer, John Stephens. John? John J. Stephens - Chief Financial Officer & Senior Executive VP: Thanks, Mike, and hello, everyone. Thank you for joining us today and thank you for your interest in AT&T. We are very excited about the progress we've seen in our business the last three years. We set some ambitious goals to transform our business, every part of our business, to lay a new foundation for the future and for growth. The first quarter was another significant step in…

Thank you very much. Our first question will come from Simon Flannery with Morgan Stanley. Please go ahead. Simon Flannery - Morgan Stanley & Co. LLC: Okay, thanks very much. John, thanks for the update on DIRECTV. Can you just go into the merger synergy guidance a little bit more? Just what are the main buckets there? And help us think about how it phases year one, year two, year three. And then you sound confident on the closing this quarter. Given all of the headlines we have out there, just can you just give us some more sense of what makes you so confident? Thanks. John J. Stephens - Chief Financial Officer & Senior Executive VP: Thank you, Simon. Real quickly, Simon, the base of most of our savings that we previously announced was going to content contracts as we understood them to be standard in the industry. And that was the basis for a large part of our $1.6 billion original target; that along with some of the normal synergies associated with bringing two public companies together. The additional ones are the opportunities we now see in going to, for example, one single truck roll to install products, so combining the installation of both our broadband capabilities and our video capabilities into one truck roll; or getting the customers on one single bill, one single customer care operation; the ability to go to our supply chain to get better pricing with regard to our equipment because specifically one of us was buying set-top boxes and other equipment at lower numbers than the other one was. And so when you combine those, we're confident we can get some more supply chain savings. There's also the standard cost of things like combined advertising, combined customer care, combined activities. But that's what we built up to this $2.5 billion. They are cost savings. But we believe that they are very much real, very achievable, and we believe that they'll grow. Certainly in that third year is when they get to that $2.5 billion level, but they are significant during the 2017 third-year timeframe. They will build starting in 2015 but build really in 2016 and really move toward significant amounts in 2017. With regard to our confidence in the transaction closing, it really comes down to what the transaction is about, and that is bringing customers greater choice, bringing more competition to the marketplace, bringing expanded opportunities for customers to get bundled services, services that they want, and really to improve the broadband capacity that's out there for customers through our additional investments of some of these savings. So as we continue to go through the process, we continue to feel good about where we're at, and we are optimistic and continue to believe we'll close it this quarter. Simon Flannery - Morgan Stanley & Co. LLC: Great, thank you. John J. Stephens - Chief Financial Officer & Senior Executive VP: Thank you.

Thank you. The next question in queue will come from Phil Cusick with JPMorgan. Please go ahead.

Hi, John. Thanks. A quick follow up on Simon's question. Have you had any indication from the DOJ or FCC either way in terms of approval? And then second, if you can talk about the Mexican business, the same thing. What barriers remain to closing Nextel? And how do you think about integrating those businesses from here and the need to ramp up CapEx to do that? Thanks. John J. Stephens - Chief Financial Officer & Senior Executive VP: Yeah. So as would be normal in a transaction like the merger of DTV and AT&T, our legal representatives are having the normal process and contacts with parties within the rules in the normal course. I won't go into those details. But I will tell you, Phil, if you look at what's on the record out there and the benefits this brings, I think there's an easy path to see why this deal would get approved and the benefits it will bring to consumers. So I'll leave it at that. We continue to feel good about it. With regard to Mexico, the process for Nextel first had to go through the U.S. bankruptcy process and the opportunity for other bidders to come in. That process has all been completed. The U.S. bankruptcy court has approved the sale. So we're now just left with getting the regulatory authorities in Mexico, IFETEL, to approve it. We're in, as you might expect, normal contact, and that would be normal in a deal, respectful contact and working through issues with them. Our experience with them on Iusacell, our experience with them on the regulatory framework that they've set up, and the economic environment they set up gives us confidence that that deal could close shortly.

And in terms of integrating those two mobile businesses once you have them? John J. Stephens - Chief Financial Officer & Senior Executive VP: Yeah. So we will operate as one business. We will get significant benefits from the two networks. And so we will be able to utilize the infrastructure of both companies to really help us manage and really prioritize capital investments, so it really will allow us on a combined basis to ramp up the networks much more quickly. As we mentioned in my prepared remarks, when you combine the two companies, they clearly have a leading spectrum position in Mexico, which also gives us an opportunity to very efficiently ramp up. Your comment or question, Phil, with regard to will we need to spend capital on that asset, absolutely. We intend to get the network quality up to our standards. And as quickly as prudently possible, we're working through those plans. And once we get the Nextel Mexico merger completed, we'll have all the information at our disposal to finalize those plans, and then we'll come back to the Street at the same time we do with the DIRECTV merger and update you on those plans. But it will take some additional capital. But quite frankly, in the company the size that we will become once the DIRECTV and Nextel Mexico deal are closed, it will be a very manageable level of additional capital.

Okay, thanks, John. John J. Stephens - Chief Financial Officer & Senior Executive VP: Thank you.

Thank you. Our next question in queue, that will come from Mike McCormack with Jefferies. Please go ahead.

Hey, guys. Thanks. Hey, John. John J. Stephens - Chief Financial Officer & Senior Executive VP: Hey, Mike.

Just a couple things. I guess first on the wireless side, I think your comment the way we would read it is that phone-only ARPU and service revenue from a year-over-year growth perspective, have we bottomed out and hit the tipping point there? And then secondly on wireless, what's the experience that you're having with customers that are on the Mobile Share value when they go to upgrade? Are you seeing any unusual churn activities around those guys? John J. Stephens - Chief Financial Officer & Senior Executive VP: Mike, quite frankly, we're not seeing any unusual churn activities, really. I don't mean to be inappropriate, but the 1.02% postpaid churn is the best we've ever had. And if you go beyond, if you subdivide our postpaid base into postpaid smartphones, as you can imagine, the trend is even lower. So we feel very good about that. With your comments with regard to service revenues, when you look at our service revenues this quarter, clearly it was impacted by, so to speak, a full year of opportunity for customers to transition to Mobile Share, and really not only about a month, no time prior to the first quarter of 2014 and only about a month of 2014 first quarter for customers to transition. So this is going to be the starkest comparison or the most significant comparison time. We expect those comparisons to get easier or to be less challenging as we go through the year because we've established much more of a stable Mobile Share value base as of the end of the first quarter compared to where we were at the end of the first quarter last year.

John, if I can just sneak one in, just thinking about cash flow, any thoughts on plans for factoring in 2015, a magnitude question? And CapEx run rate a little lower than we anticipated, is that just ahead of the deals closing? John J. Stephens - Chief Financial Officer & Senior Executive VP: CapEx is just what we needed. It is lower than the run rate. We're not changing any guidance on CapEx. It's just more of a philosophy to spend it as you need it, don't spend it early. With regard to factoring, you can expect us to factor every quarter this year. Part of that process is to get an established track record on that. We did do it in the quarter. Even with the factoring we did in the first quarter, we added to – as I mentioned in the prepared remarks, we added to our total investment in our Next customer base by about $500 million. But I think we expect to continue to use that securitization process in an effort to eventually get to a point where we'll have another option for financing our business, whether we choose to use it or not.

Great, thanks, John. John J. Stephens - Chief Financial Officer & Senior Executive VP: Thank you.

Thank you. Our next question in queue will come from John Hodulik with UBS. Please go ahead.

Okay, thanks. Hey, John, just a couple questions. First actually, can you give us a number of how much factoring was done in the quarter? And then a couple follow-ups to previous questions, the 70% of adds coming on no subsidized plans is a big number. Is that the top that we can expect, or can you push that still higher? And then lastly, switching gears over to wireline, margins were off, EBITDA margins were off a little bit on a year-over-year basis. Can you give us a sense for maybe what's driving that and how that should trend on a year-over-year basis? Should we continue to see declines, or with some of the costs coming out of the Connecticut properties, do you expect that to be bottoming around here? Thanks. John J. Stephens - Chief Financial Officer & Senior Executive VP: So, John, let me try to make sure I hit all these, and challenge me. If I skip one, let me know.

Sure. John J. Stephens - Chief Financial Officer & Senior Executive VP: First, I think we mentioned that we had about 65% take rate on Next on about 6.2 million net adds and upgrade sales, so around 4 million Next sales. You guys can do the math on an average price of a phone to get the gross receivable. We mentioned that we increased our receivables, net increase in our investment in our customers by about $500 million. The offset to the rest of the purchase price was about $1.5 billion of factoring, and then some collections from customers from previously sold Next phones in early 2014 or even a few that we sold and 2013 that are now paying us monthly fees that we are collecting and keeping at the company. So we're not subject to prior monetizations or securitizations. On the net adds, at 70%, I think the key assumption there is we've seen this 60% – 65% Next take rate before and we've seen it again this quarter. The one thing I will tell you is that to get it to 70%, we had about 5% or about 300,000, a little over 300,000 BYOD devices. Those are great net adds for us. While they don't bring any equipment revenue, they don't bring any equipment expense. And so that's a good deal for us. They often join Mobile Share value plans, so they are sticky customers. That is the unknown, if you will. That 300,000 is a little bit below what it was running on a quarterly basis the last three quarters of last year. But this is typically a slower – first quarter is typically a slower quarter. We're still encouraged by the level that – that will be the determinant of where we come out, whether we come out in that 60% to 65% range or if we get higher than that. We'll just have to wait and see. But I do feel very good about the fact that in total that no-device subsidy is at 70%. And quite frankly, the overall base on Mobile Share value for smartphones is at 62%, so we're running hotter than that. And then third, the amount of those customers that are actually paying us monthly for Next today is down in the 32% range. So I'm very optimistic that the monthly Next ARPU piece, the monthly billings piece, is going to pick up from that $6 level.

Right. John J. Stephens - Chief Financial Officer & Senior Executive VP: EBITDA margins, we're going to continue to focus, particularly in wireline, on cost savings. I think you're aware that we did an early – voluntary early retirement program. I think our take rates on that were in the 3,300 range, so we'll see some savings from that going forward. Additionally, we did see some pressure in the first quarter as we converted some of our former backhaul or interconnection in Connecticut from company-owned to leased arrangements. So they moved out of depreciation in some of those characteristics into COE. And we'll manage through that and manage the efficiencies of our operations. We'll overcome that during the year. So those are the things we're working on to improve those margins. And as I said, we're still confident with our guidance, and that guidance included improving margins in wireline, wireless, and overall.

Okay, great. Thanks, John.

Thank you. Our next question in queue will come from Brett Feldman with Goldman Sachs. Please go ahead. Brett J. Feldman - Goldman Sachs & Co.: Thanks. Just to follow up a bit on churn, if I listen to some of things you were saying, you've got a growing share of your base on Mobile Share value plans. And there's obviously a lot more value in those plans, so they're more attractive. You have a growing percentage of your base on smartphones, which you said have a lower churn profile. And you keep selling tablets, meaning your average customer probably has multiple devices, and usually that means lower churn. So is it reasonable to think you could actually continue to improve churn from here? I know the second quarter of last year is a tough comp, so putting that aside. Or are there mitigating factors, including the competitive environment, that might just create a little bit of a floor on where you can go right now? John J. Stephens - Chief Financial Officer & Senior Executive VP: I'll say this. We're very pleased with where we came in on churn in the first quarter, particularly with the noisy and competitive environment that we operate in. But we are not getting into the fact that we can't do better from here on out. We're not predicting that. We're not guiding to that, but we're certainly striving to do that. You are right, Brett, that the second quarter of last year is going to be really tough comparison. But with that being said, we still are striving to do better each and every quarter than we did the last quarter, and we'll keep that effort up. When you think about Mobile Share value accounts, there are just under about 20 million of…

Thank you. Our next question will come from Frank Louthan with Raymond James. Please go ahead. Frank G. Louthan - Raymond James & Associates, Inc.: Great, thank you. Can you give us a little more color on what you said about seeing some increased signs of some improvement in SMB and passed homes with fiber, some additional businesses with the fiber build? How many additional businesses have you built? And what are some of the signs that you're seeing a little bit of a turn in that part of the business? John J. Stephens - Chief Financial Officer & Senior Executive VP: So, Frank, we've built – 800,000 customer locations have been passed with fiber. What we did is we built a significant amount of those to customer order, where customers, existing customers, new customers order that and want us to build. But we also built a measurable amount to, if you will, into areas where we were confident we could sell and be effective. In those areas that we've built and spread the copper before we had a contract in place, we are now aggressively selling into those areas, and we have been pleased about the ability to penetrate those buildings and to sell into those. So that's the encouragement. In many of those buildings, you've seen how it works. You can go into a building. It might have 20 potential customers in there, and you have to sell to the first one. And once you get the first one sold, you can come back and then have some credibility with selling to the second, the third one. So we are making some significant progress in getting those first sales inside the building. And the team is working hard under Ralph de la Vega's leadership to then go back…

Thank you. Our next question will come from Amir Rozwadowski with Barclays. Please go ahead.

Thank you very much. Good afternoon, John and Mike. John J. Stephens - Chief Financial Officer & Senior Executive VP: Hi, Amir. Michael J. Viola - Senior Vice President of Corporate Finance, AT&T, Inc.: Hi, Amir.

I just wanted to follow up on the questions around the competitive landscape. How do you think about the level of promotional activity for the course of this year versus last year? And specifically, how should we think about your strategy going forward? Last year, obviously, you made a concerted effort to adjust pricing in order to migrate more of your subscribers onto Next. Do you foresee needing to have to do that again? It doesn't seem like, based on the comments that you made on ARPU trajectory, but I just wanted to confirm. And then I'd also be interested to hear your thoughts on the Google announcement today and whether you view it as a possible new competitor over the mid to longer term, even though it seems fairly limited in scope based on what they announced today. John J. Stephens - Chief Financial Officer & Senior Executive VP: Okay. I think with your first question, Amir, I think you'll continue to see us taking actions on the strategy that we have laid out already; that we are going to continue to focus on profitable customers and providing smartphone growth, Mobile Share value, getting customers on Next or BYOD, and continuing to migrate. Now we've got 90% migrated to usage-based plans, and use the LTE deployment of phones and the, so to speak, year-over-year growth, data growth we've seen of those phones of about 50% to then drive data growth and then drive higher buckets. So that's the strategy there. Sure, I'm certain we will have some promotional activity, as we always do, but I wouldn't suggest to you that it would be out of the ordinary, out of the normal process. I will also suggest here that we are just in the beginning phases of the connected car,…

Great, thanks very much for the color. John J. Stephens - Chief Financial Officer & Senior Executive VP: Take care.

Thank you. The next question in queue will come from David Barden with Bank of America Merrill Lynch. Please go ahead.

Hey, guys. Thanks for taking the questions, maybe two if I could. Just the first one, Verizon is getting a lot of attention on the OTT strategy, both skinny bundles and the wireless side. But depending on how things shake out, AT&T could be the nation's largest video player. Could you give us a sense as to the timing and what we should be expecting coming from AT&T on this front? Are you working on this pro forma knowing that DTV deal is behind you, or do you have to wait for the DTV deal? I think people would love to know where you guys stand on that. And then just second, I think, John, you've thrown out a deleveraging target at some of the conferences of about 1.8 times within a three-year timeframe post the deal. Could you divide – waterfall how you get there from a combination of operations and asset sales? And then rumor has it you're running the real estate group at AT&T now. Could you map out where the buckets for asset sales inside of AT&T are and scope it for us? It would be helpful. Thanks. John J. Stephens - Chief Financial Officer & Senior Executive VP: So let me get to a couple things. One, I won't give any detailed plans about post-DTV AT&T. I don't think it would be prudent at this time. But what I will tell you is that over-the-top distribution of video on wireless, on broadband connections with or without linear subscription is something that I'm sure we'll see and something that we will see be a part of packages in the future. My own experience is that I see it as an add-on to a subscription package. And I think we believe that that will be the way…

Got it. Thanks, John. John J. Stephens - Chief Financial Officer & Senior Executive VP: Sure. Thanks, David.

Thank you. The next question will come from Michael Rollins with Citigroup. Please go ahead.

Hi, good afternoon. Thanks for taking my questions, two if I could. Just one, could you disclose what the postpaid revenues were in the quarter? I think it's something that you've given out in the past. I didn't see it in this quarter's release. And then secondly, if we just take a step back on the wireline business, you talked about the investment you made, a lot of broadband for homes with the VIP project. How should we be thinking about the impact that should have on broadband units over time, being able to grow that residential broadband business? Does it take a certain amount of time before you get some benefit from the sales, or is there something else that we should be looking out for in terms of impact there? Thanks. John J. Stephens - Chief Financial Officer & Senior Executive VP: Mike, I'll let Mike and the team follow up with you on the details of the postpaid revenue details, and refer to what we put on the website. Whatever we give you, we'll make sure it's out there on the AT&T website. I don't have those numbers right in front of me. With regard to the wireline business, the VIP project, and specifically I think, Mike, you're probably referring to the 57 million IP broadband locations, I'd suggest to you this. What we really need to see is the DIRECTV deal to close because the transaction, the key to being successful in that area is that customers want a bundle. And so with the closing of that transaction, we'll be able to have a bundle not only of the video services that DTV provides, but of the broadband services that we can provide. As I mentioned before, about 30 million of those 57 million broadband locations, a little bit under that number, don't currently have a video product. Once we can do a real bundle with owner's economics and provide the efficiencies of one truck roll, the efficiencies of one service call, the efficiency of one troubleshooting call for the customers, one offer, one pricing structure, we believe that that will not only be good for our company, but it will be very good for customers that they'll have a new competitive offer out in the marketplace. And so we think that the completion of our DIRECTV-AT&T merger is a key factor in that process and a key factor in bringing great quality services to customers. And from our surveys and from the information I've seen, it's what customers want. So that will be the focus point. I would suggest to you that we'll probably have more to say on that and give some insights to that when we have our Investor Day, which will likely be within about a month after the closing of DTV.

Thanks very much. John J. Stephens - Chief Financial Officer & Senior Executive VP: Sure. Michael J. Viola - Senior Vice President of Corporate Finance, AT&T, Inc.: Okay, Tony, we'll take one more question.

Thank you very much, and that question will come – Colby Synesael with Cowen & Company. Please go ahead. Colby A. Synesael - Cowen & Co. LLC: Great, I have two, if I may. The first one, I was wondering if you can give us an update on your fixed wireless strategy. I know that was part of VIP a while ago, but I was wondering if it's changed at all with what you received in the AWS-3 auction. And then the second question is, it's my understanding that for the AWS-3 debt that you raised to pay for those proceeds that you're capitalizing that interest. I was wondering if you could just talk about how much debt is actually being associated with the AWS-3 auction. Thanks. John J. Stephens - Chief Financial Officer & Senior Executive VP: So first of all, your second question on AWS, yes, we are capitalizing that, and the amount of the debt that is being associated with that is a ratable share of our overall debt portfolio. The overall interest cost has come down significantly over the last three years as we've refinanced debt. But it is an allocated share based on the $18 billion, approximately $18 billion purchase price. So that is what is getting capitalized. With regard to the fixed wireless local loop, Colby, I wouldn't suggest to you that anything's changed at this time. We still have the commitments out there in the DTV transaction, and we still stand ready to live up to those and to satisfy those in full. We think that's a clear benefit for the consumer and the marketplace as a part of that transaction. But we're still confident that we can satisfy that, and we'll see how that comes out. That's probably – the finalization of…