Ladies and gentlemen, thank you for standing by and welcome to the 2016 AT&T's Second Quarter Earnings Call. At this time all lines are in a listen-only mode. Later there will be an opportunity for your questions and instructions will be given at that time. . I'll now turn the call over to your host, Michael Viola, Senior Vice President Investor Relations. Please go ahead, sir.

Thank you, Kathy, and good afternoon, everyone. Welcome to the second quarter conference call. It's great to have you with us today. Joining me on the call today is John Stephens, AT&T's Chief Financial Officer. We're going open with a summary of our results and then we're going to spend a little bit of time providing a strategic update of our business. We thought this would be a great time to just take a step back and look at how we've repositioned our company the last few years. Let me remind you, our earnings material is available on the Investor Relations page of the AT&T website. You can find the material at www.att.com/Investor Relations. Now beforehand I hand the call off to John, I need to call your attention to one more matter. That's the safe harbor statement which is on slide three. It says that some of our comments today may be forward-looking, they're subject to risks and uncertainties, results may differ materially, and additional information is available on the Investor Relations page of the AT&T website. I also need to remind you that we're in a quiet period for the FCC spectrum auctions and thus we cannot address any questions about spectrum today. And so with that, I'll now turn the call over to AT&T's CFO, John Stephens. John J. Stephens - Chief Financial Officer & Senior Executive VP: Thanks, Mike, and hello everyone. And thanks for being on the call today. It's been one year since we closed on our deal to acquire DIRECTV and it's been a heck of a year. We are hitting the mark with their synergy targets. Our cost synergies are ahead of plan and we're about ready to take the wraps off some exciting new streaming opportunities that will expand our customer…

Thank you. Our first question will come from David Barden with Bank of America. Go ahead, please.

Hey, guys. Thanks so much for taking the questions. John, it looks like, in terms of the guidance as you kind of walk through it on slide 10, you're kind of tracking ahead of where you thought you'd be at this point in the year. As we look to the second half, could you talk about the major variables that would kind of maybe swing you back down towards more the base case expectation for the year versus the – or better part of the guidance that you were discussing? And then second, I was wondering if we could just touch on this issue of kind of the economics of postpaid sub losses versus prepaid sub gains. I guess you had about 319,000 prepaid gains versus 180,000 postpaid losses. Could you talk about the relative economics of those two things? And are we looking at a net economic positive or negative trade-off when we look at that? Thanks. John J. Stephens - Chief Financial Officer & Senior Executive VP: Thanks. Thanks, David. Let me take the second question first. On the economics, so forth, the postpaid subs were losing a lot of feature phones. They're averaging about somewhere around $35, maybe a little bit less, than ARPU, and have costs associated – the postpaid do – with retaining them. On the prepaid side, we're probably closer to a $41, $42, depending upon the specifics, average ARPU, and much less – they're very, very small subscriber acquisition costs, upfront costs, maintenance costs by the very nature of being prepaid. So from that standpoint, the economics are better, and it is being shown in our margins. When you look at our margins – total EBITDA margins or service margins – you can see that growth, and you can see the level. That's a part of what's driving it. So the economics are – and we're running the business on a branded basis – we think of branded customers and try not to make distinctions on classification. Really makes distinctions on economics, and I think it's showing up in our profitability. With regard to the variables in the second half, there's a lot of things that happen in the second half. There's some seasonality in the fourth quarter in our wireless business. In our video business, we'll have the NFL Ticket come out and we'll have the launching of the DTV Now, and some of the over the top offers. So we'll have a whole host of things going on. I would just suggest to you we're very confident where we're at. We continue to do well. And I wouldn't suggest to you that there's anything necessarily unique or different about the second half of the year. It's just we're careful with our guidance and want to make sure we meet or exceed it; so we feel very good about we're at through six months.

All right. Thanks, John. John J. Stephens - Chief Financial Officer & Senior Executive VP: Thank you.

Our next question will come from Phil Cusick with JPMorgan. Go ahead, please. Mr. Cusick, is your phone on mute?

Can you hear me, guys? John J. Stephens - Chief Financial Officer & Senior Executive VP: We can, Phil.

Thanks very much. So, a little bit along the lines of David's second question, when would you expect we'd see more integrated promotions for video and mobile services? And you've talked in the past about having some excess margin to give up to drive faster sub growth. Do you feel like you've been doing that already or is that still pending? Thanks. John J. Stephens - Chief Financial Officer & Senior Executive VP: Thanks, Phil. So first of all, we have been doing some promotion, some offers, some marketplace adjustments based on how we look at the marketplace. So, some of that is already impacting our results, and we're still doing quite, quite well in margins with that. Secondly, our first integrated product, I'd refer you to is the 5 million customers who have already signed up who have a bundle of our in-home video product, whether it be U-verse or satellite – DIRECTV satellite – and our wireless. It's been successful. We've seen very positive results from our customers, so it is going well. You will see us continue to push that offering as well as others. And then, I would suggest to you you'll see more things come out as we roll out our over-the-top offerings and other aspects. But right now, we are seeing some improvement in our attach rate of IP broadband with our video sales. And that is improving as we see the trends for the last four or five months. And we would expect to see some continued positive bundling, if you will, of wireless and video, as we've already seen 5 million people sign up for it.

John, you mentioned DIRECTV Now. What's the long pole for getting that out at this point? John J. Stephens - Chief Financial Officer & Senior Executive VP: I think there is a whole host of activities going on. I would suggest to you it's this way. While I believe that everything is moving well and all on our timeline that we've targeted, the biggest guidance piece on it is going to be, we're going to want to make sure it comes out with high quality and high performance. And so, as we develop this and test it, that will determine its timeframe. We'll want to make sure when it comes out, it's the high-quality product. If you think about the technology development, that's on track. If you think about the assets we need to provide that, those have been acquired; those are on track. If you think about the contracts we need to get the stacking rights and digital rights, those are going well. It's just a matter of getting all of those things coordinated together and then make sure it's the highest quality product you can have at launch. But we are confident in that process, and feel good about targeting the end of this year to get that out.

Do you have a widespread beta product of that yet, even without all the content? John J. Stephens - Chief Financial Officer & Senior Executive VP: Yeah, we are going through various levels of testing of everything, but we're not going through a detailed public discussion of that. But as you can imagine, we're going through a variety of levels of testing of that. But this is something we've been working on for a while – feel real good about.

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

Thank you. Our next question comes from John Hodulik with UBS. Please go ahead.

Great, thanks. John, maybe pointing to the build-up of the $20 billion free cash flow number on slide 14, it looks like you're at about a $16 billion base in 2016 here. You've got another $1.0 billion in synergies and another $1.5 billion in Project Agile. Is the rest – come from virtualization over that period? If you could give us a little more detail on that, and I would imagine you'll be paying some more taxes over time as well. So, how does it all fit together to sort of bridge us to that $20 billion number? And then, as you talked about in the – some previous slides, you're a little bit – you've underspent the $22 billion bogey on CapEx a little bit here in the first half. Does that mean there's – we have a sort of downward bias to CapEx at this point? Thanks. John J. Stephens - Chief Financial Officer & Senior Executive VP: Thanks, John. A couple of things. One, if you think about the free cash flow and you think about the $15.9 billion that we started with last year, and you add in the kind of the $2.5 billion dollar opportunity with DIRECTV. You add in the – with the remainder of the $3 billion opportunity from Agile. And then you add in maybe a 1%, I'll say is an illustrative, reduction in capital intensity and some costs – some cash operating expense savings – you can see that those three items there can get you well over $5 billion. In addition, we expect to grow our EBITDA and grow our profitability of the business. And so, when you put those things together, it looks to be an achievable, real, realistic path from last year's $15.9 billion to a $20 billion number as a goal in the near future. And so, that's what we are looking at. That's how we build it up. We're not giving a prediction date on that, but we feel good about the opportunities to significantly grow free cash flow. With regard to our CapEx, just want to be very straightforward in the sense that we are at $10.3 billion, and on an annualized basis, that would come below the $22 billion. We will continue, as I've said before, to invest as appropriate, not towards a targeted $22 billion number, but rather towards a, what business cases make sense, and when it makes sense for us to be in the market investing. Sometimes that causes quarters to be much heavier in CapEx, like we had in the fourth quarter last year. And other times, like in the first six months this year, we spend at a lower rate. We're just being very careful with every dollar. But right now, the performance we've had for the first six months is a trend to – on the low end of our guidance.

Okay, great. Thanks. John J. Stephens - Chief Financial Officer & Senior Executive VP: Sure.

Thank you. We now have a question from Mike McCormack with Jefferies. Go ahead, please.

Hey, thanks. Hey, John, just maybe a couple of things. First, going back a little bit on the postpaid handset side. It looks like – obviously, feature phones have come down dramatically over the past eight quarters or so. As that sort of approaches a lower level, does that provide a tailwind to get postpaid phone additions back to a positive territory? And obviously, you've got DTV cross-selling, DTV Now products rolling out, or over-the-top products rolling out. I presume that could also help. And then, just secondly on the video adds for the year, the anticipation there, is it that DIRECTV continues to ramp? You've been doing a great job, but is it that or is it U-verse becoming less of a headwind in the back half of the year to get to a positive video number? John J. Stephens - Chief Financial Officer & Senior Executive VP: Thanks, Mike. First of all, on the postpaid handset side – or on the handset side – we do think the 2G losses, as we go through the year, we'll see those. But getting past this year, you'll see the opportunity to have a more positive impact because we're through that process. Secondly, our feature phones, which include some 2G devices, but our feature phones are going down and as they go down and that, if you will, legacy product, so to speak, impact on our results is lessened, certainly we have a brighter opportunity – a better opportunity to grow out of those customer base. And then third, on the bundling, as we really get into the second half of the year and are able to do single-truck install, which may be bundling of video and satellite and broadband, but also, that whole activity of bundling, the more time our teams get to do it, the better we'll get at it. And so from that perspective, we do think that'll provide us an opportunity to grow more wireless. So all three of those things will help, and yes, we're optimistic about it. But I will tell you also, it's really about the branded net adds and the economic net adds. It's not about any one category of net adds. It's getting those customers that are the most profitable, the highest quality. With regard to the video side, on a seasonality basis, we usually do see less. We see more pressure in the second quarter than the first half from the U-verse side. And from, and quite frankly, so has DTV in the past. So going forward, I would hope that we would see – we'd expect to see – some improvement on both sides. When you think about DIRECTV, things like the NFL Ticket Sunday, and some of the other offers, as we see these trends of bundling improving an attachment rates improving, we feel really good about the opportunity to improve our trends and get to our goal of positive video net adds for the year.

Great. Thanks, John. John J. Stephens - Chief Financial Officer & Senior Executive VP: Thanks.

Thank you. We have a question from Amir Rozwadowski with Barclays. Please go ahead.

Thank you very much and good afternoon, John and Mike. John J. Stephens - Chief Financial Officer & Senior Executive VP: Hi, Amir. How are you?

Hey, Amir.

Good. John, so if we can touch upon that bundling question a bit more. If we go back to last year at the analyst update, post the close of the DIRECTV deal, you had highlighted some potential areas for revenue synergies driven by some level of cross-pollination of your respective customer bases. And I was wondering, where are you folks along that line? You had highlighted like there were, I believe, 15 million DIRECTV homes that don't have AT&T wireless, for example. Other opportunities seemed to be broadband plus video offering. Are you still at the early stages of that deployment? I'm just trying to assess, sort of, what kind of runway you do expect from a bundling opportunity perspective? John J. Stephens - Chief Financial Officer & Senior Executive VP: Yeah, Amir, I would suggest we're at the early stages when you think about getting the workforce trained in all aspects of being able to cross-sell and do the bundling in the cross – and do single-truck roll installs and so forth – it takes a while. We have that completed; we have that process. But even as they all have been trained and they've all started to do it, it still takes some time – even with the great workforce like we have – to get really proficient at it. And we'd expect to start seeing that, as we've said all along, show some benefits in the second half of this year. But once again, I would suggest to you, the team's done a really good job of doing the bundling between wireless and the video products alone. And getting 5 million of these customers to sign up for this bundled approach with regard to video and wireless, is just the best proof I can offer you that we've already done, they've already accomplished, that this works and that we have a real opportunity to exceed our merger integration synergies because we'll have an opportunity to add revenues to those. Well, most of those synergies were really focused on costs.

That's very helpful. And a follow-up, if I may. If we look at the current U.S. mobile competitive environment, one of your competitors notably instituted a price increase, which can somewhat imply a belief that the competitive landscape is not as pronounced as it once was. If we look at your service revenue trajectory in mobile, we still see some impact from stable declines in ARPU. Is there potential opportunity for adjusting pricing, particularly around bundled offerings or anything along those lines that could provide some relief to the trajectory of service revenue there? John J. Stephens - Chief Financial Officer & Senior Executive VP: Well, Amir, once again, let me point you to kind of a complete picture of that. As we mentioned in the prepared remarks, the ARPU's right at $70 on a per-customer basis when you take into account the total billings. Those are really impressive levels, very good for us historically from any measurement – our straight ARPU prior to the equipment installment days, or in the most recent years, with the equipment installment. So, on a monthly basis from our customers, we're doing very, very well with the revenue base. Secondly, it is a competitive environment, and it will – and it has been for years – and it will remain that. We believe that we are doing well with that, and we think it's proven out in our margins, in our profitability, and in our cash flows. I will tell you just one side item that we mentioned in the prepared remarks. We had about 500,000 BYOD devices. We had customers walk in with 500,000 phones and said, can we connect them to your network? Those are all net adds. They don't show up in equipment revenue. And depending upon what package they show…

Great. Thanks for the incremental color. John J. Stephens - Chief Financial Officer & Senior Executive VP: Thank you.

Thank you. And we'll go now to Jeff Kvaal with Nomura. Please go ahead.

Yes. Thanks very much. I'd also like to add a competitive question to the mix. Typically, of course, the second half, the fourth quarter, a little bit more competitive. Do you feel like you are going to be as competitive as you've been last year? Is the goal to increase the number or the mix of net adds that you retain relative to where you've been over the past couple years? Just in general, how you feel about your subscriber base and your mix of net adds would be great. And then, secondarily, if there's anything then you can share on where in your CapEx budget you have been able to do better, whether it's labor or equipment or what have you, that would be super helpful. Thank you. John J. Stephens - Chief Financial Officer & Senior Executive VP: Okay. Well, the second one first. On the CapEx budget, we've done well, kind of in all aspects of it. A couple of things. One, we've been able to – because of our software-defined network – we're starting to see a little bit of those savings. If you think about our buying capacity and the overall economic conditions, we've been able to get some volume pricing and some purchasing power benefits. Certainly, we're getting more efficient with what we do. I will tell you, though, that one of the things I think people miss out on is that because of the spectrum that we've invested in over the last, say, five years or so, we've got a lot of effective capital deployment that doesn't involve a lot of dollars. It involves deploying spectrum, and that's a really efficient way to deploy capacity. And so, on a per-unit of capacity, our dollars can be really efficient because of the spectrum portfolio…

Okay, John. So that sounds like you are perhaps expanding the range of subscribers that you might defend or target than you might have – than relative to last year. If that makes sense. John J. Stephens - Chief Financial Officer & Senior Executive VP: Well, I'll say it this way. When your margins expand as much as ours have – about 130 basis points in both EBITDA service and, for example, in wireless, or in total margins – you have more room and more customers fall within that profitability level that are appropriate.

That's well said. Thank you. John J. Stephens - Chief Financial Officer & Senior Executive VP: Yeah. That's really what's going on. The team's done such a great job expanding margins, they've created more room to be competitive. It's the team's credit.

Thank you. Our next question will come from Brett Feldman with Goldman Sachs. Please go ahead. Brett Feldman - Goldman Sachs & Co.: Thanks. John, you noted that you're on track to deploy fiber to 12.5 million customer locations. You have 12.6 million IP broadband customers today, but there are 60 million homes in your wireline region that could get a broadband line. So I'm curious, as you're doing the fiber deployment, how are you deciding which are the right homes to upgrade in terms of whether you should simply upgrading existing customers or how do you determine whether it's a business case to go to some of those homes that you don't serve and deploy fiber there? John J. Stephens - Chief Financial Officer & Senior Executive VP: There's two things that – I mean, the first thing I'd tell you, Brett – is that the ability to build the fiber to the home is a larger footprint than just the 60 million. So we can take the economics of going into some appropriate customer basis, whether it's an opportunity for real – better economics, better profitability. So, we have that kind of business-case process to it. Secondly, I would tell you that with regard to the FCC agreement, there's particulars within the agreement that allow us to build – count so many greenfield builds, count so many more upgrades in the existing IP broadband footprint – to utilize in some cases multiple dwelling units, and then in many cases require some level, or a significant level I should say, of new builds. So, we have to coordinate all of that, take all of that into consideration. When you're done with that, you may still have some profitable builds that are at or above the 12.5 million commitment and…

Okay. Thank you. Our next question is from Simon Flannery with Morgan Stanley. Go ahead, please. Simon Flannery - Morgan Stanley & Co. LLC: Thanks a lot. Good evening, John. So, going back to the presentation a year ago, one of the things that you said you were working on was a home media gateway. And I know there's a bit of product development in that, but perhaps you could just update us on how that's looking, when we might start to see that getting deployed? And then there's a lot going on in Washington and obviously you can't talk about the auction, but maybe you could just give us some of your perspective on some of the agenda items at the FCC around special access, set-top boxes, privacy, et cetera, and any exposure you see there? Thanks. John J. Stephens - Chief Financial Officer & Senior Executive VP: Yeah. So set-top boxes, we have commented on that – the industry's commented – and there's been significant support, I think, from Congress on that. So, I think that we would expect, we would hope – we've seen the people coalesce and we'll see some changes into what the initial FCC guidance was on that. On the special access piece, we think there's competition across the marketplace today. We see it and we would think that any kind of additional regulation of products that are already competitive will stifle investment and won't be good for consumers or businesses or the overall economy; so we think that's, if you will, headed in the wrong direction. We'll continue to present our case on that. On Title II, we always expected the final resolution to be in the hands of the Supreme Court and we'll work through the process and follow the Supreme Court…

Hey, Kathy, we'll take one more question.

Thank you. Then the final question will come from Tim Horan with Oppenheimer. Go ahead, please. Timothy Horan - Oppenheimer & Co., Inc. (Broker): Thanks, guys. Two quick ones, if you don't mind. John, can you give us a sense of what your services-only ARPU is, or if I bring my own device, what that is? Because I know my own children, they've been blowing through their data usage since they got out of school and that's a lot of new applications out there. Can you maybe talk about how much the current data volume growth can drive ARPU growth, in your opinion, over the next few years? And then I just had a quick clarification. John J. Stephens - Chief Financial Officer & Senior Executive VP: Yeah. So Tim, certainly we are seeing buckets get bigger for our customers. We are seeing their demand so we're optimistic about that opportunity. We're careful about it because of the competitive environment and responding to, or at least understanding how competitors may respond to what we've done. So certainly, the data growth, as we spelled out in our slides, the data growth continues, and for us, as an integrated carrier with the backhaul and the fiber and the extensive number of towers and spectrum, we feel really good about our competitive position. The question of how quickly we can get our data growth, or at what percentage that will be, will be a function of both the efficiencies we're putting into our data delivery as well as customer demand and competitor pricing. But, yes, there is absolutely a lot of growth in demand and usage, and we hope to capture that in additional revenues as we go forward. Timothy Horan - Oppenheimer & Co., Inc. (Broker): Great, and I think John Hodulik…

Thank you. And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.