AT&T Inc.
Q2 2010 Earnings Call Transcript

Published: 22 Jul 2010

[Operator:]

Ladies and gentlemen, thank you very much for standing by, and welcome to the AT&T Second Quarter Earnings Release 2010 Conference Call. [Operator Instructions] I would now like to turn the call over to Brooks McCorcle, Senior Vice President of Investor Relations for AT&T. Please go ahead.

[Brooks McCorcle:]

Thank you, Perky. Good morning, everyone, and welcome to our Second Quarter Conference Call. It's really great to have you with us this morning. As Perky mentioned, this is Brooks McCorcle, Head of Investor Relations for AT&T, and joining me on the call today is Rick Lindner, AT&T's Chief Financial Officer. Rick will provide an update with perspective on the quarter in a minute, and then we'll take your questions. First, let me remind you that our release, investor briefing, supplementary information and the presentation slides that accompany this call are all available on the Investor Relations page of the AT&T website. And as a reminder, that's www.att.com/investor.relations. I also need to cover our Safe Harbor statement, which is on Slide 2. And that says that information set forth in this presentation contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results may differ materially. A discussion of factors that may affect future results is contained in AT&T's filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update or revise statements contained in this presentation based on new information or otherwise. This presentation may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are also available on the our website at www.att.com/investor.relations. Before I turn the call over to Rick, let me quickly cover our consolidated financial summary, which is on Slide 3. Reported EPS for the quarter was $0.68, up about 26% versus the same quarter a year ago. This includes a $0.07 gain from the exchange of Telmex Internacional stock. When excluding that onetime gain, EPS was $0.61, which was up 13% over the second quarter a year ago. This is our second consecutive quarter of double-digit EPS growth, excluding onetime items. Second quarter consolidated revenues of $30.8 billion were up both year-over-year and sequentially, and that was led by continued double-digit service revenue growth in Wireless, further improvement in consumer wireline trends and continued mid-teens growth in strategic business products. In addition, our consolidated margins improved by 180 basis points year-over-year, with significant margin expansion in Wireless and also improved Wireline operating margins due to solid execution on cost initiatives. Cash flow also continues to be strong, with cash from operations for the quarter totaling $8.6 billion, which was up 9% year-over-year and free cash flow of $3.7 billion. As a reminder, we have moved Sterling Commerce to discontinued operations and we've restated eight quarters of history. Comparisons we'll be showing you today are based on results from continuing operations. With that quick overview, I will now turn the call over to AT&T's Chief Financial Officer, Rick Lindner. Rick?

[Rick Lindner:]

Thanks, Brooks, and good morning to everyone joining us on the call. Before we get into detailed results, let me start with a few quick comments on the quarter overall. And the second quarter highlights are on Slide 4. The main point I'd like to make, starting out, is that we again delivered a very strong set of financial results, as Brooks mentioned. We had our second consecutive quarter of double-digit EPS growth, excluding some onetime items. Consolidated revenues were up both year-over-year and sequentially. Margins expanded and they expanded Wireless, in Wireline and in total, and cash flow was strong. So we're pleased across the board. The team is executing at a high level and the financial results are solid. We continue to have a positive long-term outlook for the business, and the results we put up in the first half clearly add to our visibility and confidence for the second half of this year with an improved full year outlook. That comes from a number of things. First, we've got terrific momentum in Wireless. Wireless service revenues grew double digits. Postpaid ARPU grew again for the sixth consecutive quarter. We also had our best second quarter ever for organic net adds at 1.6 million. Our churn rates continued to improve and we hit best-ever levels again. And both integrated devices and connected devices continue to be strengths for us. Even with strong iPhone activations in the quarter, we delivered substantial year-over-year Wireless margin expansion. And second, improving trends point to a return-to-revenue growth in our Consumer Wireline business. U-verse continues to scale, and it's driving growth in consumer IP revenues. And we posted our second consecutive quarter of sequential growth in Consumer Wireline. Third, we continue to see good traction in our business markets, and revenue trends are steadily moving in the right direction. And finally, we continue to execute well on the cost side, which has helped us deliver strong margins and strong free cash flow. So there's a lot of be positive about in terms of our current results as well as in the look ahead. With that as background, let's take a look at consolidated revenues on Slide 5. Our revenues totaled $30.8 billion for the quarter. That's up about $200 million versus the second quarter of a year ago. As you can see on this chart, our overall revenue mix continues to undergo a substantial and positive transformation, increasingly weighted to Wireless, to Wireline Data and Managed Services. In the second quarter, 71% of revenues came from these categories, and that's up from 66% a year ago and 61% two years ago. Combined revenues from these sources grew nearly 8% in the second quarter. The drivers behind this transformation are clear. First is the explosive growth the industry has seen in mobile broadband. That's an area where AT&T has set the pace and where we're well positioned going forward. We're also seeing a transformation in Wireline Data with the emergence of U-verse and with strong mid-teens growth in strategic business services, even during the economic downturn. When you put this together and look at Data Services, both Wireless and Wired combined, they are the primary growth drivers. Total data revenue grew 15% year-over-year. And we expect this mix shift in revenues to continue, and the company is well positioned for it. Now let's take a look at Wireless, starting on Slide 6. As the Wireless business evolves, our focus has been on data and ARPU growth, and our results this quarter show the strength of that approach. Wireless Service revenues grew over 10% and are up more than $1 billion versus second quarter a year ago. The standout metric for us was postpaid ARPU, driven by mobile broadband and continued strong data adoption. Postpaid ARPU grew 3.4%, and that's despite adding 1.6 million subscribers from an acquisition late in the quarter. Churn also continues to perform at record levels, and we had 1.6 million organic net adds, our best-ever second quarter, to get us to a total of over 90 million subscribers. Postpaid net adds were 500,000, with continued migration at the base to integrated devices. And prepaid increased by 300,000 due to the introduction of the iPad 3G. Customer response to the iPad 3G has been very positive since its launch at the end of April. We also added nearly 900,000 new connected devices

[Brooks McCorcle:]

Okay. Perky, why don't we go ahead and open the line for Q&A?

[Operator:]

[Operator Instructions] And our first question comes from Simon Flannery with Morgan Stanley.

[Simon Flannery:]

Rick, one of your last comments there was about the rates in the free cash flow guidance. You've got your leverage down to 1.5x. In terms of returning cash to shareholders, can you just help us think about your Q1 buybacks at this point? Obviously, a very attractive yield in the equity markets versus the bond markets and how dividends play into that. And then just to understand on the guidance, for Q3 in particular, you've put out the early upgrade offer of six months. Obviously, the iPhone came in a little bit later this quarter. So is there anything we need to be aware of timing of margins, Q3, Q4 this year versus Q3, Q4 next year? Or is it going to be -- impact going to be fairly modest?

[Rick Lindner:]

First of all, on cash flow, one of the things we're very, very pleased with is the cash flow performance over the last 18 to 24 months. We've had a lot of focus and had just terrific results on cash flow during a period that, as you all know, has been very, very difficult economically. That cash flow has given us the ability to continue to invest in the business through capital expenditures. We made also some significant purchases of Wireless Spectrum. We closed two very nice Wireless acquisitions. And so all of those things have helped us position the business going forward. In addition to that, we have paid down debt, and we brought our credit metrics back into the top end of the range. That represents our target range. So going forward, that does give us some flexibility to use excess free cash flow after payment of dividends for things other than debt reduction. And we're certainly going to consider those options. And one of those obviously is share repurchase. In terms of the guidance going forward, as you noted, we will probably see some degree of acceleration potentially in upgrades of iPhones from fourth quarter to third, as the iPhone 4 availability continues to improve from a supply standpoint. But I don't think that will have a -- it certainly will have no impact on the total year results. And our total guidance for the year may have a bit of an impact in 3Q, but I think it will tend to be more modest.

[Operator:]

Our next question comes from John Hodulik with UBS.

[John Hodulik:]

First, on the Wireline margins. It looks like you saw some real outperformance there, up 80 bps annually after a decline in the first quarter. Is that what we can expect or that at least an annual increase in the second half of the year? And then sort of related. The broadband numbers, at least on a net basis, were somewhat weak. Could you talk about what you're seeing from a competitive standpoint from the cable companies, and then maybe if any sort of increased spending to counter that might affect the margins going forward?

[Rick Lindner:]

Sure, John. First of all, we are pleased with the margin performance. The team's been working very hard on costs. And it is all tied into the series of initiatives that we put under the umbrella of One AT&T [ph]. And the exciting part about that is it positions the company to provide services to customers and to interface with customers in the way they want to work with us, which is to be able to, through single points of contact, be able to purchase both wireless and wired products. So it's a better customer experience. And at the same time, it gives us real opportunities to consolidate organizations, to eliminate systems, to consolidated processes, all of which allow us to continually take costs out of the business. It's what has helped us reduce costs and reduced force, as we talked about the presentation, throughout the first half of this year. In addition to that, we are seeing now some benefits of work that we've done in our benefit plans, particularly through bargaining and particularly through our medical plans last year. We're starting to see some of the benefits from that, and we'll continue to see that as we go through the next couple of years. So all of those things are helping on the cost side. We've also had some other factors that have helped. We've been working very hard. We've got a consolidated, dedicated group that is working to reduce access costs, the amounts we pay to carry traffic and to use other carriers' networks. And we've had good results there, reductions in access costs and reductions in improvements in the trends there. And we're seeing good results now, frankly, despite the economy, in bad debt expense. So all of those things obviously have helped on the margin side. As we go forward, we will continue all of those efforts. And I think that will continue to help us maintain margins in our Wireline business. And our outlook would be to continue to perform with EBITDA margins in the lower 30% range, similar to what you've seen in the first half of the year and in the second quarter. With respect to broadband, we did have a weaker broadband number in the second quarter. And I think that was due to two things, primarily. One is just normal second quarter kind of seasonality. But also, we have seen competitors become more aggressive with promotions targeted specifically at our non-U-verse areas. And we will respond and are responding to those. We'll respond in a targeted fashion in terms of offers and promotions. But more importantly, we're also building infrastructure this year and building out IP DSLAMs in some of our non-U-verse areas that give us the ability to offer more robust data speeds and have a stronger broadband offering in those areas, and I think that will help as well. So our outlook is, as we go forward into the third quarter and the second half of the year, is that we should see some improvement in those overall broadband numbers. At the same time, we continue to be very pleased with U-verse performance and the performance in the U-verse areas. I think we'll also see a bit stronger results going forward in U-verse. One, it was affected a little bit just in the second quarter from a seasonality perspective. But in addition going forward, the ability to utilize pair bonding will expand our reach. So it brings more homes that we can now reach with the U-verse product set and gives us more homes to market into. One last comment I'd make with respect to really broadband but also just total revenue connections in the consumer area is, as you know, we've been reporting for many years now the revenue connections number. And that's an important indicator of consumer revenues. But it's also important to note that not all revenue connections are created equally. And so as you see in our second quarter results, we had some weakness in some of the connection numbers. Some of that, to a large degree, is seasonal in nature. But at the same time, we continue to see strong and improving revenue trends. And so when you look underneath that, what you see is that where we tend to lose some connections are in some lower ARPU voice and lower speed, lower ARPU broadband products. Where we're gaining connections, and U-verse is a perfect example of this, if you look at in the U-verse areas, we're gaining connections with customers who were buying multiple products, triple and quad play kinds of bundles. They're buying higher speed data products, and they're buying high-end video packages. So as a result, when you look at our broadband numbers, even though the total broadband declined a bit in the quarter, our overall consumer broadband ARPU is up year-over-year over 5%. And our consumer revenue per household is up about 7.5%. And so that's what you see driving those revenue results and as well contributing to margin results, because when you sell a bundled set of products and when you sell higher ARPU products into households, it gives you the opportunity to maintain and strengthen margins.

[Operator:]

Our next question comes from the line of Mark (sic) [Mike] McCormack with JPMorgan.

[Michael McCormack:]

On the Wireline margin side, just maybe a little clarification on John's question. Can you give us a sense for whether it was probably more headcount related? Was that more front-end loaded in this quarter or back-end loaded in Q1? And can we expect sort of a similar trend throughout the year, or is this sort of first-half phenomenon? And secondly, I was a little surprised by positive commentary regarding sales improvement on the business side. And I guess there was a comment about economic metrics improving as well. Can you just sort of clarify what you're seeing there?

[Rick Lindner:]

Sure. Well, first of all, on Wireless margins, I think some of our LANs [ph] from a force standpoint are probably a bit more front-end loaded for us this year, but we'll see. And it really will be determined by how volumes and what kind of demand growth we see as we go through the second part of the year. And again, the big drivers of the margin improvement are the to things that we talked about. So our biggest expenses, first of all, are force, wages and benefits and then access expenses. And so those are the areas that we have focused on and we'll continue, obviously, from the improvements we've made in our benefit plans, from the reductions we've made in force. We'll continue to see those benefits as we go forward in the second half of the year. Wireline, as you know, is also going through a significant transformation in products from voice to video and data. And what we're working very hard to do is to manage the margins and the profitability of that mix of services as we make the transition. And to do that, we have to continually monitor and migrate costs out of services and areas that are declining ago, and we need to continue to improve margins in the data services and the video services that are growing. So it's really working both ends of that equation, and we've done a good job up to this point. And my expectation is we'll continue, as we go in the second half of the year, to be able to manage that and maintain those margins in the kinds of ranges you saw in the first half of the year. The other question had to do with business sales, and just let me be clear. When you look at the trends over the last three or four quarters, we are seeing some improvement in three or four of the economic metrics that we believe are important relative to our business revenue trends. But that improvement is, I would characterize as being modest and slow. And the economic trends are, first of all, in unemployment, where unemployment continues to be stubbornly high. It's improved a bit, but not seen, frankly, much movement there. We are seeing some improving trends in industrial production. Again, slow and modest. We are seeing some improvement in business formations at the low end of business, and so those are also helpful. But overall, what I'd characterize in business is we expect going forward, in the remainder of this year and as we get into 2011, a steady improvement. But it will be a slower improvement. We're not anticipating any kind of V-shaped recovery, if you will. One other thing I'd add in business, and this is also important, we've talked about this in the past is, the business group as well as our operations folks had done a terrific job in managing the cost and the margin side of supporting business customers. So as we've gone through the last 18, 24 months, our fully allocated margins in business have stayed very stable. And in fact, in the last couple of quarters, we've seen a bit of an increase in margins on the business side. And that's been encouraging to us. One of the things we've talked to you all about is our belief that the things we have done on the cost side will allow us to leverage that cost structure and gets some margin improvement as we started to see some continued improvement in revenues. And I think we're seeing a bit of that now.

[Operator:]

And our next question comes from Jason Armstrong with Goldman Sachs.

[Jason Armstrong:]

First, you put up nearly 4% growth again on postpaid ARPU if you adjust for the Alltel acquisition. As we think looking forward, layering in Alltel fully and then some of the tiered data plan impacts, how does that shape the outlook for postpaid ARPU growth from here? And then the second question, there were some comments over the weekend, I think from Randall in an FT [Financial Times] article talking about acquisition opportunities, in particular mentioning international wireless. Can you flesh that out for us a little bit? I'm just wondering, maybe specifically, parameters around what constitutes sort of an attractive market opportunity for you? And then maybe as we think through investing, how relevant is control versus minority stakes?

[Rick Lindner:]

Sure, Jason. First of all, on postpaid ARPU growth, we continue to be very pleased with the performance. And obviously, it's driven by data revenues by growth and the penetration of integrated devices as we talked about in the presentation. We continue to see good results there, and we continue to have upside potential. I believe that integrated devices at some point will get up into the 70%, 80% range of the base, maybe higher. It's just the direction that the market is going. It's very early on the tiered wireless data plans to really give you much in terms of the results and how that will impact the trends. I'll tell you on kind of a macro basis, I think what it will do is it will put a little bit of pressure on ARPU and data growth in the near term as some customers migrate down to some lower price points. But obviously, it puts wireless data in a much better position and provide some growth opportunity going forward. I don't think it will dramatically change the trajectory of ARPUs or revenue growth, but it may reduce the growth rates a bit as we go forward over the next year or so. The early results on the tiered data plans though have been I think pretty encouraging and on balance, pretty much what we expected. We have seen some migrations of customers from a $30 unlimited plans down into the lower tiered plans. But the migrations at this point have tended to be at kind of the lower end of our range of expectations. And originally, to be honest, we had expected virtually all of those customers to migrate down to the lower price point. And in fact, we've had a portion of those customers more than we had expected migrating but just migrating to the $25 plan. So from an ARPU perspective, all of that is a bit better than we had expected. On the other side, we are seeing nice growth in terms of customers that are now upgrading to integrated devices and moving into the lower tiered plan. And so I think we are seeing the benefits of lowering the point of entry so that customers can move into the integrated device, begin to try the data services. And we believe over time, based on how much data they use, they will then begin to migrate up to higher tiered plans. So all in all, I think it's been within our expectations. With respect to acquisitions, I would tell you that while we have looked at international opportunities particularly with respect to some emerging markets, when we look at those kinds of opportunities, we look at a number of factors including the cost, can we produce value to shareowners based on that investment, what the market structure is like and what partnership opportunities are available. And finding the right opportunity there is very difficult. So I believe the Chairman's comments in the article you were talking about really pointed to the fact that we haven't found opportunities there that we feel are the right fit for us. Generally, if we were to make an investment in most cases, we would want the ability to have substantial control over operations, although the one area that has been very successful for us, and that we're very pleased with, has been our relationship and our stake in América Móvil, which has been I think a good way for us to bring some emerging market exposure into our mix.

[Operator:]

And our next question comes from David Barden with Bank of America.

[David Barden:]

Just on related topics, Rick. Obviously, we saw the agreement to sell Sterling Commerce. Also, you guys agreed to sell a unit in Japan. It sounds like you guys are zeroing in on a strategy more focused on upgrading that portion of the rural wireline market that you can to push back on some of the cable inroads. I was wondering, are there any more plans inside AT&T to focus on divesting those parts of the business that may include some of the rural wireline markets that increasingly look non-core to the AT&T game plan? And then the second part of that, I guess, is to follow up on Jason's question. The second part of what Randall was saying seemed to be this continuing theme about the industrial logic of a satellite acquisition. But I think that as time has passed and your facilities-based video has rolled out, it seems like there's less and less of an industrial logic. I was wondering if you could kind of speak to where that issue stands internally now.

[Rick Lindner:]

Sure, David. As you noted, we've done a couple of divestitures. And as you would expect from us is, I think every company does, we are continually looking at our portfolio of assets and products and services and looking at areas that are not as strong a fit for us or not as closely tied to our strategies going forward. And when there are opportunities at the right prices and the right terms to make some divestitures there, we will. But that's just part of the ongoing process of looking at the portfolio of assets that we have. The rural properties are interesting in terms of looking at those, because a couple of things that they do for us is -- our business is scale-related. And so when we look at those properties, they tend to produce pretty good cash flows, and the direct costs are relatively low related to many of those properties or they are shared across our total infrastructure. And so we continue to look at opportunities there to strengthen the position, to increase and improve our broadband capability, to utilize our relationships and commercial agreements with satellite to bring a full bundle of products into those territories. And we'll continue to look at what makes the most sense for those going forward, but there's nothing imminent with respect to those. And in terms of the discussion about satellite, and our businesses has gone on for many years. And there are always, again, are advantages of scale and the ability to leverage the size of customer bases to reduce content costs. But in all acquisitions and opportunities, you look at what are the financial characteristics and opportunities and can you create value. And obviously, as we've gone up to this point, we felt very good about the path we're on. And as you heard today, and as you see again in our results, you continue to see the growth in the U-verse platform. And the strength of that, frankly, is in its ability to provide voice, data and video, a full bundle of products all over a common infrastructure. And so we'll continue to push down that path. And you see the results. You see the improvement it's making in our consumer business and our consumer revenue trends. And so I think we're looking at all the right things. I think we're following the right path with respect to that consumer business.

[Operator:]

Our next question comes from Rick (sic) [Phil] Cusick with Macquarie.

[Phil Cusick:]

So let's talk about iPad a little bit. I would assume that that's the majority and maybe more of the prepaid adds you did this quarter. I know it's early in the experience here, but can you talk about how these customers act? What do they do in terms of usage versus iPhone? How long do they stick around? Are they trying it for a month and then they're dropping off? Are they sticking around for a little while and recognizing it's only been out there for two months? But I wonder if you can go through that with us a little bit.

[Rick Lindner:]

Sure, Phil. You are right. They've only been out there, at the longest, a couple of months, and so not a lot of history at this point. What we do see is that, first of all, in the quarter, we did 400,000 to 500,000 iPad 3Gs over that two-month period that we're activated on the network. The majority of those, probably in the 75% to 80% range, come on at the higher data package. So originally, some signed up at the $30 package, and then as we introduce our tiered pricing, they're coming on at the $25 2 gig level. And overall ARPU so far, again, it's very early on -- in the same range as our prepaid base kind of upper 20s to $30 customers. And usage patterns are about that we've expected so far, which is above our typical iPhone customer but less than our typical LaptopConnect customers. So in all respects, I think the iPad numbers, metrics, ARPUs, volumes have been in the ranges that we expected. One thing that's been encouraging and a bit surprising so far is the level of interest from business customers. And when we first introduced the iPhone, the businesses and in particular, CIOs of our business customers, were reluctant. And they kind of push back on bringing the iPhone into their infrastructure. And over time, that's, as you know, has changed dramatically, and now we have businesses that are developing applications and putting their own applications and content down on the iPhone base within their companies. And so that's evolved. Well, right from the beginning with the iPad, we've had a number of our business customers expressed interest. A number of them had trials going on. They see a lot of opportunity to use the iPad within their business. And in fact, right before the call, Brooks and I were just talking. And she has downloaded -- as you go through earnings, we produce a lot of paper, obviously, with presentations and backup materials. She's got all of that downloaded now on her iPad. So I think we'll be doing much more of that going forward. And that's just an example where people see the opportunity, businesses see the opportunity, in many cases, to use the iPad potentially in place of laptops for many of their people that travel. So it'll be interesting to see how the product evolves. But so far, it's been very good.

[Operator:]

Our last question comes from the line of Tim Horan with Oppenheimer.

[Timothy Horan:]

Maybe just a little bit more clarity. Rick, could you give us some color on CapEx for the year and for next year? And maybe just to narrow down the earnings guidance a little bit. You're up kind of 13% this quarter year-over-year, and it seems like the trends are very strong. But I know you have Alltel impacting you on the second half of the year. Should we be thinking about kind of low double-digit earnings growth for this year and maybe kind of the same range next year in this economic environment as the type of guidance you're trying to convey at this point?

[Rick Lindner:]

Sure, Tim. First of all, in CapEx. CapEx, we're right on target and plan through the first half of the year to be in the $18 billion to $19 billion range that we guided to. As you know, we said at the beginning of the year, we expected Wireless CapEx to be up a couple billion dollars this year. If you look at first-half results, I think Wireless CapEx is up about $1 billion during the first half. And so, again, we're right on target with that. We're seeing in some areas may be a bit more demand than we had in the original plan, but not enough to change our guidance or total CapEx for the year. So I think everything this year is right on target. We're in the very early planning stages to update our plans for next year. But on a macro basis, what I would expect at this point as we look forward over the next few years is that overall, we'll continue to be in a similar range, kind of lower teens as a percent of revenues. But you will see some continued shift in our CapEx between Wireline and Wireless. Obviously, as we get to end of next year, we'll be ramping up our initial $30 million home build on U-verse, so that will further bring Wireline CapEx down a little bit. On the Wireless side, we'll be rolling out LTE. So you will continue to see a bit of a mix shift there. But overall CapEx, I would tell you, as a percent of revenues, in ranges pretty consistent with what you're currently seeing. In terms of earnings guidance, as you said, we've had two very strong quarters to start the year with double-digit earnings growth. As you know, it's a volatile environment out there, and we can't commit to you double-digit earnings growth every quarter. But the first half of the year has given us confidence and visibility into what we can do, both in terms of revenues and margins in the second half. And I think we'll continue to have the opportunity to post strong earnings growth in the second half of the year. We've got a couple of things that will be different from the first half. We will incur some costs as a part of the acquisition of the Alltel properties. And as you know, the majority of customers there, we acquired 1.6 million customers. The majority of those are postpaid, about 1.4 million, and the majority of those customers overall are CDMA customers. And so we want to, as quickly as possible, build out the GSM networks in those footprints and convert that base to GSM. And there's a cost associated with doing that, so you'll see some impact from that in the second half of the year. And as we talked about on one of the earlier questions, as we go into third quarter, we'll have a bit of an acceleration of some upgrades to the iPhone 4. But overall, as I mentioned in the presentation, versus where we were at the beginning of this year, better visibility into earnings growth and more confidence in earnings growth as we go through the second half of the year. Folks, if I can, I just like to offer a couple of closing comments. And first of all, I want to thank all of you for taking part in the call today. And I just like to emphasize first that, again, we delivered another strong quarter of financial results, with consolidated revenues up year-over-year and sequentially. Our margins were strong and growing with expansion across the business in Wireless and Wireline and consolidated, and this drove double-digit earnings growth for the second consecutive quarter. Secondly, we continued our momentum in Wireless, with double-digit service revenue growth and our sixth consecutive quarter of postpaid ARPU growth. Also, delivered substantial year-over-year Wireless margin expansion even with a record quarter in terms of iPhone and integrated device activations. And third, we continue to execute well on the cost side, while efficiently managing the business. And this helped us deliver solid margins and strong free cash flow and put's us in a great position to continue delivering good results in the remainder of this year. And we have a fundamentally positive outlook for the business long term. And near term, feel good about the second half of the year. Our job now, as I've mentioned before, is to continue to execute and deliver those financial results for you. That's where our focus is. I want to thank you again for being on the call, and as always, thank you for your interest in AT&T.

[Brooks McCorcle:]

Thanks, everybody. Have a great day. Thank you, Perky.

[Operator:]

Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you very much for your participation and for using the AT&T Executive TeleConference. You may now disconnect.