T — Q2 2026 Financial Report Analysis

Fiber and wireless carried the quarter; a shrinking copper business and a bigger interest bill took part of it back

AT&T's revenue for the three months ended June 30, 2026 rose 2.3% to $31,558 million, but the headline understates what happened underneath. The company's new Advanced Connectivity segment — 5G wireless plus fiber and fixed-wireless internet, i.e. everything AT&T actually wants to sell — grew revenue 4.1% and operating income 20.3%. The old copper-based Legacy segment shrank 25.9%, wiping out a chunk of that. Operating income for the whole company rose 8.3% to $7,038 million, and operating margin — the share of revenue left after the costs of running the business, before interest and tax — widened from 21.1% to 22.3%.

Two terms worth defining before going further. Postpaid customers are the ones billed monthly after using the service, normally on credit and under contract — they pay more and leave less often than prepaid (pay-in-advance) customers, so carriers treat postpaid phone lines as the highest-quality subscriber they can add. Churn is the share of subscribers who cancel in an average month; at 0.86%, AT&T loses fewer than nine postpaid phone customers a month per thousand it has.

The three segments now look completely different from each other

AT&T reorganized its reporting in Q1 2026. The old Mobility / Business Wireline / Consumer Wireline structure is gone, replaced by three segments the filing describes as reflecting "the evolution of our business model to focus on delivering converged advanced connectivity services across 5G and fiber," and giving "better visibility into the progress of exiting our copper-based Legacy operations." Comparisons to older AT&T coverage need that caveat.

Advanced Connectivity is where the business is. Service revenue (recurring subscription revenue, as opposed to one-off handset sales) grew 5.1% to $23,478 million. The standout line is advanced home internet — fiber and AT&T Internet Air — at $2,926 million, up 27.3%. Management attributes that to "growth in fiber customers, including customers of our acquired mass markets fiber business," with fiber revenue specifically up 21.4% and Internet Air revenue up more than 100% "as we continue to make these services available in additional markets." Wireless service revenue grew a more ordinary 3.3%, driven by "growth in retail wireless subscribers in underpenetrated categories and converged accounts, and pricing actions that were partially offset by promotional discounts on wireless subscriber additions." Business fiber and advanced connectivity rose 10.0%, but business transitional and other — legacy corporate networking — fell 16.6% on "lower demand for Virtual Private Network (VPN) and wholesale services, both of which we expect to continue."

Legacy is the copper phone and data network AT&T is deliberately switching off. Revenue fell 25.9%, but direct costs fell only 10.8%, so segment operating income dropped 45.5% and margin collapsed from 43.6% to 32.0%. That gap is the mechanical problem with winding down a network: customers leave faster than fixed costs can be removed, and management flags that some of the cost relief was offset by "vendor settlements." Legacy still threw off $523 million of operating profit this quarter — a real number that is scheduled to disappear. Notably, AT&T assigned no goodwill to the Legacy reporting unit in its January 1, 2026 reassessment "as we expect sustained declines in Legacy service revenues."

Latin America grew revenue 16.1%, but that is mostly a currency effect rather than a better business: management says service revenue rose "primarily due to favorable foreign exchange impacts and growth in postpaid subscribers and ARPU" — ARPU being average revenue per user, the monthly bill per subscriber — while the cost line rose 16.9% "driven by unfavorable foreign exchange rates and higher bad debt expenses." When a weaker dollar inflates both sides, the peso profit is what matters, and it went the wrong way: Mexico operating margin fell from 4.4% to 3.1%. Subscriber mix tells the same story — 369,000 postpaid net adds against 1,006,000 prepaid losses, for a net loss of 668,000 total Mexican wireless subscribers in the quarter.

Organic fiber growth is real; the subscriber stock is partly bought

This is the number most easily misread. AT&T's total fiber connections reached 12,868,000, up 22.8% year over year, and total internet connections 15,479,000, up 29.5%. But AT&T closed its acquisition of substantially all of Lumen's Mass Markets fiber business on February 2, 2026 for $5,756 million in cash, and those customers are in the stock figure. The net-add figures are the cleaner read: the filing states they exclude acquisition-related activity, and on that basis fiber net adds were 367,000 versus 269,000 (+36.4%) and total internet net adds 646,000 versus 509,000 (+26.9%). So the acceleration is genuine, not purchased — the acquisition inflates the level, not the growth rate.

Fixed wireless (home internet delivered over the cellular network, cheaper to deploy than fiber but capacity-constrained) is growing fastest off a small base: 2,611,000 connections, up 77.4%, with AT&T Internet Air at 1,951,000, up 93.9%.

On wireless, 432,000 postpaid phone net adds beat the prior year's 401,000 while churn improved a basis point to 0.86% — adding more customers without discounting harder enough to make existing ones leave. Total postpaid phone subscribers reached 74,921,000, up 2.1%. Prepaid continues to shrink (−3.4% year over year), which is the lower-value end, so the mix shift is favorable. AT&T also reports that 42.5% of households taking its home internet also buy AT&T wireless — the "converged" bundle the whole reorganization is built around.

Profit grew faster than revenue, but check what's in the gap

Operating income rose $537 million. The composition matters:

• Depreciation and amortization fell $285 million (−5.4% to $4,966 million), which management attributes "primarily to lower depreciation from fully depreciated legacy assets." Depreciation is a non-cash accounting charge spreading an asset's cost over its life; old copper gear reaching the end of that life stops being charged. More than half the operating-income improvement came from this, and it is not the same thing as selling more at a better price.
• A $286 million asset abandonment charge ran the other way, tied to "the reprioritization of our spectrum strategy," sitting in Corporate & Other. Strip it out and operating income would have been roughly $7,324 million, up 12.7%.
• Cash operating costs rose only $173 million on $711 million more revenue, with management citing higher advertising, "incremental customer costs related to our acquired mass markets fiber business" and higher bad debt from subscriber growth, offset by "cost reductions from transformation initiatives, lower content licensing fees and gains on tower transactions." Gains on tower transactions are a credit to the expense line, not operating strength.

Below the operating line, GAAP and underlying performance diverge sharply in both directions, and they largely cancel:

• Interest expense rose 13.8% to $1,883 million, "primarily due to higher debt balances and interest rates on long-term borrowings." Total debt reached $143,954 million at June 30, up $7,854 million from December 31, 2025.
• Equity income from affiliates swung from +$485 million to −$29 million, because AT&T sold its DIRECTV stake to TPG Capital on July 2, 2025. That is a permanent $0.05-per-share hole in the year-ago comparison, not a shortfall this quarter.
• The tax rate fell to 13.5% from 20.3%, which management attributes to "the resolution of certain Internal Revenue Service (IRS) examinations" — worth about $0.05 of EPS and non-recurring.

So GAAP diluted EPS of $0.66 (+6.5%) flatters a soft operating picture with a tax windfall, while adjusted EPS of $0.65 versus $0.54 (+20.4%) flatters it the other way by removing the prior year's DIRECTV income. AT&T's own bridge: $0.66 less $0.05 of tax benefit, plus $0.03 for the abandonment charge and $0.01 of other items. The honest read sits between the two headline growth rates.

One more comparability wrinkle: the acquired Lumen fiber network assets sit in a subsidiary, Forged Fiber, that AT&T intends to sell a controlling stake in, so it is classified as discontinued operations. That split roughly $137 million of Q2 operating expenses into continuing operations while the matching revenue went to discontinued operations — a small drag on reported continuing-operations margin that reverses no cash.

Finally, net income attributable to AT&T rose only 2.8% while EPS rose 6.5%. The difference is buybacks: diluted shares fell 3.8% to 6,946 million from 7,219 million, with $4,669 million of treasury stock purchased in the first half.

Cash, and the $23 billion bill coming due

First-half cash from continuing operations was $18,396 million versus $18,812 million a year ago — down, but the prior year included $1,675 million from DIRECTV net of related taxes, so underlying cash generation improved. Q2 free cash flow was $4.7 billion against $4.4 billion. Capital expenditures are running hot: $10,577 million in the first half against $9,174 million, and $11,220 million including vendor financing, which the filing notes is "$1,623 higher than the prior-year comparable period." That is the fiber build, now reaching 38.6 million locations with a target of over 40 million by the end of 2026.

The larger item is the $23,000 million purchase of 600 MHz and 3.45 GHz spectrum licenses from EchoStar, agreed August 25, 2025 and expected to close "by the end of July 2026," funded "using a combination of cash on hand and term loan borrowings." That explains both the elevated $17,570 million cash balance — the filing says it "remained elevated as we anticipate the completion of our pending transaction" — and the rising debt and interest expense. AT&T is buying capacity for a network it already leases part of: it has a short-term lease on the 3.45 GHz spectrum "deployed in cell sites covering nearly two-thirds of the U.S. population."

Guidance: reiterated, with buybacks pulled forward

Alongside the quarter, management reiterated full-year 2026 and multi-year guidance: adjusted EPS of $2.25–$2.35 in 2026 with a double-digit three-year compound growth rate through 2028; adjusted EBITDA growth of 3–4% in 2026 improving to 5%+ by 2028; Advanced Connectivity service revenue growth of 5%+ in 2026 against Legacy service revenue declining 20%+; capital investment of $23–24 billion annually through 2028; and free cash flow of $18 billion+ in 2026, $19 billion+ in 2027 and $21 billion+ in 2028. Capital returns are guided at $45 billion+ over 2026–2028, holding the $1.11 annualized dividend and adding roughly $24 billion of buybacks — of which about $10 billion is now planned for 2026, an acceleration from the prior pace. Management also expects net debt to adjusted EBITDA (total borrowings less cash, measured against annual cash operating profit — the standard leverage gauge for a capital-heavy telecom) to return to around 2.5x within roughly three years of the EchoStar close.

Our read: the operating story is working — converged fiber-plus-wireless households are growing, churn is stable at a low level, and Advanced Connectivity margin expanded from 22.2% to 25.7%. The risks are not in demand but in arithmetic. Legacy's $523 million of quarterly operating profit is being deliberately retired faster than its cost base, capital investment is running above $23 billion a year, and a $23 billion spectrum purchase is being financed partly with debt into an interest bill already up 13.8%. Guidance assumes those pressures are absorbed by Advanced Connectivity EBITDA growth of 6%+ in 2026; the quarter's 8.0% is running ahead of that, which is what makes the reiterated targets credible. Watch whether Legacy cost reductions start matching Legacy revenue declines — that ratio, more than subscriber adds, decides whether 2027 free cash flow reaches the guided $19 billion.

Takeaway: AT&T's 2.3% revenue growth hides a business splitting in two — a fiber-and-wireless engine growing operating income 20.3% with genuinely accelerating organic net adds, and a copper business losing profit twice as fast as it loses revenue. The 8.3% operating-income gain leans more than half on a $285 million drop in depreciation from fully depreciated legacy assets rather than on pricing, and this quarter's GAAP EPS carries a $0.05 one-time tax benefit; the durable evidence for the strategy is the 367,000 acquisition-free fiber net adds and 0.86% postpaid churn, not the headline profit line.