Okay. Thanks, John.
So what I want to do is talk to you about what you should expect over the next 3 years.
Before we get into the numbers, I want to begin with a broader discussion on our strategy.
If you go to Slide 9, we'll outline this for you. Since 2012, we've made a series of strategic investments, and those investments have been aligned around 2 overarching trends.
First, consumers will continue to spend more time viewing premium content; and second, businesses and consumers will continue to demand more connectivity, more bandwidth and more mobility.
When we began pursuing this strategy, we saw an emerging world in which consumption of video and other premium content was no longer bound to your living room. And everything we expected has arrived, and it has arrived sooner than we or anyone else anticipated. And now the foundational elements of our investment thesis are clearer than ever.
It all starts with advanced high-capacity networks. From our iPhone experience, we knew the mobile Internet revolution in a world of streaming video would require much more capacity than people were anticipating, so we began investing for future demand.
First, we spent $20 billion on premium spectrum licenses.
Next, we acquired Leap Wireless, which gave us additional spectrum; and Cricket's prepaid business. We've doubled the size of that business and transformed it from losing money to healthy margins.
And finally, we were selected to build and manage the First Responder Network for the United States government, and this brought with it another layer of premium spectrum capacity.
Over the last 18 months, we've been putting all this capacity into service, and the performance results have been dramatic. AT&T now has the fastest and most reliable wireless network in the U.S. We've invested to extend these same capabilities south into Mexico.
In 4 years, we built a high-speed nationwide network and have doubled the customer base. We've also been undertaking the most aggressive fiber deployment program in the U.S. since 2015 with over 20 million locations passed.
Over the next 3 years, our strong spectrum position will allow for lower capital intensity, and that bodes well for growing operating margins.
The second essential element is direct customer relationships, and we have about 170 million of them across mobile, pay TV and broadband. And that number reaches 370 million when you include our digital properties such as cnn.com, Bleacher Report and Otter Media.
As we prepare to launch HBO Max, our direct customer relationships are an asset that any streaming company would love to have.
Gaining scale in linear pay TV was the core rationale behind our DIRECTV acquisition. We realized the satellite business was mature and we anticipated subscriber losses.
However, the content savings quickly turned our U-verse pay TV business from loss to a profit. And since we bought DIRECTV, it has generated healthy cash flows of over $4 billion per year or a total of $22 billion in cash by the end of this year.
Third, we were convinced that the value of premium content would increase significantly over time as consumer demand continued to grow and new forms of distribution emerged.
And I think you've already seen that with some of the multiples paid for media companies after we did our deal. Vertically integrating content and distribution is the future, and we're seeing it across the board.
And last, the vast distribution network and subscriber base brings unique viewer and customer insights. Pairing these with our large advertising inventories at DIRECTV and Turner and creating an ad tech platform is a unique opportunity, and every work -- every move we've made has been focused on building these four critical capabilities.
So now as we conclude 2019, we are the clear leader in network performance and capacity.
We have one of the premier entertainment companies in the world with a broad-based presence in premium content and direct customer relationships, and I wouldn't trade places with anyone.
So if you turn to Slide 10, I want to take a look at our 3 year outlook.
Looking ahead, let me take you through the keys to our financial outlook, to our capital allocation plan. And all this will drive compelling returns for our shareholders.
I'm going to start with the top line.
We expect total company revenues over the 3-year period to grow by 1% to 2% per year. This will be driven by strength in Mobility, increased fiber penetration and WarnerMedia.
As mentioned earlier, our wireless business is now enjoying operating leverage from investments made over the last 5 years.
Our WarnerMedia cost synergies are on target and EBITDA at AT&T Mexico is ramping, and we're identifying significant opportunities for margin improvement through ongoing cost evaluation and operational review.
Given our incremental investments in HBO Max in 2020 and our expectations for strong growth in equipment revenue driven by the 5G upgrade cycle, we expect our adjusted EBITDA margin to be stable in 2020. From there, we will drive 200 basis points of EBITDA margin expansion by 2022, above the 2019 levels.
Improving margins 200 basis points will give us an EBITDA margin of 35% in 2022. And applying a 35% margin to a revenue base that's growing 1% to 2% per year produces an EBITDA lift in the neighborhood of $6 billion in 2022, and that includes our investment in HBO Max.
The drivers for this EBITDA margin expansion are: WarnerMedia cost synergies, continued improvements in our wireless business, continued EBITDA growth at AT&T Mexico and our plan to take out costs across the entire company.
In fact, we've hired Bill Morrow. He's a Special Adviser and Managing Director of Process Service and Cost Optimization, and he's leading our enterprise-wide cost-reduction initiative.
Bill has been CEO of large communication companies in the U.S., Europe and Australia, and he has a proven track record of creating best-in-class cost structures. He'll have full authority to examine and change our cost structure across the entire company to ensure that we achieve the targets that we're outlining today.
Bill's work will be overseen by the Board's Corporate Development and Finance Committee and myself. And it will be above and beyond what we're already doing with network virtualization, real estate consolidation and our other ongoing cost-reduction initiatives.
Our free cash flow has grown significantly over the past few years, and that's thanks in part to our DIRECTV and Time Warner deals being cash flow-accretive on day 1.
We expect free cash flow to be at $28 billion in 2020.
And as the HBO Max investment declines and we execute against our cost take-out initiatives, free cash flow will grow by more than $1 billion in 2021 and another $1 billion in 2022, reaching $30 billion to $32 billion in 2022.
Now let me talk about our 3 year capital allocation framework. We'll continue to grow the dividend as we have since I joined the company. Expect modest annual increases and a dividend payout ratio going below 50% in 2022. After paying the dividend, we expect to use 50% to 70% of our free cash flow to retire about 70% of the shares we issued for the Time Warner deal.
And we will continue to reduce debt going forward.
Our target is that by 2022, our net debt-to-adjusted EBITDA ratio will be between 2 and 2.25 quarter times, and we'll have retired 100% of the debt we took on for Time Warner.
This is a very comfortable leverage ratio for us.
We have routinely pruned the portfolio of assets that don't contribute to our core strategy.
In fact, when you conclude what we've done in 2019, we've monetized more than $30 billion in non-strategic assets over the last few years.
You should expect continued evaluation of our businesses and more progress on divesting assets that are no longer core to our fundamental mission.
As I mentioned earlier, we expect to realize about $14 billion in non-core asset monetizations this year, and we're targeting $5 billion to $10 billion next year. This is a continuous process for us. It is one of the areas in which our Corporate Development and Finance Committee dedicates a tremendous amount of time and attention.
With the support of our Board generally and the Corporate Development and Finance Committee in particular, I've instructed our executive team to begin the next review of our portfolio.
So we're going to give you regular updates on our progress as we've done over the last year.
We're committed to an objective, diligent and disciplined process. We'll analyze the merits of each of our businesses individually and as a part of the whole. But let me be clear, we have no sacred cows. We're always open to making portfolio moves, and DIRECTV has been the source of a lot of public speculation in that regard.
As we've said, it will be an important piece of our strategy over the next 3 years.
But no portion of our business is ever exempt from a continuous assessment for fit and performance. We'll approach it with a fresh set of eyes and clarity around the rapidly evolving consumer environment, and we'll evaluate multiple options. That includes partnerships and other structures.
Likewise, given the quality of our assets, there will be no major acquisitions during the next several years. With our financial outlook and the benefits of our capital allocation policy, we expect EPS growth in 2020 will be up low single digits. But by 2022, we expect EPS to be between $4.50 and $4.80.
That includes our investment in HBO Max of between $0.15 and $0.20 per share in 2020 and then $0.10 per share in 2021 and 2022. And as you can see, over the next 3 years, revenue, EBITDA and EPS all grow every single year.
Free cash flow is stable in 2020 and then grows in 2021 and 2022. This plan will deliver both substantial and consistent financial improvements for the next 3 years.
And before I hand it to John for his perspective on the 3-year plan, I want to say a few words about what you'll see tomorrow at Warner Bros. Studios and our investment in the HBO Max platform. This is a terrific product, and I honestly can't wait for you to see it.
John Stankey and his WarnerMedia team will take you through all aspects of the strategy, the product and the rollout, including our revenue and subscriber expectations for the next 5 years. We'll be investing to maximize the value of the service, which will drive growth and value to WarnerMedia and to AT&T as a whole.
HBO Max is a terrific platform, and we're aligned in making it great while also being responsible with our capital and value. We'll make the significant investments required to win in the marketplace, but we'll also hit our numbers and ensure that we deliver on the promises that we're outlining for you here today.
I feel really good about this plan, and I'm highly confident in hitting each of our 3-year objectives.
So now I'll ask John to provide his perspective on our 3-year plan.