AT&T clears the decks to focus on 5G and fiber

May 17, 2021, 3:50 PM UTC

When Michael Armstrong took over as CEO of AT&T in 1997, the telecom giant was dependent on long-distance phone calling service. (Really, kids, that used to be a separate market where you paid more depending on far your call traveled.)

Armstrong could see long distance was drying up. So, he tried to diversify by spending $100 billion buying cable TV services. The idea was to sell consumers on a bundle of phone, TV, and Internet service. But Armstrong was too early and the took on too much debt. Within a few years, he sold the whole cable operation to Comcast for half what he paid.

What was left of AT&T was hoovered up by Baby Bell SBC in 2005. That business then increasingly started to focus on cellular service as its best growth opportunity.

A decade later, in 2015, then-CEO Randall Stephenson worried the wireless surge might be slowing. Seeking to diversify, he spent $67 billion including debt to buy satellite TV service DirecTV. In 2018, he added entertainment giant Time Warner for $109 billion. The idea was to sell people a bundle of wireless and entertainment service.

Tell me if you’ve heard this one before: Turned out Stephenson was too early and took on too much debt. On Monday, AT&T’s new CEO, John Stankey, announced a deal to free itself from managing and financing the entertainment business, following a somewhat similar deal announced in February to get out of the satellite TV business.

In the latest deal, AT&T will spin off its Warner Media unit, which includes the Warner Bros. movie studio, HBO Max streaming service, and cable channels like CNN and TBS. The collection will, at the same time, merge with smaller media company Discovery. AT&T shareholders will receive 71% of the shares of the new, as-yet unnamed company and Discovery shareholders get 29%. AT&T will also get $43 billion in cash, debt, and assumed debt from the new company.

With its debt burden lightened, AT&T will be able to focus on selling connectivity and investing in faster technologies to do so. “AT&T will have better flexibility to spend on 5G and fiber,” CEO Stankey explained in a call with reporters. Last month, AT&T announced its strategy for the next few years but had no time table for covering the country with fast 5G service. Now the carrier says it will have the money to do so by the end of 2023, about matching Verizon and trailing T-Mobile by a year or two. AT&T also said it will expand its fiber optic network to more than 30 million homes passed by 2025, double its current footprint.

The whole build up and unwinding of the Time Warner mess at AT&T sent me back to an interview I had with Stankey before that deal, five years ago, when he was in charge of video. “From the dawn of time, what we have made our money on and what we’re good at is moving a bit around,” he told me. “We do entertainment because it drives bits on our network, not necessarily because we’re great at entertainment.”

That sounds about right. But it’s way too late for AT&T shareholders, who just experienced a five-year stock return of -15%, versus 14% for Verizon and 243% for T-Mobile. And that includes the 3% bounce AT&T stock got on Monday after the deal was announced. Hopefully, shareholders can make up some lost ground by owning AT&T and its entertainment efforts as two separate stocks.

Stankey, for one, says he’ll hold onto his stakes in both stocks. “Your’s truly will be staying along for the ride on my piece of it,” he told analysts on a call on Monday. Here’s hoping there are a few less potholes than the previous ride.

Aaron Pressman


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Google holds its annual I/O conference this week, virtually for the second year in a row. Google typically uses the attention to unveil new phones, the next version of Android, and other random goodies. Rumor has it the Pixel 6 phone will have a strange new camera bump, rectangular and spanning the full width of the back of the phone. Could there also be product surprises from Google's Nest or Fitbit units? Stay tuned.

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