AT&T investors sceptical of new media giant

By BLOOMBERG

NEW YORK • AT&T Inc, fresh off its US$85 billion (RM344.25 billion) purchase of Time Warner Inc, wants to be known as a modern media company. Investors still need convincing.

The stock slipped yesterday after the phone giant added fewer wireless customers than expected last quarter, a sign its main moneymaker remains sluggish.

The miss underscored the importance of integrating Time Warner services like HBO and CNN into AT&T’s mobile and pay-television (TV) strategy.

AT&T bought Time Warner, the owner of TBS and the Warner Bros studios, to diversify its business, fuel growth in wireless customers and stem the loss of pay-TV subscribers — particularly to new rivals like Netflix Inc.

The largest US pay-TV provider, AT&T gained 79,000 video subscribers in the quarter, compared to a loss predicted by analysts. DirecTV Now, the company’s online service, reached 1.8 million customers.

With the new businesses, the company aims to deliver a slate of video programming to millions of online viewers — at home and on the go.

The addition of Time Warner movies, TV shows and pay-TV networks will boost AT&T’s annual revenue by as much as 20%, while increasing net debt by 58% to US$180.4 billion.

AT&T’s Time Warner acquisition was a long time coming. The carrier announced the deal almost two years ago, but it was fought by antitrust enforcers.

“It was clear back in 2016 when we actually did this deal that scale was important and the distribution model was changing,” CEO Randall Stephenson said on a call with investors after the company announced second-quarter (2Q) results late on Tuesday.

AT&T completed the purchase on June 14. Financial results from the acquired businesses included subscription growth at both HBO and Turner Broadcasting System Inc, which operates CNN, TNT and other channels, a 3% increase in ad revenue, and a record number of TV series in production at Warner Bros.

“Time Warner had the scale in terms of advertising inventory at cable networks, it had the scale position in terms of content creation with Warner Brothers, it was just the obvious partner for us,” Stephenson said.

The phone giant added 73,000 new wireless customers in the 2Q, missing the 83,300 projected by analysts.

Shares of Dallas-based AT&T fell 0.5% to US$31.51 in trading before US exchanges opened yesterday. The stock lost as much as 2.9% in late trading on Tuesday before recovering most of the loss. It’s down 19% this year.

Owning and distributing shows like Game of Thrones will give AT&T the ability to sell different types of video and wireless-service bundles, and generate revenue from advertising, including digital, company executives have said.

AT&T completed the takeover last month and renamed the business WarnerMedia. But the US Justice Department is appealing a judge’s ruling that allowed the deal to go through.

Regulators contend that the combination of a media company and a content distributor like AT&T, which acquired DirecTV in 2015, will lead to higher prices.

Earnings for the quarter rose to 91 cents a share, excluding some items, beating analysts’ estimates of 84 cents. Revenue fell 2% from a year earlier, to US$39 billion, and also missed analysts’ projections of US$39.6 billion.

For the year, the company said it expects profit at the high end of the US$3.50-a-share range, with capital spending earmarked at around US$25 billion.

Analysts were forecasting US$3.44 a share, the average of Bloomberg estimates.