{"id":64918,"date":"2018-06-14T21:48:07","date_gmt":"2018-06-14T13:48:07","guid":{"rendered":"https:\/\/wp-productionenv-bjg9h2g2bgg5b8aa.southeastasia-01.azurewebsites.net\/news\/att-and-time-warner-reaction-to-us-mega-merger-2\/"},"modified":"2018-06-14T21:48:07","modified_gmt":"2018-06-14T13:48:07","slug":"att-and-time-warner-reaction-to-us-mega-merger-2","status":"publish","type":"post","link":"https:\/\/starpath.global\/news\/att-and-time-warner-reaction-to-us-mega-merger-2\/","title":{"rendered":"AT&T and Time Warner: Reaction to US Mega Merger"},"content":{"rendered":"

In one of the biggest deals in U.S. media history, AT&T<\/strong> has been given the go-ahead to acquire Time Warner<\/strong>. Given that AT&T owns DirecTV<\/strong>, one of the largest satellite pay-TV operators, the deal has significant ramifications for the satellite sector given that AT&T now has huge presence across the U.S. media landscape. The deal also contains some eye-watering figures.<\/p>\n

\u201cTime Warner will be a positive for AT&T\u2019s income statement, at least initially. But it will be a negative for the balance sheet. The new AT&T will carry an astounding $249 billion of debt (inclusive of operating leases and post-retirement obligations). If pro forma AT&T were a country, it would place 32nd on the list of highest total debt burdens, between Indonesia (at $335 billion) and the United Aarab Emirates ($220 billion),\u201d Craig Moffett, founding partner at MoffettNathanson Research<\/strong>, wrote in a research note.<\/p>\n<\/p>\n

\"Craig
Craig Moffett, founding partner at MoffettNathanson Research. Photo: Via Satellite sister publication CableFax.<\/figcaption><\/figure>\n<\/p>\n

Moffett talks in detail about the impact the DirecTV acquisition has had on the overall AT&T business. He said that, when the telecom company bought the satellite Direct-to-Home (DTH) operator, AT&T made clear it understood it was buying its way into a pay-TV business that would eventually begin to decline. \u201cWell\u2026 it has,\u201d Moffett writes. \u201cThey [AT&T] have since conceded that the decline is faster than they expected.\u201d<\/p>\n

Moffett however believes AT&T has exacerbated the problem with two other stated strategies. \u201cFirst, the company has embraced a strategy of bundling a satellite video product with broadband and wireless. The plan was to grow economic value through lower churn. Second, they have actively promoted the growth of [Over the Top] OTT video (DirecTV NOW), often at the expense of DirecTV\u2019s linear offerings,\u201d he said. \u201cUnfortunately, bundling has amounted to little more than discounting, impairing both revenue growth and margins. And the OTT strategy has only accelerated the decline in revenue and margins, replacing high ARPU\/high value customers with low ARPU\/profitless ones. Three years after the deal, the toll these twin strategies has taken on the business is reflected in the company\u2019s consolidated results.\u201d<\/p>\n

But, Moffett believes the problem is more than just with DirecTV. \u201cAT&T\u2019s linear satellite video business is now contracting sharply, with DirecTV\u2019s subscriber base declining 3.3 percent Year-on-Year in the last-reported quarter, and their total linear TV base, inclusive of U-verse, down 4.4 percent,\u201d he added. \u201cWith the growth of DirecTV\u2019s OTT service, DirecTV NOW, ARPUs have begun to fall as well. But the problem is more than mix alone. Linear video pricing, facing the pressure of much cheaper OTT alternatives, has slowed, and ARPU growth has stalled as customers trade down to skinnier traditional packages.\u201d<\/p>\n

Moffett describes Time Warner as \u201can enormous acquisition\u201d for AT&T. He points to the fact that even after the decline in AT&T\u2019s stock price over the past year which has lowered the effective price being paid for Time Warner, the acquisition will have cost AT&T more than $100 billion (including Time Warner\u2019s debt and the past 18 months of interest paid on the bridge loans first drawn more than a year ago). He adds that it is a testament to just how large AT&T has become that even an acquisition as costly as this one will only account for about 15 percent of revenues for pro forma AT&T. \u201cAnd yet, despite its relatively modest share of the portfolio overall, the acquisition of Time Warner completes an extraordinary transition for the company. Five years ago, AT&T was purely a telecommunications operator, split about 50\/50 between wireless and wireline. Today, AT&T is nearly as much an entertainment business as it is a wireless or wireline one; simplistically, the business can be thought of as one-third wireless, one-third wireline, and one- third entertainment,\u201d he said.<\/p>\n<\/p>\n

\"Carlos
Carlos Placido, senior analyst at NSR. Photo: NSR.<\/figcaption><\/figure>\n<\/p>\n

Carlos Placido, senior analyst at NSR<\/strong>, says his firm\u2019s reaction to the deal is \u201cmulti-faceted.\u201d<\/p>\n

\u201cThe sheer size of the merger raises eyebrows but should come as no surprise, being a new example of an accelerating progression where traditional \u2018platforms\u2019 become less relevant in favor of retail reach, scale, branding and consumer preference for bundled services, which define who owns and bills the consumer,\u201d he said.<\/p>\n

Placido believes more Mergers and Acquisitions (M&A) activity and vertical integration of access and content businesses appears inevitable, not only because of the domino effect of large M&A deals but also because matured markets have reached saturation in penetration levels for wireless, pay-TV and internet. However, he thinks a merger of this size with no conditions, in the context of recent modifications to Net Neutrality, is worrisome because it could mean fewer choices of high-quality content to consumers and a competitive access market modulated by prioritization agreements.<\/p>\n

\u201cWith cord cutters, non-linear viewership and mobile streaming being irreversible trends, one has to think about how AT&T could play with internal \u2018subsidies\u2019 across its media and access properties (wireless, fixed and satellite) that could result in non-competitive behavior,\u201d he said.<\/p>\n

The deal could also be a pointer to other trends going forward in North America.<\/p>\n

\u201cLooking a bit beyond the telecoms and media industry, one can consider this merger as perhaps the best example of how big of a threat internet giants have become to even the largest telcos, mobile carriers, programmers and Mobile Service Operators (MSOs). There is increasing concern about the size and power of companies like Amazon<\/strong>, Google<\/strong>, Facebook<\/strong>, Apple<\/strong> and Netflix<\/strong>,\u201dPlacido comments. \u201cAs an example, Amazon \u2014 in different and creative ways \u2014 is also said to leverage cross-sector subsidies to grow. NYU Stern professor Scott Galloway and other experts have been raising awareness of how Amazon is benefiting from its profitable AWS cloud business to subsidize growth in other business units, allowing it to become more competitive and larger in content and retailing, pushing smaller players and retailers out of business.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

In one of the biggest deals in U.S. media history, AT&T has been given the go-ahead to acquire Time Warner. Given that AT&T owns DirecTV, one of the largest satellite pay-TV operators, the deal has significant ramifications for the satellite sector given that AT&T now has huge presence across the U.S. media landscape. The deal […]<\/p>\n","protected":false},"author":1,"featured_media":64919,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":"","_links_to":"","_links_to_target":""},"categories":[2],"tags":[],"class_list":["post-64918","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"acf":[],"_links":{"self":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/posts\/64918"}],"collection":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/comments?post=64918"}],"version-history":[{"count":0,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/posts\/64918\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/media\/64919"}],"wp:attachment":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/media?parent=64918"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/categories?post=64918"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/tags?post=64918"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}