AT&T Gets a Do-Over. But It Doesn't Have Much Time.
May 18 2021 - 5:10PM
Dow Jones News
By Drew FitzGerald
Once it sheds its media business, AT&T Inc. will be a
smaller, less-indebted company devoted to selling cellphone plans
and broadband internet access.
In other words, customers and investors will see an AT&T
much like the one that existed before its foray into streaming
video and satellite TV. But its rivals haven't been sitting
still.
"AT&T has a lot of catching up to do," said Craig Moffett, a
longtime telecom analyst at industry research firm MoffettNathanson
LLC. "They're almost certain to be a third player in a three-horse
race."
Mr. Moffett said company leaders made the right decision by
refocusing their attention on AT&T's core strengths, though the
business will face challenges getting an edge over rivals. But they
must still contend with business units facing high costs and
shrinking revenue.
An AT&T spokesman disagreed, saying the company's wireless
spectrum position "has never been stronger" and still has slack
capacity to serve more data to wireless customers. The company told
investors it expects to increase its overall revenue and adjusted
per-share earnings in the long run.
AT&T shares fell 5.8% Tuesday, after slipping nearly 3% on
Monday after the deal with Discovery Inc. was announced. The stock
has gained about 3% so far this year, while the S&P 500 climbed
10%.
The deal announced Monday earned praise from former SBC
Communications Inc. boss Ed Whitacre, who stitched together the
landline and wireless assets that formed the modern AT&T before
his retirement in 2007. Randall Stephenson, who as CEO from 2007 to
2020 led AT&T's attack on the entertainment business, wasn't
immediately available for comment.
"I'm happy to see us move back into a different type of
company," Mr. Whitacre said in an interview. "The wireless, the
broadband -- the businesses that we're used to...It's a very wise
move for AT&T."
AT&T won't own an equity stake in the newly formed media
company with Discovery, though its shareholders will get a 71%
share of the new business. AT&T will receive about $43 billion
through cash, debt securities and other debt shifted to
WarnerMedia.
The smaller telecom company will mean less cash returned to
investors. AT&T predicted it will pay out about $8 billion to
$8.6 billion of its cash flow as dividends, down from roughly $15
billion paid last year. AT&T declined to quantify the size of
its per-share dividend after the Discovery deal closes. The new
media business formed with Discovery is expected to prioritize
stock-price growth over dividends.
AT&T is still the country's No. 3 wireless carrier after
falling behind a newly enlarged T-Mobile US Inc. in 2020. It serves
more than 83 million cellphone customers and many more Wi-Fi hot
spots, connected cars and other mobile devices. The company also
connects 14 million residential internet users through its network
of fiber-optic cables and copper wires, the latter a legacy of its
Ma Bell heritage.
Wireless-industry analysts say timing will be especially
important as telecom operators catch the next wave of mobile
technology called 5G. The fifth-generation specifications allow
cellphone carriers to serve many more devices in a cost-effective
way, opening up a broad market of vehicles, industrial machines and
corporate campuses to wireless service.
AT&T had an early advantage in 2007 when its wireless
service, then called Cingular, secured exclusive U.S. rights to
carry Apple Inc.'s new iPhone. The coup drew millions of
subscribers to its network and helped fuel AT&T's steadily
growing dividend.
The company later lost ground to Verizon Communications Inc.,
the country's largest wireless carrier in terms of subscribers.
Verizon invested heavily in its 4G network over the past decade,
allowing it to advertise a superior network for streaming videos
and other data-heavy services that thrived on the next-generation
network's fast speeds.
Over the past five years, AT&T has generated total
shareholder returns, a measure of share-price changes and dividend
income, of 1.8%, compared with more than 235% for T-Mobile, 40% for
Verizon and 124% for the S&P 500, according to FactSet.
Some Wall Street analysts consider T-Mobile in the best spot to
capitalize on 5G technology hitting the market this year. The
Bellevue, Wash., company's 2020 merger with former rival Sprint
Corp. gave it a cache of wireless spectrum that supports the
ultrafast mobile service.
To catch up, Verizon and AT&T spent $45.5 billion and $23.4
billion, respectively, to secure "C-band" spectrum licenses from
the Federal Communications Commission. The companies will spend
several billion more dollars to compensate satellite operators
shifting their operations from those valuable frequencies. T-Mobile
spent $9.3 billion on the licenses, which will add to a cache of
similar assets it already bought from Sprint.
AT&T says it is still investing in its future. Annual
capital spending will rise to $24 billion because of the Discovery
deal, up from a projected $22 billion in 2021 after accounting for
certain adjustments for equipment financing and reimbursements from
its FirstNet public-safety network.
The Dallas company projected its ramped-up spending will allow
it to reach 200 million people with C-band 5G service by the end of
2023, up from its previous 100 million-person target. The company
also said it would broaden its network of fiber-optic cables to
cover 30 million locations.
Write to Drew FitzGerald at andrew.fitzgerald@wsj.com
(END) Dow Jones Newswires
May 18, 2021 16:55 ET (20:55 GMT)
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