AT&T spent years cobbling together a widely diverse business, but lately it’s been in the news for its efforts to shuck off various parts of itself as it seeks to decrease its debt load. The company may also want to accumulate cash in order to bid large at the upcoming C-Band auction.
Before former AT&T CEO Randall Stephenson left the company, he had been intent on selling off some non-core assets to decrease the company’s debt. That process accelerated after activist investor Elliott Management scorched the company’s execution and profit record.
Just yesterday, AT&T sold its stake in Central European Media Enterprises for $1.1 billion. “The sale is consistent with AT&T’s ongoing efforts to monetize non-core assets to drive incremental shareholder value,” said AT&T in a statement.
In addition, AT&T is reportedly still seeking a sale of DirecTV, its beleaguered satellite TV service. And according to the New York Post the opening bids might be around $15.75 billion, less than a third of the $67 billion AT&T originally paid for DirecTV.
The company might also be shopping its Warner Bros. Interactive video game business and its advertising unit Xandr. In addition, AT&T has been on a cost-cutting spree, laying off workers and closing mobile retail stores.
Estimates of AT&T’s C-Band spend
But can AT&T cost-cut and sell assets fast enough and at enough of a premium to quickly come up with enough cash for its C-Band aspirations?
In a new report, the analysts at MoffettNathanson note that AT&T needs more mid-band spectrum to compete in 5G with T-Mobile and Verizon.
“AT&T’s wireless growth will be challenged by the maturity of the market and the momentum of T-Mobile (and it would be a potentially devastating blow to their long-term competitiveness if their stretched balance sheet prevents them from acquiring more mid-band spectrum,” wrote Moffett. “It simply isn’t clear where AT&T will find the borrowing capacity to buy a competitive-sized block of spectrum.”
AT&T, notably, was a no-show at the recent CBRS spectrum auction, an indication that it’s saving all its powder for the upcoming C-Band auction.
Three different analyst groups are estimating that C-Band licenses will go for somewhere in the range of $0.20-$0.50 per MHz Pop. And the analyst groups estimate that AT&T will (or should) spend anywhere from $4.3 billion to $20 billion on C-Band spectrum.
At Morgan Stanley, analysts estimate that AT&T will spend $4.3 billion-$8.5 billion on C-Band.
“Wireless is AT&T’s largest business, and while they have a national 5G network, performance is limited by the lack of mid-band spectrum, wrote the Morgan Stanley analysts in a late September report. “Their major constraint is their balance sheet.”
At MoffettNathanson, analysts infer that AT&T should spend upwards of $20 billion on C-Band spectrum.
“By our estimate, Verizon will need to spend as much as $20 billion on spectrum in the upcoming C-Band auction in order to keep pace with T-Mobile, which currently enjoys a huge spectrum advantage by virtue of their 2.5 GHz spectrum,” wrote Moffett. “AT&T’s position is worse. Their balance sheet simply doesn’t have enough headroom for them to keep pace.”
Analysts at New Street Research said in a note yesterday that they estimate AT&T has about $6 billion to spend at the C-Band auction, but they think AT&T should spend $12 billion. According to New Street’s models “AT&T will either need to monetize an additional $6 billion in assets or else delay its de-leveraging target beyond 2022.”
New Street speculates what will happen if AT&T just spends $6 billion on C-Band due to a lack of cash. They said that total auction proceeds would fall and the average price per MHz Pop would also fall. “AT&T would get less of the available spectrum, and the other participants would all get more,” wrote New Street.
But can AT&T scrounge up more than $6 billion?
A report in the New York Post this week said that according to its un-named sources, opening bids for DirecTV implied a valuation at around $15.75 billion. “That’s less than a third of the $49 billion that AT&T shelled out for DirecTV just five years ago under former chief executive Randall Stephenson, a deal that also included the assumption of $18 billion in debt,” wrote the Post.
“For asset sales to raise money that could be used for spectrum purchases, they would have to occur at a premium to AT&T’s current leverage ratio,” wrote Moffett. “A DirecTV sale at 3.5x EBITDA, as reported by the New York Post, wouldn’t de-lever AT&T at all…and therefore wouldn’t provide any incremental headroom for the company to buy spectrum.”
Moffett adds, “Without a large block of mid-band spectrum to compete with T-Mobile and Verizon, AT&T’s Mobility segment could fall behind for a generation.”