AT&T’s top management argued that the wireless industry remains a growth sector, and that the company’s proposed purchase of Time Warner Inc. will give the company the opportunity to more quickly innovate in the types of content it can offer to customers, whether they use AT&T’s wireless network or not. Executives also pointed out that AT&T is not currently a telecommunications supplier to Time Warner, but would be if the transaction closes next year as AT&T anticipates it will.
AT&T’s arguments run counter to the prevailing view among analysts though that growth is slowing in the wireless sector. Summed longtime industry analyst Mark Lowenstein: “Clearly one of the reasons AT&T doing this deal is for diversification, given maturing of the core wireless business. Companies of AT&T's size need deals this size in order to generate real growth.”
Nonetheless, AT&T CEO Randall Stephenson said that acquiring Time Warner will allow AT&T to more quickly develop content offerings that would appeal to mobile users, such as the ability to share content quickly via social networks. “Trying to develop those type of capabilities with the current content providers is proving difficult. It’s arms-length negotiation, and people are obviously really protective of their content and so it’s just really, really hard to get these type of iterations and innovations on content done,” he said during the company’s conference call with investors this morning. “We can begin to innovate our content much quicker [if] we’re under the same umbrella, the same ownership structure, and we can get past a lot of these content rights and move fast.”
Indeed, Stephenson explained that AT&T’s blockbuster purchase of DirecTV, which closed last year, has allowed the company to acquire the rights to broadcast a range of content on its forthcoming DirecTV Now OTT platform, which he said will launch in November.
“We have been working for three or four years to bring to market a mobile-centric package of content to our customers. And we have been working aggressively to put this together. And getting the content creators to agree to the rights to put this over our mobile platform was proving very difficult,” Stephenson said. Then, “we closed DirecTV [acquisition], and with those great content agreements that we now own in DirecTV, within one year we’ve achieved all those content rights. Literally within a year, something we’ve been trying to do for three years we achieved in one year after owning DirecTV.”
He added that Time Warner would also be able to obtain usage feedback from AT&T, and could therefore more effectively tailor its content to mobile and wired users.
Concluded Stephenson: “When it’s completely owned, you just move a lot faster.”
AT&T expects synergies, growth in wireless
AT&T executives added that the combination of AT&T and Time Warner would create a wide range of synergies, the value of which are expected to total $1 billion within a year of the close of the transaction. Specifically, executives explained that AT&T would be able to reduce the amount of money it spends on advertising its brand if it were to own Time Warner. The carrier would also be able to share its DirecTV Now platform with Time Warner’s brands like HBO and Turner, and AT&T would be able to supply wireless and wireline telecom services to Time Warner where it doesn’t currently do now.
But beyond the company’s Time Warner transaction, AT&T’s Stephenson also argued that the wireless space in general remains poised for growth, despite concerns that AT&T’s move to purchase Time Warner indicates that growth in the wireless space is set to slow. Specifically, Stephenson pointed to the company’s launch of the Motorola Razr feature phone in 2005: “I will never forget how many people asked me, ‘What are you going to do after everybody has a Razr? This industry is mature, right?’”
Stephenson argued that the wireless industry remains set for future growth via a range of vectors: “Now with these tablets and these smartphones everywhere, they’re not just internet access devices, they are video-consuming devices. And so we have positioned ourselves to begin investing aggressively in ensuring our customers can enjoy video, and now video and content is uniquely curated and developed for these kind of devices.”
Added Stephenson: “That smartphone is just becoming a launching point for what is next. And we think what is next is really significant. … We just think there’s a lot of opportunity left.”
However, AT&T’s hopes for its wireless business raised some concerns among analysts: “Given AT&T's still relatively scant fixed broadband assets, this puts a lot of pressure on the mobile network,” wrote Lowenstein (a FierceWireless contributor). “We do have to ask the question as to whether the mobile network has the capacity to deliver all that video and content. Yes, they [AT&T] have 40 MHz of capacity still to be deployed, and additional opportunities with 600 MHz, unlicensed, 5G, and so on. But the economics of delivering video over mobile networks still have to improve substantially in the coming years.”
What it means for Verizon, Sprint
AT&T’s purchase of Time Warner, announced this weekend, also underscores the divergent paths that AT&T is taking from the rest of the nation’s wireless carriers. For example, Verizon’s work to purchase AOL and Yahoo reflect that company’s desire to invest more heavily in the services layer of mobile and internet advertising. And Verizon is also dipping into the content delivery market with its go90 service, though that application has faced challenges in reaching a wide number of users. Verizon is also investing in the delivery of internet access through its pledge to quickly deploy 5G services and its pending purchase of fiber and high-band spectrum from XO Communications.
As for Sprint and T-Mobile, both companies continue to work to bolster their wireless customer subscriber bases, and in the third quarter both companies recorded positive net customer additions – a notable comparison to both AT&T and Verizon, which both reported negative customer addition numbers for the quarter.
And though SoftBank owns the majority of Sprint, some analysts don’t expect the Japanese company to offer Sprint much in the way of aid for the U.S. market. “While historically, investors had speculated that this relationship could bring a number of SoftBank’s relationships in the content arena to bear in the U.S., the company’s focus elsewhere (i.e. its recent acquisition sprees and focus on new investment vehicles) seems to have dulled that potential,” the analysts from Barclays wrote in a research note this morning. “Moreover, Sprint’s reliance on non-traditional means to shore up its liquidity position (i.e. via various lease cos.) suggests that SoftBank is keeping to its strategy of injecting as little incremental capital into the Sprint in order to support its turnaround. We are thus hard pressed to see SoftBank interject in order to bolster Sprint’s asset pool in order to compete in this longer-term competitive environment.”