AT&T Ponders Dumping DirecTV After Investor Backlash, But It's Not Likely To Help
from the yeah-that's-not-gonna-work dept
As we just got done noting, investors have finally started to grumble about AT&T’s obsession with merger mania (aka “growth for growth’s sake”). AT&T, you’ll recall, spent more than $150 billion to acquire Time Warner and DirecTV in a bid to dominate the streaming video and online advertising space. But the deals saddled AT&T with so much debt, it forced the company to raise rates despite rising competition, driving many of these customers to the exits. Oh, and AT&T’s being sued by other investors for allegedly lying about it. It has also largely bungled its TV branding in general.
In what appears to be an intentional leak designed to suggest that AT&T is taking these concerns seriously, a report emerged this week in the Wall Street Journal (non paywalled alternative read here), suggesting that AT&T may now try to offload DirecTV after paying $67 billion for the company back in 2015:
“The telecom giant has considered various options, including a spinoff of DirecTV into a separate public company and a combination of DirecTV’s assets with Dish Network, its satellite-TV rival,” the Journal report said, citing “people familiar with the matter.” It’s still early in the process, so AT&T could end up sticking with DirecTV. “AT&T may ultimately decide to keep DirecTV in the fold. Despite the satellite service’s struggles, as consumers drop their TV connections, it still contributes a sizable volume of cash flow and customer accounts to its parent,” the Journal reported.”
AT&T’s decision to spend billions of dollars on a satellite TV company on the eve of the cord cutting revolution was always seen as a shaky bet. Especially given AT&T’s decision to freeze most serious investment in the company’s fixed-line broadband business. That said, the money DirecTV is currently making is helping to pay off the company’s enormous debt load (AT&T’s currently in the running for the most heavily-indebted company public letter wasn’t kind to AT&T. Notably, the investors took issue with AT&T’s belief that you dominate a space by throwing billions of dollars at mergers, something Wall Street usually is keen on thanks to short term gains:
“We firmly believe that AT&T?s M&A strategy has not only contributed directly to its profound share price underperformance, but has also caused distractions that have contributed to the Company?s recent operational underperformance.”
That’s a polite way of saying AT&T can’t just buy its way to domination. But Elliot’s suggestion to offload DirecTV won’t help much.
The debt from a decade of merger mania would remain, and while the announcement of a sale might boost the markets slightly (allowing Elliot to exit semi-gracefully), it wouldn’t fix what’s broken at AT&T. Telcos like AT&T and Verizon still suck at wandering outside of their core competencies (building and running networks, lobbying to crush competitors), the result of being government-pampered monopolies for the better part of a generation. As we’ve seen with Verizon’s Go90, AOL, and Yahoo face plants, these companies simply aren’t good at adaptation and competition because it’s an alien construct.
AT&T executives desperately want AT&T to be Google and Facebook, and have eyed both companies’ ad revenues jealously for the better part of the last two decades, thinking that money is somehow owed to them because they own the underlying network (that’s really what the net neutrality fight was about). They seem to believe growth for growth’s sake and lobbying are the path to domination, but while that worked well in the broadband space, it’s not going to work quite as well in helping them gain stature in other markets.
Especially given that as lumbering monopolies fused to the nation’s intelligence agencies, neither AT&T nor Verizon has the ability to actually innovate in the space, which is why AT&T’s current TV branding efforts look a lot like road kill. AT&T will remain saddled with millions of aging copper and phone lines it is (like most US telcos) too cheap to upgrade despite billions in tax cuts and regulatory favors. Mindless merger mania won’t fix the DNA-level problems that plague Ma Bell, and neither will selling off a core component of the company’s bumbling, but ongoing, attempt to dominate the video advertising space.