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.

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Companies: at&t, directv

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Comments on “AT&T Ponders Dumping DirecTV After Investor Backlash, But It's Not Likely To Help”

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Anonymous Coward says:

Re: Re:

There’s some malformed HTML in the "public letter" link. The missing words are in there.'%3Ein%20the%20world%3C/a%3E),%20and%20the%20added%20scale%20DirecTV%20brings%20helps%20AT&T%20get%20a%20better%20rate%20in%20programming%20negotiations%20with%20broadcasters.%3C/p%3E%3Cp%3EI’d%20wager%20AT&T%20is%20largely%20just%20trying%20to%20present%20the%20idea%20that%20it’s%20seriously%20listening%20to%20the%20complaints%20of%20Elliot%20Management.%20Elliot%20owns%20funds%20comprised%20of%20about%20$3.2%20billion%20in%20AT&T%20stock,%20and%20the%20company’s%20recent%20%3Ca%20href=

Not an Investor says:

Oh, and AT&T’s being sued by other investors for allegedly lying about it.

I have never understood the concept of a company being sued by its investors or shareholders. If the company wins, they still spend money on lawyers, lowering shareholder value. If they win, they also have to pay the investors, out of company funds, when ultimately belongs to the investors. Win or lose, the lawyers win and the investors are no better off.

Anonymous Coward says:

"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."

T. Boone Pickens (rip) oil man and corporate raider would purchase companies like this and scrap them making money off the garage sale. His stock purchases used to scare the C-Suite folks into stock buy backs and poison pills.

ECA (profile) says:

Would really like...

To see these folks paper work, with everything that they are doing and paying out..
Pay 150 billion and not know :
HOW it works
How to make it work
How to get customers to Buy it..
How to Improve it..
How to do much of anything WITH IT..

In the old days, most companies would create a Subsidiary to help the company and see if they could make things better.. now it seems that Other companies are doing the CORPS job… And those running the Corp are the only employees.. Those Heads of the corp get tons of money just to pay other companies to do THEIR JOB.. The same thing happened to HUGHES sat system, getting bought out.

To many chiefs and no Indians, to many chefs, and no one to prep.. To much Sauce and no pasta..
All the smart persons got fired or Quit, and now the Boss’s/bill collectors that have no IDEA of how this works…are trying to run the business.

Anonymous Coward says:

Food for thought. That 67 Billion dollars could have purchased over 3 million miles of 144 strand single mode outdoor telephone pole fiber cable. That is without a bulk discount. We have approximately 2,678,000 miles of paved roads in the US. Not including labor and hardware costs. Fiber is is really nice in that upgrades to it would be minimal. The fiber probably would last 50-100 years with regular maintenance.

Mr Bill says:

The worst kind of M&A company...

There may be some good M&A companies out there, but I haven’t seen one yet. These companies all seem to think that by purchasing the latest hot new thing, that the revenues from that hot new thing will become theirs.
In reality the acquiring company rarely has a clue about how their new purchase operated, how the customer relationships worked, how the product/project management worked, and so on. As they don’t understand how their new purchase functioned, they end up killing it by aligning the new purchase with their old and busted corporate culture which is usually some variant of "the current quarter is the only one that matters". As a result they end up spending hundreds of millions or multiple billions on something they divest themselves of within a decade at a significant loss.

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