DALLAS, June 21, 2018 /PRNewswire/ -- Randall Stephenson, AT&T Inc.* chairman
and chief executive officer, and John
Stephens, AT&T Inc. senior executive vice president and
chief financial officer spoke today at the Wells Fargo Securities
2018 Telecom 5G Forum. They discussed the recent acquisition of
Time Warner by AT&T and plans for the combined company.
Stephenson said that the Time Warner acquisition was the
culmination of a strategy to build a modern media company around
four critical elements:
- Premium content with wide distribution. AT&T is in a
great position with regard to both subscription and ad-supported
content. HBO, Turner and Warner Bros. combined with targeted
digital properties like Bleacher Report and AT&T's investment
in Otter Media have the potential to drive viewer engagement to new
levels.
- Direct-to-consumer relationships. A modern media company
must have direct-to-consumer (D2C) relationships to remain
relevant, innovate and build subscription- and ad-supported models.
AT&T has more than 170 million1 D2C relationships
across wireless, video and broadband, which provide valuable
insights on how the company delivers content, what content it
distributes and how it distributes that content.
- Advertising technology. It's critical to use customer
insights from D2C relationships to change the advertising model and
make ads more relevant so they deliver higher yields and optimized
loads. AT&T's D2C relationships give the company insights
regarding what customers are watching, where they're watching it
and at what times they're watching. These insights can create
incredible value for advertisers.
- High-speed networks. These networks must be able to
deliver premium content to whatever screen the customer demands at
the lowest cost per megabyte possible. This can include delivering
content to homes, mobile devices and cars, and AT&T is
investing in wireless build, fiber and new technologies like 5G to
deliver a great viewing experience as demand continues to grow for
4K video and virtual and augmented
reality.
Combined, these elements come together to help meet the needs of
all 170 million D2C relationships — from price sensitive customers
who prefer ad-supported lean bundles delivered over wireless to
customers who prefer premium content bundles with a consistent user
experience across all devices and who demand a great network
experience to gamers who demand virtual reality on a 5G-like
experience.
Advertising opportunities
Regarding AT&T's
opportunity in advertising, Stephenson said he believes the company
can scale its advanced TV advertising business. DIRECTV and U-verse
already represent a nearly $1.8
billion annual revenue run rate, growing in the double
digits. By using its D2C data, AT&T is generating yields 3-5x
higher than the industry average. With the addition of Turner,
AT&T adds inventory 3X its existing inventory, which gives the
company scale to invest and even pursue M&A.
This will let AT&T build a real-time exchange for premium
video advertising coordinated across mobile devices and TV screens.
Ultimately, the company plans to deliver a value proposition for
premium video advertising similar to that of digital advertising.
And Stephenson said Brian Lesser,
CEO of AT&T's advertising & analytics business unit, is
prepared to build a company that will lead to lower ad loads in
programming but also more relevant and engaging ads delivered via
smartphones.
Financial impacts of Time Warner
AT&T's capital
allocation strategy has not changed. Stephens reiterated that the
first priority is to invest for growth. Secondly, the company
remains committed to its quarterly dividend, which it has increased
for 34 straight years.
Stephens said that AT&T's final priority is to maintain a
strong balance sheet and pay down debt to improve the company's
credit metrics. At the close of Time Warner, AT&T's
net-debt-to-adjusted-EBITDA ratio was in the 2.9x range. The
company plans to reduce this to the 2.5x range by the end of the
first year after close and to its historical range by the end of
the fourth year after close.
Many of the company's capital-intensive projects are well under
way or are near completion, which will support AT&T's
de-levering goals. The company now markets its 100% fiber network
to 9 million locations, well on its way to the 12.5 million
commitment it made as part of the DIRECTV acquisition. In fact,
AT&T expects to reach 14 million customer locations by
mid-2019. Also within the next year, the company expects to be in
the 40% to 50% range of its FirstNet buildout commitment. And
AT&T's 4G LTE build in Mexico
is nearly complete. AT&T also expects continuing benefits from
its software defined network (SDN) investments.
Stephens also highlighted the expected financial impacts of the
Time Warner acquisition. He said the company expects significant
synergies and other financial benefits. Specifically, AT&T
expects the deal will:
- Contribute to adjusted earnings per share and free cash flow
per share within 1 year of close.
- Improve AT&T's dividend coverage, with a free cash flow
payout ratio in the 60% range.
- Deliver synergies of $2.5
billion. As previously announced, AT&T expects
$1.5 billion in annualized cost
synergies by the end of 2021. These will include efficiencies at
the corporate level as well as savings from marketing and
advertising, procurement and content development. The company also
expects $1 billion of annualized
revenue synergies by the end of 2021, primarily from
advertising.
Second-quarter update
AT&T is also providing the
following updates. The company expects:
- Continued solid growth in its Mexico wireless operations in the second
quarter of 2018 with as many as 700,000 net adds and improving
churn. However, the strengthening U.S. dollar and volatility in
foreign exchange rates are expected to pressure International
segment results.
- Wireless service revenue growth for full-year 2018, on a
comparable basis. The company expects wireless service revenues
will be essentially flat in the second quarter of 2018.
- The transition of the video market to continue to negatively
impact revenues and margins in the Entertainment Group. For the
quarter, the company expects total video and broadband subscribers
to increase, with DIRECTV NOW subscribers more than offsetting
continued declines in traditional TV subscribers. Stephenson said
that the mix will continue to shift to over-the-top video. Earlier
today, the company announced new unlimited wireless plans —
AT&T Unlimited &More Premium starting at $80 for the first line and AT&T Unlimited
&More for $70 for one line or
$40 per line for four lines— that
include access to AT&T's WatchTV service, the company's newest
video offering featuring 30+ live channels and more than 15,000 TV
shows and movies on demand.2 Stephenson said the new
product comes with attractive margins.
The company will provide pro forma financial statements no later
than 71 days post close and will update guidance and provide
additional information on the Time Warner acquisition on its
second-quarter 2018 earnings call. AT&T's second-quarter
results will include Time Warner's opening balance sheet and
operations beginning on June 15,
2018, as well as transaction-related costs that could
pressure free cash flow for the second quarter. As previously
announced in a November 2016 SEC
filing, the company expects to eliminate about $2.8 billion of intercompany revenues on an
annualized basis. AT&T announces second-quarter earnings on
July 24, 2018, after market close.
Both Stephenson and Stephens will participate on the call, as well
as John Stankey, CEO-WarnerMedia;
John Donovan, CEO-AT&T
Communications; and Brian Lesser,
CEO of AT&T's advertising and analytics business unit.
*About AT&T
AT&T Inc. (NYSE:T) is a
diversified, global leader in telecommunications, media and
entertainment, and technology. It executes in the market under four
operating units. WarnerMedia's HBO, Turner and Warner Bros.
divisions are world leaders in creating premium content, operate
the world's largest TV and film studio, and own a world-class
library of entertainment. AT&T Communications provides more
than 100 million U.S. consumers with entertainment and
communications experiences across TV, mobile and broadband
services. Plus, it serves more than 3 million business customers
with high-speed, highly secure connectivity and smart solutions.
AT&T International provides pay-TV services across 11 countries
and territories in Latin America
and the Caribbean, and is the
fastest growing wireless provider in Mexico, serving consumers and businesses.
AT&T ad and analytics provides marketers with innovative,
targeted, data-driven advertising solutions around premium video
content.
AT&T products and services are provided or offered by
subsidiaries and affiliates of AT&T Inc. under the AT&T
brand and not by AT&T Inc. Additional information is available
at about.att.com. © 2018 AT&T Intellectual Property. All rights
reserved. AT&T, the Globe logo and other marks are trademarks
and service marks of AT&T Intellectual Property and/or AT&T
affiliated companies. All other marks contained herein are the
property of their respective owners.
Cautionary Language Concerning Forward-Looking
Statements
Information set forth in this news release contains financial
estimates and other forward-looking statements that are subject to
risks and uncertainties, and actual results might differ
materially. A discussion of factors that may affect future results
is contained in AT&T's filings with the U.S. Securities and
Exchange Commission. AT&T disclaims any obligation to update
and revise statements contained in this news release based on new
information or otherwise.
This news release may contain certain non-GAAP financial
measures. Reconciliations between the non-GAAP financial measures
and the GAAP financial measures are available on the company's
website at https://investors.att.com.
1 Represents cumulative video-capable D2C
relationships across the following services: Postpaid, prepaid and
reseller wireless; US and LatAm pay-TV, including DIRECTV NOW;
Mexico wireless; and US consumer
broadband.
2 Prices after autopay and paperless bill discounts.
Pricing on &More is $125 for 2
lines, $145 for 3 lines.
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SOURCE AT&T Inc.