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AT&T Remains ‘Confident’ Time Warner Deal Will Close by End of 2017

Variety logo Variety 1/25/2017 Todd Spangler
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AT&T remains “confident” that its proposed $85 billion acquisition of Time Warner will be completed as previously announced by the end of the year, CFO John Stephens told analysts on the telco’s earnings call, even though newly installed President Trump has voiced opposition to the deal.

The deal is currently pending approval from the Department of Justice, and Trump has said he’s opposed to the AT&T-Time Warner merger. Prior to the election, Trump said at a campaign rally that the proposed union was “a deal we will not approve in my administration because it’s too much concentration of power in the hands of too few.”

Randall Stephenson, AT&T’s chairman and CEO, met with the then-president-elect earlier at Trump Tower in Manhattan on Jan. 12. AT&T at the time said the Time Warner deal was not discussed during their meeting.

On the call with analysts Wednesday, Stephenson said Trump “had a very specific agenda” that he wanted to cover during the meeting: corporate tax reform and regulatory reform.

“I was impressed,” Stephenson said. “I was meeting with a CEO – it was obvious.” He said he left the Trump confab with a “degree of optimism” that tax reform could actually be pulled off this year. “If we want to get off this 1% to 2% growth plane… we have to have tax reform,” Stephenson said.

Regarding Trump’s appointment of Republican FCC commissioner Ajit Pai — a vocal critic of the agency’s network neutrality regulations as overreaching — as chairman, Stephenson said he was optimistic that Pai would “rationalize” existing regulations.

Pai is “obviously not a fan” of Title II regulation on internet service providers under the FCC’s Open Internet Order, Stephenson said, a rule that is “suppressive to investment” by telecom providers.

With the new FCC leadership, Stephenson said, AT&T will not change its strategy on zero-rated services, which exclude certain content such as DirecTV Now streaming video from wireless usage caps. “We were quite confident that zero-rating was fine under a Pai chairmanship” or any other FCC regime, he said. Zero-rated services like DirecTV Now — and AT&Ts Data Free TV offer for satellite DirecTV and U-verse subs — helped drive the lowest quarterly wireless-subscriber churn rate ever for AT&T (with postpaid phone churn of 0.98%, down 9 basis points year-over-year), the CEO told analysts.

The zero-rated data offers are “something our customers are loving,” Stephenson said. “That’s a big deal. It’s proving to be very advantageous in the marketplace for our customers.”

In announcing Q4 financial results, Stephenson called 2016 a transformational year for AT&T, including its “landscape-changing deal to acquire Time Warner, the logical next step in our strategy to bring together world-class content with best-in-class distribution which will drive innovation and more choice for consumers.”

Once the Time Warner deal is closed, Stephenson said, AT&T plans to introduce some “very unique things” that combine HBO, Warner Bros. and Turner premium content with the telco’s network and distribution capabilities.

Some observers have speculated that AT&T might consider spinning off CNN — which has been a target of Trump’s ire — to help the Time Warner deal gain approval. Stephenson, in an interview with CNBC last week, said the telco was not contemplating such a move. “It doesn’t seem relevant to approving a deal like this. What would be the competitive issue that you’re remedying with spinning off CNN?” he said.

Overall, AT&T reported fourth-quarter 2016 revenue of $41.84 billion, down 0.7% year-over-year and short of Wall Street expectations of $42.11 billion, and adjusted earnings per share of 66 cents per share (in line with analyst forecasts).

The telco touted 1.5 million wireless net adds in the quarter, as well as 235,000 U.S. DirecTV satellite net adds — while AT&T lost 262,000 U-verse TV customers in the period. As previously announced, AT&T said it had signed up more than 200,000 DirecTV Now paying subscribers in about a month (in addition to DirecTV satellite adds).

But DirecTV Now may not continue to sustain that growth trajectory. The internet-streaming TV service has had a rocky debut, with several extended outages and user complaints of technical glitches. In addition, DirecTV Now signups were obviously boosted by the intro offer of a 100-plus channel bundle for $35 per month, which AT&T ended Jan. 9.

CFO Stephens on the earnings call acknowledged the “challenges” of launching a platform like DirecTV Now. He said the over-the-top service’s subs are more urban, younger and more likely to be apartment dwellers than DirecTV’s satellite subscriber base.

In a direct jab at DirecTV Now’s woes, wireless rival T-Mobile on Wednesday said it is offering ex-AT&T subs who switched to T-Mobile and opted for the offer to get one year free of DirecTV Now a full year free of the Hulu basic subscription VOD service (regularly priced at $7.99 monthly).

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