Only three years after battling the Justice Department to complete its $85 billion acquisition of media behemoth Time Warner, AT&T is selling off its entertainment division to focus on the fundamentals, specifically 5G.
AT&T announced the shift in strategy on Monday, following the announcement of a $43 billion deal to sell its WarnerMedia assets to Discovery. The transaction represents a significant shift in strategy for AT&T, which spent significant resources convincing the government to allow it to buy Time Warner with the goal of creating a behemoth that owned both the content and the pipes that connect it to consumers.
That proved to be a costly mistake, as it saddled the company with debt at a time when it also needed to invest in both its HBO Max streaming service and its 5G network to compete with T-Mobile and Verizon Wireless. Something had to give with competing obligations. As a result, AT&T executives are returning to what they know best.
AT&T’s deal is just the latest example of a telecom company exiting the media business. Verizon sold its AOL and Yahoo assets for $5 billion earlier this month. T-T-Vision Mobile’s streaming service was discontinued in March after only five months.
Both the media and wireless landscapes have become more competitive, prompting the strategy shift. People have been shifting away from traditional pay TV services and toward streaming platforms such as Amazon and Netflix in recent years. The competition for viewership has become fierce, especially as new entrants such as Disney+ enter the fray.
AT&T has lagged behind its wireless competitors in terms of deploying valuable midband spectrum, which the wireless industry sees as a critical technology for providing faster 5G performance. Midband spectrum, like the so-called C-band spectrum that was auctioned off earlier this year, provides a good mix of capability that complements low-band spectrum, which has greater reach, and ultra-high-band spectrum, which transmits over very short distances at super high speeds.
Analysts on Wall Street, such as Jonathan Chaplin of New Street Research, have warned that AT&T was stretching itself too thin by investing in both wireless for its 5G deployment and its HBO Max streaming service.
Chaplin noted in a research note released following the company’s first-quarter earnings last month that AT&T was lagging behind rivals in 5G investment and was likely sacrificing wireless investment to support HBO Max.
With WarnerMedia out of the picture, Stankey stated on a conference call with investors on Monday that AT&T could return to focusing on wireless and broadband. He stated that the company plans to double its network coverage with the newly acquired mid-band spectrum from the FCC’s C-band auction. Instead of covering 100 million points of presence, Stankey stated that AT&T will use that spectrum to cover 200 million of these connection points by the end of 2023.
In addition, Stankey stated that the company will continue to invest in fixed broadband fiber deployments.
Many people in the public interest, including Gigi Sohn, an advisor to former FCC Chairman Tom Wheeler, were staunchly opposed to the AT&T-Time Warner merger from the start. She and others have warned that consolidation between content producers and network operators will result in higher prices, fewer consumer choices, and fewer online voices.
Even as AT&T divests its WarnerMedia assets, Sohn said it’s unclear whether there will be some sort of sweetheart deal that will allow AT&T to continue to “zero rate” HBO Max content while discriminating against content from other outlets. Even if AT&T and WarnerMedia have severed ties, Sohn said she has mixed feelings about Discovery acquiring the assets. However, she added that she is concerned about consolidation in the media market, particularly with regard to streaming services.