AT&T Chief Executive Officer John Stankey Updates Shareholders

Rhea-AI Summary

John Stankey, CEO of AT&T, updated shareholders at the J.P. Morgan Global Technology, Media and Communications Conference. He emphasized the strategic separation of media and communications operations, highlighting strong business momentum. AT&T Communications has seen the best wireless postpaid net additions in over a decade and a 25% increase in fiber subscribers year-over-year. The WarnerMedia-Discovery transaction is expected to provide $43 billion for debt reduction, enhancing financial flexibility and enabling increased investment in 5G and fiber. AT&T aims to expand its fiber footprint to 30 million locations by 2025.

Positive

• Best wireless postpaid net adds in over a decade.
• Fiber subscribers up over 1 million (25%) compared to Q1 2020.
• WarnerMedia-Discovery deal expected to yield $43 billion for debt reduction.
• Targeting capital expenditures of around $24 billion from 2022 to 2024.

Negative

• None.

John Stankey, chief executive officer of AT&T Inc.* (NYSE:T), spoke today at the J.P. Morgan Global Technology, Media and Communications Conference, where he provided an update to shareholders.

Underlying Business Momentum Supports Strategic Focus
Stankey said that he and AT&T’s board of directors considered a variety of opportunities for the company, and that the strategic separation of its media and communications operations reflects their confidence in the underlying market momentum in both businesses.

In AT&T Communications, over the last three quarters the company has posted the best wireless postpaid net adds in more than a decade. And the company recorded its best ever fiber gross adds in the first quarter of 2021, with about 70% of those new to AT&T. On a net basis, fiber subscribers were up more than 1 million, or 25%, versus the first quarter of 2020, with penetration more than 35% across the company’s fiber base as of the first quarter of 2021.

WarnerMedia delivered strong results in the first quarter of 2021, as well, with domestic HBO Max and HBO subscribers¹ up 11.1 million since the launch of HBO Max in the second quarter of 2020, reaching more than 44 million. This strong momentum comes ahead of the recently announced ad-supported subscription tier of HBO Max priced at $9.99 per month, which will launch in the United States the first week of June. HBO Max will begin expanding internationally in June targeting 60 countries in Latin America and Europe in 2021. WarnerMedia also continues to invest in content and ramp up production as pandemic-related restrictions abate giving all of its distribution channels, including HBO Max, a robust lineup of content to continue to engage and delight viewers.

WarnerMedia-Discovery Deal Improves Financial Flexibility
Stankey said that the WarnerMedia-Discovery transaction will significantly improve AT&T’s financial flexibility by providing $43 billion (subject to adjustment) for debt reduction through a combination of cash, debt securities and WarnerMedia’s retention of certain debt. This debt reduction allows the company to progress toward the end-of-year 2023 leverage ratio target of less than 2.5x² while increasing investment in growth areas of 5G and fiber.

Post close, Stankey said he believes that having a clear ownership separation between AT&T and WarnerMedia gives AT&T the opportunity to align its investor base in the communications business with a focused total return capital allocation strategy. He said he expects that increased investment in 5G and fiber will support longer-term growth and healthy returns for shareholders.

A Unique Opportunity to Support Improved Market Positioning
The combination of WarnerMedia with Discovery and subsequent opportunity to materially increase investment in AT&T’s core communications business provides a unique opportunity to improve both businesses’ market positioning.

AT&T shareholders will own 71% of the shares in the new media company. It will have not only global direct-to-consumer (DTC) distribution capabilities but also a robust content library and the ability to create compelling new content, both of which are imperative to successfully compete in DTC on a global basis. Combining WarnerMedia with Discovery also will give the new company an opportunity to drive efficiencies that can be reinvested into content and digital innovation and used to scale the global DTC business. Ultimately, Stankey noted that in addition to these synergies value is also expected to be created for shareholders both by unlocking WarnerMedia from AT&T as a parent company and by accelerating the new company’s ability to scale.

AT&T is confident the new company can deliver on the expected cost synergies of $3 billion per year given Discovery’s proven track record, including delivering synergies from its Scripps acquisition that were more than two times original projections. For the combination with WarnerMedia, the companies expect significant synergies from technology, marketing and platform savings with consolidation of DTC capabilities. Additional synergies are expected from corporate overhead and SG&A savings, particularly for domestic networks as well as opportunities to reduce duplicate initiatives designed to support growth in each of the standalone entities.

Stankey also reiterated that Discovery is the right company to combine with WarnerMedia given the complementary assets. Confidence in the combination is reflected by the fact that holders of approximately 44% of Discovery stock have already indicated they will vote in favor of the transaction.

In AT&T’s remaining communications-focused business, the company is at the crossroads of two technology transitions — 5G and fiber. Following close of the WarnerMedia Discovery transaction, AT&T will have the financial flexibility to boost investment to historically high levels that are also significantly above its competitors’ planned investments.

AT&T’s expected capital expenditures of around $24 billion per year from 2022 to 2024 builds on its existing position as one of the largest investors in digital infrastructure and connectivity in the United States. This investment will allow AT&T to meet substantial, long-term demand for connectivity by delivering broadband access to millions more households with plans to expand the company’s fiber footprint to cover 30 million customer locations by year-end 2025, and expectations for its 5G C-band network to cover 200 million people in the U.S. by year-end 2023. AT&T also believes it will be able to better compete against companies offering alternate technology solutions, some of which lack the proven ability to meet customers’ growing connectivity needs.

Total Return Strategy

FAQ

What are the recent wireless subscriber trends for AT&T (T)?

AT&T has recorded its best wireless postpaid net additions in over a decade.

How many fiber subscribers did AT&T gain in the last year?

AT&T saw an increase of over 1 million fiber subscribers, a 25% rise compared to Q1 2020.

What financial benefits does AT&T expect from the WarnerMedia-Discovery deal?

The deal is expected to provide $43 billion for debt reduction, improving financial flexibility.

What is AT&T’s investment plan for 5G and fiber?

AT&T plans to invest around $24 billion annually from 2022 to 2024 to enhance its 5G and fiber capabilities.

How many locations will AT&T's fiber expansion cover by 2025?

AT&T plans to expand its fiber footprint to cover 30 million customer locations by year-end 2025.