John Stephens, Senior EVP and CFO of AT&T, said Tuesday’s legal victory over the U.S. Department of Justice in a 16-month battle will free the combined company to take full advantage of synergies. At the same time, he said the parent company is taking pains to protect WarnerMedia from “a financial bean counter from a telephone company.”
The executive delivered his remarks in a live-streamed appearance at Morgan Stanley’s Technology, Media and Telecom Conference in San Francisco. “It was a very good day yesterday,” Stephens said of the unanimous ruling by a three-judge panel at the federal appeals court against the government’s effort to block the $81 billion merger. “It is a ruling we expected to receive,” he added, but with the legal cloud lifted, “We’ll be able to work with the assets in a variety of ways.”
Despite the plan to exploit all synergies, Stephens emphasized that the parent company intends to preserve the culture of WarnerMedia’s divisions, some of whose roots stretch back to the dawn of modern Hollywood.
“We’ve been really careful to set up a separate operating unit that looks a lot like Time Warner,” he said. “We wanted to protect the culture. A finance bean-counter from a telephone company doesn’t want to go in and spoil what is a tremendously good asset.” He later added, “We’re going to continue to be very respectful of the fact that it’s a different industry, a different culture, a different set of operations.”
The financial performance of WarnerMedia has been consistent dating back to when the acquisition was proposed in October 2016, Stephens said. “We got an asset that’s been better than we expected, and we expected a lot,” he said.
Direct-to-consumer streaming efforts are one manifestation of the company’s enhanced capabilities, Stephens said. The long-anticipated, three-tiered entertainment service planned to hit the market in beta by the end of the year is not expected to show up in the financial results during 2019, he noted.
Game of Thrones, whose final season will debut April 14 on HBO, is an example of the company’s separate divisions working in a co-ordinated fashion toward a common goal. “The challenge is, you want to have that kind of excitement year-round,” Stephens said.
Moderator Simon Flannery, a telecom analyst with Morgan Stanley, asked the CFO for his view of subscriber trends at DirecTV and its internet-delivered offshoot, DirecTV Now.
“We’ve got off doing those really aggressive, expensive promotions. The 10- or 15-dollar promotions for a full DirecTV Now,” he said, which explains the 267,000 plunge in DirecTV Now subscribers reported by the company for the fourth quarter. Price increases introduced in recent months by both the satellite service and its newer sibling should also benefit results in upcoming quarters, he added.
Stephens said AT&T’s debt load, which has concerned many investors of late because it has been among the highest among all U.S. companies, is starting to diminish. By the end of 2018, the company had repaid about $9 billion of debt, 25% of the total it borrowed in order to finance the Time Warner acquisition.
“We’re doing what we said we were going to do,” Stephens said.