Stephenson

AT&T’s top executive has found himself uncomfortably caught in a political fracas pitting Trump loyalists who want to punish CNN, career staffers that claim they are genuinely concerned about the media concentration that would result from AT&T’s multi-billion dollar acquisition of Time Warner, Inc., and Trump critics rushing to defend whatever they perceive the administration is against.

A frustrated Randall Stephenson, AT&T chairman and CEO, appeared at The New York Times Dealbook Conference in New York Thursday to talk about his astonishment that the company’s merger has become a public political hot potato that theorizes on President Donald Trump’s active dislike of CNN and opponents of the president who suspect the Trump Administration is attempting to punish the news media for its negative coverage of the president.

“I have never been told that the price of getting the deal done was selling CNN, period. And likewise I have never offered to sell CNN,” Stephenson said, refuting rumors that emerged in a Financial Times piece on Wednesday that claimed AT&T would have to dump CNN to get its merger deal approved. “There is absolutely no intention that we would ever sell CNN.”

While repeatedly stressing his conversations with the Department of Justice were strictly confidential, Stephenson was willing to publicly deny that CNN was ever discussed as part of the merger review. Stephenson was not so willing to comment on rumors the DoJ was seeking a divestiture of DirecTV, which AT&T acquired for $48.5 billion in 2014.

Stephenson declared it “makes no sense” to sell CNN or Turner Broadcasting, the Time Warner-owned division that runs TBS, CNN, Headline News, TNT and other cable channels.

“There is a lot of information and data that we think can be used to stand up a new advertising business,” Stephenson said. “Pairing that with the Turner advertising inventory is a really powerful thing, we believe. That is what we aspire to do. Selling CNN makes no sense in that context.”

AT&T CEO Randall Stephenson: ‘I have never been told that the price of getting a deal done was selling CNN’ from CNBC. (2:19)

The political backlash that has since emerged may actually help AT&T’s PR effort to win approval of the deal as Trump critics now rush to defend AT&T as a victim of presidential authoritarianism.

Bloomberg News published an editorial this afternoon calling for the merger to be approved just to stick it to the Trump Administration:

You don’t have to be a fan of the merger to realize that there is something seriously wrong here. As others have noted, the merger appears to be in trouble for a worrisome reason: President Donald Trump hates CNN and wants to inflict some punishment.

That Trump has long opposed the merger is hardly a secret. During his campaign, he said that if AT&T and Time Warner were allowed to combine it would “destroy democracy.” He put out a campaign statement vowing to “break up the new media conglomerate oligopolies” that “are attempting to unduly influence America’s political process.”

As for his antipathy towards CNN, it’s been a running subplot ever since he decided to run for president. He bashed the station all through the campaign and hasn’t let up as president, accusing it of being one of the media outlets that trafficks in “fake news.” A few months ago, he shockingly tweeted an image of a train running over a CNN reporter.

Trump has every right to oppose the deal and to criticize CNN; as they say, it’s a free country. But he doesn’t have the right to bend the Justice Department to his will. Yet that appears to be what is happening. That antitrust expert who said last year that the deal didn’t pose any problems? Makan Delrahim is now the head of the Justice Department’s antitrust division. And wouldn’t you know it: He’s suddenly had a change of heart about the antitrust implications of the deal.

[…] It is appalling that the Justice Department’s antitrust department appears poised to do Trump’s bidding. The good news is that AT&T has vowed to go to court if the government tries to block the merger. So far, the judiciary has been the branch of government that has stood up to the president’s authoritarian impulses. I never thought I would be rooting for two very big companies to combine into one giant company, but I am. If the AT&T-Time Warner merger goes through, it will mean that the rule of law has won. At least for now.

AT&T couldn’t be luckier if the deal becomes a referendum on whether the Trump Administration is opposing the deal as part of a personal political dispute. Suggesting it is “good news” for AT&T to go to court to win its merger may make AT&T feel better, but ordinary consumers and ratepayers are once again forgotten in the debate over media consolidation.

AT&T CEO Randal Stephenson: Sale of CNN never came up with Department of Justice from CNBC. (5:45)

WASHINGTON (Reuters) – U.S. antitrust regulators believe that AT&T Inc’s proposed acquisition of Time Warner Inc would raise costs for rival entertainment distributors and stifle innovation, a Department of Justice official told Reuters on Thursday.

Allaying those concerns is the rationale for the Justice Department’s demand that AT&T sell assets in order for the deal to be approved, said the official, speaking on condition of anonymity.

The Justice Department wants AT&T to sell its DirecTV unit or sell Time Warner’s Turner Broadcasting unit, which includes news company CNN, sources told Reuters on Wednesday.

AT&T has signaled it would not agree to sell DirecTV, which it acquired for $49 billion in 2015, leaving CNN and other cable TV assets as the main sticking point in negotiations between the Justice Department and AT&T.

The antitrust regulator is worried the combined company could make it harder for rivals to deliver content to consumers using new technologies, the official said. AT&T has said it wants to disrupt “entrenched pay TV models.”

The Justice Department’s desire for asset sales has raised concerns about political influence on the $85.4 billion deal, given U.S. President Donald Trump’s frequent criticism of CNN. As a candidate, Trump vowed to block the deal shortly after it was announced in October 2016, but has not addressed the issue publicly as president.

The head of the Justice Department’s antitrust division, Makan Delrahim, said in a statement late on Thursday that he has “never been instructed by the White House” on the AT&T deal.

Raj Shah, a White House spokesman, said in a separate statement that Trump “did not speak with the Attorney General about this matter, and no White House official was authorized speak with the Department of Justice on this matter.”

AT&T chief executive Randall Stephenson defended the merger at a New York City media conference on Thursday, and said he did not want to sell CNN.

The company has opposed divesting assets and has told the government it is willing to fight in court to win approval, sources said on Wednesday.

The deal is opposed by an array of rivals and consumer groups worried that it would give the combined company too much power. Opponents are pushing for conditions that would limit AT&T’s ability to charge media rivals higher prices to carry Time Warner content.

Shares of Time Warner were down slightly in afternoon trading at $88.35. AT&T shares rose 2 percent to $34.09.

A last-ditch effort last weekend by executives of SoftBank and Deutsche Telekom to overcome their differences in merging Sprint with T-Mobile USA ended in failure, killing Wall Street’s hopes combining the two scrappiest wireless carriers would end a bruising price war that had heated up competition and hurt profits at all four of America’s leading wireless companies.

Now Wall Street, hungry for a consolidation deal, is strategizing what will come next.

Sprint/T-Mobile Merger

In the end, SoftBank’s chairman, Masayoshi Son, simply did not want to give up control of Sprint to Deutsche Telekom, especially considering Sprint’s vast wireless spectrum holdings suitable for future 5G wireless services.

The failure caused Sprint Corp. shares and bonds to plummet, and spooked investors are worried Sprint’s decade-long inability to earn a profit won’t end anytime soon. Sprint’s 2010 Network Vision Plan, which promised better coverage and network performance, also helped to load the company with debt, nearly half of which Sprint has to pay back over the next four years before it becomes due. Sprint’s perpetual upgrades have not tremendously improved its network coverage or performance, and its poor performance ratings have caused many customers to look elsewhere for wireless service.

Investors are also concerned Sprint will struggle to pay its current debts at the same time it faces new ones from investments in next generation 5G wireless technology. Scared shareholders have been comforted this morning by both Son and Sprint CEO Marcelo Claure in an all-out damage control campaign.

Son has promised the now-orphaned Sprint will benefit from an increased stake in the company by SoftBank — a signal to investors SoftBank is tying itself closer to Sprint. Son has also promised additional investments to launch yet another wave of network upgrades for Sprint’s fourth place network. But nothing is expected to change very quickly for customers, who may be in for a rough ride for the immediate future. Son has already said his commitment to raise Sprint’s capital expenditures from the current $3.5-4 billion to $5-6 billion annually will not begin this year. Analysts claim Sprint needs at least $5-6 billion annually to invest in network improvements if it ever hopes to catch up to T-Mobile, AT&T, and Verizon Wireless.

Masayoshi Son, chairman of SoftBank Group

“Even if the next three-four years will be a tough battle, five to 10 years later it will be clear that this is a strategically invaluable business,’’ Son said, lamenting losing control of that business in a deal with T-Mobile was simply impossible. “There was just a line we couldn’t cross, and that’s how we arrived at the conclusion.”

During a call with analysts on Monday, Sprint’s chief financial officer Tarek Robbiati acknowledged investors’ disappointment.

Investors were hoping for an end to deep discounting and perks given to attract new business. T-Mobile’s giveaways and discounting have reduced the company’s profitability. Sprint’s latest promotions, including giving away service for up to a year, were seen by analysts as desperate.

Son’s own vision plan doesn’t dwell on the short-term, mapping out SoftBank’s progress over the next 300 years. But for now, Son is concerned with supporting the investments already made in the $100 billion Vision Fund Son has built with Saudi Arabia’s oil wealth-fueled Public Investment Fund. Its goal is to lead in the field of next generation wireless communications networks. Sprint is expected to be a springboard for those investments in the United States, supported by the wireless company’s huge 2.5GHz spectrum holdings, which may be perfect for 5G wireless networks.

But Son’s own failures are also responsible for Sprint’s current plight. Son attempted to cover his losses in Sprint by pursuing a merger with T-Mobile in 2014, but the merger fell apart when it became clear the Obama Administration’s regulators were unlikely to approve the deal. After that deal fell apart, Son has allowed T-Mobile to overtake Sprint’s third place position in the wireless market. While T-Mobile grew from 53 million customers to 70.7 million today, Sprint lost one million customers, dropping to fourth place with around 54 million current customers.

Son’s answer to the new competition was to change top management. Incoming Sprint CEO Marcelo Claure promptly launched a massive cost-cutting program and layoffs, and upgrade-oriented investments in Sprint’s network stagnated, causing speeds and performance to decline.

Claure tweetstormed damage control messages about the merger’s collapse, switching from promoting the merger’s benefits to claims of relief the merger collapsed:

• “Jointly stopping merger talks was right move.”
• “Sprint is a vital part of a larger SoftBank strategy involving the Vision Fund, Arm, OneWeb and other strategic investments.”
• “Excited about Sprint’s future as a standalone. I’m confident this is right decision for our shareholders, customers & employees.”
• “Sprint added over 1 million customers last year – we have gone from losing to winning.”
• “Last quarter we delivered an estimated 22% of industry postpaid phone gross additions, our highest share ever.”
• “Sprint network performance is at best ever levels – 33% improvement in nationwide data speeds year over year.”
• “We are planning significant investments to the Sprint network this year and the years to come.”
• “In the last 3 years we’ve reduced our costs by over $5 billion.”
• “Sprint’s results are the best we’ve achieved in a decade and we will continue getting better every day.”

In Saturday’s joint announcement, Claure said that “while we couldn’t reach an agreement to combine our companies, we certainly recognize the benefits of scale through a potential combination. However, we have agreed that it is best to move forward on our own. We know we have significant assets, including our rich spectrum holdings, and are accelerating significant investments in our network to ensure our continued growth.”

“They need to spend (more) money on the network,” said William Ho, an analyst at 556 Ventures LLC.

CNBC reports Sprint’s end of its T-Mobile merger deal has hammered the company’s stock. What does Sprint do now? (1:30)

Sprint/Altice Partnership

Sprint executives hurried out word on ‘Damage Control’ Monday that Altice USA would partner with Sprint to resell wireless service under the Altice brand. In return for the partnership, Sprint will be able to use Altice’s fiber network in Cablevision’s service area in New York, New Jersey, and Connecticut for its cell towers and future 5G small cells. The deal closely aligns to Comcast and Charter’s deal with Verizon allowing those cable operators to create their own cellular brands powered by Verizon Wireless’ network.

An analyst at Cowen & Co., suspected the Altice deal may be a trial to test the waters with Sprint before Altice commits to a future merger between the two companies. Altice is hungry for expansion, currently owning Cablevision and Suddenlink cable operators in the U.S. But Altice has a very small footprint in the U.S., leading some analysts to believe a more lucrative merger might be possible elsewhere.

Sprint/Charter Merger

Charter Communications Logo. (PRNewsFoto/Charter Communications, Inc.)

Charter Communications stock was up more than 7% in early Monday morning trading as a result of speculation SoftBank and Charter Communications were restarting merger talks after a deal with T-Mobile collapsed.

CNBC reported that Mr. Son was willing to resume talks with Charter executives about a merger between the cable operator and Sprint. Charter executives have shown little interest in the deal, still distracted trying to merge their acquisitions Time Warner Cable and Bright House Networks into Charter’s current operation. Charter’s entry into wireless has been more tentative, following Comcast with a partnership with Verizon Wireless to resell that considerably stronger network under the Charter brand beginning sometime in 2018.

According to CNBC, John Malone’s Liberty Media, which owns a 27% stake in Charter, is now in favor of a deal, while Charter’s top executives are still opposed.

CNBC reports Charter and Sprint may soon be talking again about a merger between the two. (6:33)

Dish Networks <-> T-Mobile USA

Wall Street’s merger-focused analysts are hungry for a deal now that the Sprint/T-Mobile merger has collapsed. Pivotal Research Group is predicting good things are possible for shareholders of Dish Network, and upgraded the stock to a “buy” recommendation this morning.

Jeff Wlodarczak, Pivotal’s CEO and senior media analyst, theorizes that Sprint’s merger collapse could be good news for Dish, sitting on a large amount of unused wireless spectrum suitable for 5G wireless networks. Those licenses, estimated to be worth $10 billion, are likely to rise in value as wireless companies look for suitable spectrum to deploy next generation 5G networks.

Multichannel News quotes Wlodarczak’s note to investors:

“In our opinion, post the T-Mobile-Sprint deal failure there is a reasonable chance that T-Mobile could make a play for Dish or Dish spectrum as it would immediately vault the most disruptive U.S. wireless player into the leading U.S. spectrum position (w/ substantially more spectrum than underpins Verizon’s “best in class” network),” Wlodarczak wrote. “This possible move could force Verizon to counter-bid for Dish spectrum (or possibly the entire company) as Dish spectrum is ideally suited for Verizon and to keep it out of T-Mobile’s hands.”

AT&T/DirecTV Buyout of Dish Network

Wlodarczak has also advised clients he believes the deregulation-friendly Trump Administration would not block the creation of a satellite TV monopoly, meaning AT&T should consider pairing its DirecTV service with an acquisition of Dish Networks’ satellite TV business, even if it forgoes Dish’s valuable wireless spectrum.

“AT&T, post their Time Warner deal, could (and frankly should) be interested in purchasing Dish’s core DBS business taking advantage of a potentially more laissez faire regulatory climate/emergence of V-MVPD’s, to significantly bolster their DirecTV business (and help to justify the original questionable DirecTV deal) by creating a SatTV monopoly in ~10-15M US households, increased programming scale and massive synergies at a likely very attractive price.”

Such a transaction would likely resemble the regulatory approval granted to merge XM Satellite Radio and Sirius Satellite Radio into SiriusXM Satellite Radio in 2008. Despite the merger, just months after its approval, the combined company neared bankruptcy until it was bailed out with a $530 million loan from John Malone’s Liberty Media in February 2009. Liberty Media maintains an active interest in the satellite radio company to this day.

AT&T tried to calm investors Wednesday in an 8-K filing with regulators, reporting that although it has likely lost 390,000 DirecTV satellite and U-verse video customers in the last three months, it has gained 300,000 online streaming customers for its DirecTV Now TV service.

The company is required to report materially adverse changes to its business to shareholders, and AT&T elected not to wait until its next quarterly earnings report to divulge the substantial losses in video customers. DirecTV Now gains are not expected to be a significant panacea for investors because AT&T reportedly makes little or no profit from the service since it launched in late 2016.

AT&T avoided blaming cord-cutting for customer losses:

The video net losses were driven by heightened competition in traditional pay TV markets and over-the-top services, hurricanes and our stricter credit standards. The decline of traditional video subscribers negatively impacts our Entertainment Group revenues and margins, resulting in an adjusted consolidated operating income margin that will be essentially flat versus the year-ago third quarter.

Overall, the company confessed it lost 90,000 total video subscriptions once DirecTV Now’s gains were included.

AT&T told investors earlier this year it was substantially cutting marketing of its U-verse video service and began encouraging customers to subscribe to DirecTV satellite service instead. But the satellite TV service is rapidly losing customers as well. Wall Street analysts suggest the only explanation for this is cord-cutting.

“The issue is in the acceleration in cord-cutting, and the prevalence of [online streaming], not each other,” said Craig Moffett of MoffettNathanson. “It is becoming increasingly clear that the wheels are falling off of satellite TV” noting that Dish Networks subscriber numbers appeared dismal as well.

Moffett predicted with the ongoing video losses impacting satellite television, he thought it unthinkable the two satellite companies might consider merging.

AT&T’s DirecTV Now is aggressively pursuing agreements to include local network stations in its online streaming platform.

This week, the company announced it added CBS and CW stations in more than 75 markets reaching over 70% of U.S. households, and now carries 155 local stations on its lineup. As part of that agreement, DirecTV Now also now offers customers the option of adding Showtime at what AT&T calls the cheapest price available from any streaming service — $8 a month. Access to the Showtime Anytime app isn’t ready yet, but will be “in the coming weeks,” claims AT&T.

Subscribers to the “Go Big” package will soon find CBS Sports Network added to their lineup. Those with at least the “Just Right” package will see Pop added as well. On Demand programming from CBS and The CW will begin in October.

Here’s the current lineup of TV markets and stations available on DirecTV Now as of late September: