Friday, March 27, 2015

AT&T hopes to squeeze more milk from the pay TV cow to boost earnings and pay dividends -- not to fund network CAPex

New Services Cloud AT&T’s Bet on Pay TV - WSJ: AT&T Inc. knew it was buying a melting ice cube when it agreed to acquire satellite-TV company DirecTV last year for $49 billion. But recent moves by HBO, Apple Inc. and the National Football League have turned the temperature up a few degrees.

A wave of new TV services delivered over the Internet allow Americans to get prime programming like the hit HBO series “Game of Thrones” and ESPN sports without paying a big cable or satellite bill. That, in theory, means fewer customers for bundles of TV channels like those sold by DirecTV. And unlike cable companies, DirecTV doesn’t have a significant broadband business to fall back on.

AT&T is aware of the risks. Chief Strategy Officer John Stankey says the telecom giant figured when it did the deal that demand for traditional bundles of TV channels probably had peaked. But AT&T is betting the decline will be slower than many people think—a gradual 34-degree melt, as opposed to a 75-degree one— and that it will be able to milk the cash produced by the declining satellite business in the meantime to fund upgrades in its networks. (Emphasis added)

It's an unlikely bet since given AT&T's business structure and strategy. Milking the pay TV cow boosts earnings and pays fat dividends, not CAPex.

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