pany’s core businesses produced
some $44 billion of cash last year
after all the bills had been paid—
that is, AT&T had almost a billion
dollars coming in the door each
week. Last year it spent about
$21 billion of it on capital in-
vestments, mainly building and
maintaining its nationwide wireless
network, upgrading it to 5G, and in-
stalling fiber for home and business
customers in much of the country. It
sent another $13 billion to share-
holders as dividends; at the recent
stock price of about $30, the divi-
dend yield is 6.7%, one of the most
generous dividends paid by any
major company in America. (High
yields are the result of big payouts
and low stock prices, a reflection of
a lack of investor confidence.)
In fact, AT&T’s stock price was
recently no higher than where
it was eight years ago. Concern
about the debt is a big part of the
reason. The day after AT&T closed
on its purchase of Time Warner
last June, Moody’s downgraded
AT&T’s debt rating to two notches
above junk. The rating agency’s
rationale was enough to chill
any AT&T stockholder’s blood:
“Moody’s continues to believe
AT&T will need to reduce its cash
dividends in order to remain com-
petitive with its new peer group
that includes other media and
technology giants, many of which
have very lean balance sheets.”
(AT&T expects to pay down debt
with excess cash and is looking to
sell assets worth up to $8 billion
for the same reason.)
Prior to buying Time Warner,
the danger for AT&T was that its
revenue declines would acceler-
ate in the age of wireless video.
All the previous uses of the cell
network—talking, texting, access-
ing the Internet—are active uses in
which customers create their own
experiences. Video is different. It’s
passive; someone else creates the
experience, and if it’s good enough,
customers will pay for it beyond
what they’re already paying for
connectivity. Stephenson and his
team feared that the value in the
business of wireless connectivity
could migrate from the owner of
the network to the owner of the
content. That’s why he framed the
purchase of Time Warner as neces-
sary for AT&T to control its destiny.
Investors aren’t buying it. Their
unwillingness to price the stock
higher than it was in 2011 reflects
weak confidence in the company’s
growth. In fact, the stock was
much higher in the summer of
2016, hitting $43 not long before
the deal for Time Warner was an-
nounced that October. Most Wall
Street analysts now rate the stock
a “hold” at around $30.
Skeptics contend that AT&T’s
strategy is not a well-conceived
long-term plan so much as a
response to near-term problems.
“They’re buying sales growth, not
generating sales growth organi-
cally,” notes Bennett Stewart, a
senior adviser to the shareholder
advisory firm ISS. It had long
seemed unlikely that antitrust
authorities would let AT&T buy
another phone company, so it has
been forced to look elsewhere for
acquisitions. “The DirecTV deal
was never driven by an analysis
of what AT&T needed in order to
succeed, but rather by what the
company would be allowed to buy,”
argues Craig Moffett, the Wall
Street analyst. “That’s a terrible
way to approach strategy.”
Moffett even questions the need
for AT&T to own content at all.
“Did that mean that they planned
to make Time Warner content
exclusive to AT&T distribution?
No. They promised not to” during
the antitrust trial. He questions the
whole concept of synergies from
combining Warner content with
AT&T distribution, such as offer- DATA SHEETTHE
BUSINESS
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DOESN’T
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