AT&T Deals With Elliott. Now It Needs to Nail HBO Max.

(Bloomberg Opinion) -- AT&T Inc. is one of the world’s biggest communications companies, but it hasn’t always been great at communicating. On Monday, management sought to change that, providing investors with some of the clarity they’ve needed to get comfortable once again with an industry giant that’s so much more complex today that it was just a couple of years ago. It’s the right message. Now AT&T, the parent of the eponymous wireless network, as well as the DirecTV satellite service and media properties including HBO, needs to put its words into action. 

Alongside the release of third-quarter earnings, AT&T outlined some of its most detailed financial projections and capital-return goals yet, promising to retire all of the debt it incurred to buy Time Warner last year and buy back about 70% of the shares it issued for the $102 billion deal. The company said profit margins, as measured by earnings before interest, taxes, depreciation and amortization, will be unchanged next year as it invests in HBO Max, its version of Netflix launching in the spring, but that margins will begin to grow in 2021 amid cost cuts and growth in its wireless and Mexican divisions. AT&T also committed to hit the pause button on major acquisitions and continue evaluating assets that can be carved out to raise money, such as the sale-leaseback agreement it struck for its wireless towers last week. 

This is largely what investors, championed by activist shareholder Elliott Management Corp., have been waiting to hear for some time. “It is clear to us that AT&T is committed to and accountable for creating shareholder value over the near- and long-term,” Elliott’s Jesse Cohn and Marc Steinberg, who led the activist push, said in a subsequent statement Monday, signaling a truce between the investor and AT&T. 

While AT&T’s announcement contained important concrete data forecasts, the more abstract takeaways of its investor day on Tuesday may be what really sets the tone for the foreseeable future. The event, hosted by AT&T’s WarnerMedia unit (the former Time Warner), is primarily to give a sneak peek at HBO Max, which has become something of a mythical creature in the streaming wars. It’s received as much or more news coverage and scrutiny than Walt Disney Co.’s Disney+ and Apple Inc.’s Apple TV+ apps, even though HBO Max is still only in the development stage and no one outside the company has seen it yet. Disney+ and Apple TV+ both launch in November, making HBO Max a very late-comer to the market. 

AT&T CEO Randall Stephenson added Warner and DirecTV to the company’s repertoire to better capitalize on consumers’ voracious appetite for streaming video. But instead of the accolade expected of a visionary thinker, Stephenson and his team have been criticized for what started to feel like an incoherent strategy. Heading into 2019, the company’s mountain of debt — it is the world’s biggest corporate borrower — began to look like such a burden that it might put its all-important dividend into jeopardy or force a sale of DirecTV. But to Stephenson’s credit, he quickly chipped away at the debt by selling off a series of assets and those fears have largely been abated.

Now it’s a question of whether he can get all of the different pieces of AT&T working together, a task assigned to his deputy, John Stankey, a three-decade veteran of AT&T who was installed as the CEO of WarnerMedia and also recently promoted to chief operating officer of the parent company. While Stankey has been seen as Stephenson’s most likely successor amid whispers that a change at the top was nearing, AT&T clarified on Monday that a CEO transition is “not expected in 2020.” Elliott’s own statement summarizing the agreement had this relevant detail: When Stephenson does retire, the chairman and CEO roles will be split and a broader search will be run for his replacement.

This is all a step in the right direction, but in the backdrop of Monday’s positive news were less inspiring third-quarter results from AT&T. They were a reminder that AT&T’s best business is still its core business, U.S. wireless service, and that cord-cutting is taking a harsh toll on traditional pay-TV revenues. Hanging in the balance is the HBO Max unveiling Tuesday. If it goes half as well as Disney’s own investor streaming party went in April then AT&T, at least perceptually, will be in good shape. If it doesn’t live up to expectations, it will be a long road till the spring launch. 

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.

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