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AT&T's Three Takeaways of the Post-Covid Future

AT&T's Three Takeaways of the Post-Covid Future

Quarterly earnings reports are backward-looking by design, but this earnings season’s numbers feel especially stale in the context of a pandemic that brings new information by the day and even more unknowns. Rather than dissecting three-week-old profit metrics, what everyone really wants to know — business leaders and everyday Americans alike — is how long the coronavirus will disrupt our lives, and what if any of it will be permanent. 

For that there are no clear answers yet. However, earnings conference calls are providing some of the deepest insights into the post-Covid future, even as CEOs remain understandably reluctant to provide any specific forecasts. Just like last quarter, wireless giant AT&T Inc.’s call was particularly insightful, in part because its disparate lines of business make for a fairly wide-angle view of the economy. It was John Stankey’s first address as CEO of AT&T, a post he took on July 1. 

Here are three takeaways from AT&T’s call:

1. The American consumer is hurting. 

About 340,000 of AT&T’s postpaid wireless phone customers weren’t paying their bills last period, likely because of financial hardship. That’s up dramatically from just 40,000 in the first quarter. As part of an agreement the communications industry made with the Federal Communications Commission called the Keep Americans Connected Pledge, those subscribers were able to continue using AT&T’s network through June 30, but after that point their service could be dropped. AT&T is already excluding those subscribers from its official tally and considering them to be disconnected. The same goes for some 159,000 broadband users and 91,000 premium-TV users. “We’re actively working with and trying to retain these customers, and certainly we haven’t give up on them,” Stankey told analysts Thursday. But the reality is that relief funds are running out for people still out of work.

AT&T's Three Takeaways of the Post-Covid Future

2. Hollywood studios and movie theaters still need one another.

Even before the coronavirus, fewer people had been making trips to cinemas in recent years and choosing to stream movies from home. With theater chains still closed across the U.S., consumers will be even more out of the habit of going. Worse, Hollywood studios are increasingly thinking about releasing some films directly to streaming-video apps or for on-demand rental, as Comcast Corp.’s Universal did with “Trolls World Tour” in April. As I wrote at the time, though, this isn’t the end of movie theaters. Those businesses will surely suffer and never fully recover from a trend that predated this virus. That said, studios can’t make enough money from home viewers to justify completely skipping theater audiences. There had been speculation that “Tenet,” a summer spy film from AT&T’s Warner Bros., might skip theaters because of the virus after the company puts its release date on hold. Stankey clarified Thursday that he “loves” having the option of putting some films directly on the new HBO Max app. But “is it going to happen on a movie like ‘Tenet’ or something like ‘Wonder Woman’? I’d be very surprised if that would be the case,” he said. “In fact I can assure you on ‘Tenet’ that will not be the case.”

3. Traditional pay TV is over.

AT&T continues to lose loads of traditional pay-TV customers. It said 886,000 canceled last quarter, and only 91,000 of those were customers it’s counting as “disconnections” due to the expiration of its Keep Americans Connected Pledge. On the HBO and HBO Max side, it gained 1.7 million subscribers. Many factors are driving people to cut the cord, but the biggest one now is the attempt to save money. Stankey said he sees the future of streaming eventually featuring both on-demand general entertainment content and live programming, such as sports and news, on a single service. The launch of HBO Max and AT&T TV are perhaps steps toward that convergence. Asked by an analyst whether AT&T will get rid of the antiquated DirecTV satellite-TV business it acquired in 2015, Stankey said: “I don't necessarily see satellite technology as a place that's necessary to make that happen.” 

The pandemic seems far from over. But going industry by industry, using Stankey’s comments and those from leaders elsewhere, investors can start to try to distinguish which trends may be temporary from those that will require a new way of thinking about the world. 

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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