Are The Wheels Coming Off AT&T’s $70 Billion DirecTV Investment?
AT&T, America’s second largest carrier by subscriber numbers, is set to announce its third quarter earnings on October 24. At this time, the carrier is expected to announce significant subscriber losses within its DirecTV subsidiary. AT&T bought DirecTV back in May 2014 in one of those bizarre business transactions that had some people excited, some people indifferent, and others wondering if the wheels were coming off AT&T. You see, AT&T excitedly explained to the industry that now they could cross sell DirecTV service to mobile subscribers, offering products such as the DirecTV Now streaming service. What AT&T didn’t realise, or figured “this time it would be different,” is that telecommunications companies do not make great media companies. AT&T spent almost $50 billion on a company reliant on installing a satellite dish to a property, and using wires to send the signal to one or more televisions. Actually, taking into account the debt that AT&T took on, the DirecTV acquisition cost was a little shy of $70 billion. S-e-v-e-n-t-y b-i-l-l-i-o-n.
Last week, AT&T filed a report with the Securities and Exchange Commission explaining that it would be posting a net loss of 90,000 video subscribers for the third quarter 2017, but it had acquired almost 300,000 DirecTV Now subscribers. DirecTV Now is a cheaper alternative to the full DirecTV service. Combine these subscriber losses with the summer hurricanes and things do not look pretty for AT&T.
Where did it go wrong for AT&T and DirecTV? Put simply, AT&T’s grand plan of bundling the DirecTV service with mobile plans. T-Mobile’s Chief Executive Officer succinctly explained that bundling together services and offering them at a discount means the customer ends up paying for something he or she doesn’t want. AT&T did exactly this when they offered an unlimited data service… providing the customer signs up for DirecTV. The customer walks into AT&T wanting unlimited data and walks away paying for both unlimited data and a fixed address television service.
In 2017, more now than ever before, consumers and subscribers are smart enough to know what they want from their carrier. Almost always, this means a reliable and responsive internet connection, a plentiful data allowance, and transparent pricing. In the American business, the market leader, Verizon, needs to act like it. T-Mobile is gaining subscribers quarter after quarter, and AT&T is stuck in the middle, offering the Samsung Galaxy S8 Active.