AT&T’s spin-off of WarnerMedia frees up money for 5G investments

AT&T is combining its WarnerMedia unit with Discovery in a deal that will garner AT&T about $43 billion. WarnerMedia and Discovery, together, will focus on becoming a pure-play content company, serving direct-to-consumer streaming services globally.

AT&T has owned the Time Warner assets for only 2 ½ years. But the assets have been viewed as a drag on the larger company. Now, AT&T wants to unload its WarnerMedia unit to focus on its mobile and fixed broadband businesses.

On a call with investors this morning, AT&T CEO John Stankey said, “Our goals with the new AT&T are simple and straightforward. We plan to continue the momentum in our mobility business by stepping up our investment in our wireless network. We expect to effectively deploy the assets we acquired during the recent C-band auction, reaching 200 million PoP with that spectrum by the end of 2023.”

AT&T was the second largest spender at the C-band auction, paying about $23.4 billion to win 1,621 licenses in the 3.7-3.98 GHz band. Still, AT&T spent only about half of what Verizon spent on C-band spectrum. And Verizon is making a huge push to deploy 5G on its C-band spectrum as quickly as possible. Meanwhile, the third major wireless player, T-Mobile, has a head start on both Verizon and AT&T after its acquisition of Sprint's network.

Stankey also said today that AT&T intends to more than double its current fiber footprint by the end of 2025, reaching 30 million customer locations.

AT&T said it plans to increase its capex for 5G and fiber broadband, boosting its annual capex to around $24 billion once the Discovery/WarnerMedia deal closes in 2022. For 2021, AT&T has slated its total capex spend at around $21 billion.

RELATED: AT&T, Verizon, T-Mobile detail their 2021 capex spend

Stankey said today, “For AT&T shareholders, this is an opportunity to unlock value and be one of the best capitalized broadband companies, focused on investing in 5G and fiber to meet substantial, long-term demand for connectivity.”

Tammy Parker, senior analyst at GlobalData, said, “John Stankey is making the correct moves to refocus AT&T. He has spent the past year wisely unraveling deals that were previously made under the misbegotten vision of turning AT&T into an entertainment company. The costly distractions caused by venturing onto that path constrained AT&T’s ability to invest in its core telecommunications business at a time when it needs to be building up its 5G and fiber broadband services to remain competitive.”

Stankey also indicated that the company’s video business has “served its purpose as an aggregation point” for additional offerings to consumers. But he anticipates wireless and fixed broadband “as being natural, logical places for aggregation of services and extending value to the consumer,” moving forward.

AT&T shareholders will retain their stake in the company, plus, they will get a stake in the new WarnerMedia/Discovery company. The transaction is anticipated to close in mid-2022, subject to approval by Discovery shareholders. The deal must also gain regulatory approvals under Biden administration anti-trust examinations.

RELATED: AT&T and Discovery to combine media and entertainment businesses

The transaction will also allow AT&T to significantly reduce its debt, something that makes Elliott Capital Management happy.

Elliott Investment Managing Partner Jesse Cohn and Portfolio Manager Marc Steinberg issued a statement today, saying, “It has been a transformational year at AT&T since John Stankey took over as CEO, and today's announcement represents another impressive step in the company's recent evolution. AT&T has now executed on its promise to streamline operations and re-focus on its core businesses, all while improving operational execution, enhancing its financial position and advancing its corporate governance. As investors, Elliott supports AT&T in its efforts to best position the company for future success."