AT&T suffered a number of major wins last week, from the formal death of net neutrality to the company's major court win against the DOJ, which will allow the company's $86 billion merger with Time Warner to proceed. But not everything is coming up roses for Dallas-based AT&T, with many Wall Street analysts expressing concern that the merger saddles AT&T with an ocean of debt at a time when its future is anything but certain.
AT&T, like Verizon, wants to pivot from stodgy, protectionist telco to a sexy new media and advertising company, but questions remain about whether the company has the innovation and disruption chops to do so, and just how much it will cost.
Wall Street analysts like Craig Moffett downgraded the company's stock on the news of the merger win, noting that the debt load it creates is monumental.
"The only way to describe the size of the debt is terrifying," said Moffett. "We have never seen anything of this scale before. If AT&T were a rapidly growing company, the debt would raise some eyebrows; but it isn’t growing -- profit and revenues are shrinking. I don’t know why the market isn’t more concerned."
AT&T spent $67 billion on DirecTV and another $86 billion on Time Warner instead of focusing on its core competency: running a broadband network. And while the company's DirecTV Now streaming service is gaining traction, AT&T's actually losing money as traditional cable customers flock to the cheaper alternative. The problem: those users pay significantly less per month than traditional TV users do, resulting in a dip in revenue despite AT&T's endless mergers and acquisitions.
"They thought that getting into the pay TV business was going to be a good differentiator for them, but I think if anything it has made the business inherently more risky given the structural challenges in that market," an analyst told The International Financing Review. "They are basically doubling down with Time Warner. They are getting out of their core competency."
AT&T desperately wants to avoid being a "dumb pipe." And while the death of net neutrality and its growing size will give it ample anti-competitive potential, the company's ability to transition from grumpy old telco to sexy new media brand remains far from a sure thing.
