AT&T (NYSE:T) has begun the hard task of trying to pay back the debt it took on buying Time Warner. T stock investors got a sense this week of just how difficult that’s going to be, as they were reminded of how big of a mistake the company made on the deal.
The company took to the airwaves this week to try to convince the world that its outsourcing of cloud to International Business Machines (NYSE:IBM) is somehow getting it back into the tech game.
IBM said it will run its software defined network operations through AT&T and the two companies will also go to market together. But it’s clear from IBM’s press release that if money is moving here, it’s moving from AT&T to IBM, not the other way around.
Between the lines of this week’s announcement, it’s clear that AT&T is out of the technology business.
Hide the Layoffs
AT&T is quietly moving toward yet-another round of layoffs while insisting that calling them layoffs is misleading. More T-speak is in store.
A plan to start charging $4/month to block spam is sold as an automatic block on robocalls. Grants to study quantum computing are spun as AT&T entering the space.
A “me-too” streaming service called HBO Max is called innovation because it includes 20-year old re-runs while AT&T quietly cuts headcounts at WarnerMedia.
AT&T is grabbing for cash wherever it can find it. Bounty hunters and stalkers are being told just where their victims are without regard to consequences. Customers who sue are being told by AT&T lawyers they have no rights in court and must go to binding arbitration it controls.
AT&T has pushed through multiple price increases at DirecTv Now while playing hardball with network affiliates, taking them off its systems.
Desperate for Cash
There’s good reason for AT&T to be nickel-and-diming everyone. You won’t find it in the income statement. Look at the balance sheet and statement of cash flows.
In March AT&T reported it had $185 billion in long-term debt but only $152 billion in property, plant and equipment. It claimed more than $162 billion worth of “intangible assets” and $146 billion of “goodwill” to boost its asset total to $583 billion. There is also $104 billion in undefined “other liabilities.”
AT&T reported $11 billion of operating cash flow, but $5.4 billion went back into maintaining the debt load and $3.7 billion was needed to pay its dividend. The best cash flow report in a year showed $1.2 billion in net cash.
As I noted a few weeks ago, AT&T has an enormous technology debt. Much of its physical plant is obsolete, wires for phone services no one wants. Its wireless unit will increasingly compete with its U-Verse cable as 5G is rolled out. Cord-cutting means those Warner Media cable channels aren’t worth what you think, either.
The reason you buy AT&T stock is for that 51 cents per share dividend. But the more AT&T pounds the table to bring the stock price up, the less valuable even that becomes. The stock market’s recent rise has pressured the yield from almost 6.6% to about 6%. The stock enters trade July 17 a nickel higher than the analysts’ average target price for this time next year.
Bottom Line on AT&T Stock
If AT&T CEO Randall Stephenson wanted to bet the company on a big acquisition, he should have bought IBM. It’s at least a technology company. Instead he bought Time Warner, a media company whose assets mostly serve the dying niche of cable.
If AT&T can squeeze profits from captive customers for the next 10 years, it might make a dent in its debt load. But the assets are rapidly declining in value. This story will not end well.
Dana Blankenhorn is a financial and technology journalist. He is the author of the mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
