How Time Warner Acquisition Could Help Boost AT&T’s Business
Deal will boost media business
The acquisition deal between AT&T (T) and leading content provider Time Warner (TWX) is currently under review by US (SPY) regulators, who are not in favor of this deal. The consolidation of these two giants in the telecom-media space would likely benefit the companies and also provide competitive advantages to customers.
The acquisition, if it gets approved, will give AT&T access to Time Warner’s media assets including HBO and Turner Broadcasting, which has the rights to telecast sports events. AT&T would also gain Time Warner’s Warner Bros. film studio, cable networks TNT, TBS, and CNN, and a 10% stake in Internet video provider Hulu. The combination of AT&T’s extensive customer base and its distribution network across TV, mobile, and broadband with Time Warner’s premium content is expected to offer valuable services to its customers. Time Warner’s content will also aid the telecom company in its online video service.
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AT&T is also looking to the Time Warner acquisition to boost its revenues, which have been sluggish for the past few quarters, as the graph above shows. AT&T is facing tighter competition in its wireless business from smaller firms including T-Mobile (TMUS) and Sprint (S), which have gained subscribers by giving attractive promotional offers to customers. In 3Q17, it generated revenue of $39.8 billion compared to $40.5 billion in 3Q16.
Reduction in capital investments
The proposed deal is also expected to help AT&T lower its capex investments, which would make more resources available to the company to invest in its 5G technology. AT&T expects the acquisition to be accretive on a free cash flow growth per share basis in the first year after the close of the purchase.