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Can a Vertical Integration Strategy Deliver Returns for AT&T?

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AT&T–Time Warner deal

Time Warner (TWX) has high-quality content assets, and AT&T (T) has extensive customer relationships across the wireless, fixed broadband, and video platforms. As a result, the Time Warner acquisition is seen as a strategic move by AT&T, which the company hopes would ensure access to “premium branded content.”

This access could help the company distribute content to its customers and third parties. AT&T’s management is banking on vertical integration as a key to approval of the deal.

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During the MoffettNathanson Media and Communications Summit held on May 17, 2017, John Stephens, AT&T’s EVP and CFO, stated, “The Time Warner transaction clearly has significant, significant content of — but the more important thing, it’s of the highest quality. And so the ability to do that and take that and incorporate it in, if you will, converge it with our various delivery and capability services, is phenomenal.”

Creating new revenue streams

In 1Q17, AT&T (T) generated revenues of $39.4 billion, an ~2.9% reduction on a YoY (year-over-year) basis. The Time Warner acquisition is seen as another attempt by AT&T to diversify revenues from the mature and extremely competitive US wireless telecom market. AT&T’s smaller rivals Sprint (S) and T-Mobile (TMUS) have stepped up their competition for subscribers with aggressive pricing strategies.

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