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Why AT&T Believes the Time Warner Transaction Will Close

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Time Warner’s deal with AT&T

In 2016, US wireless carrier AT&T (T) reached an agreement to procure Time Warner (TWX) for $85.4 billion. AT&T has significant customer relationships across video, wireless, and fixed broadband platforms, whereas Time Warner has superior content assets. Thus, the AT&T-Time Warner merger would create a vertically integrated company with superior content and an established subscriber base that could help boost AT&T’s long-term earnings.

During the Morgan Stanley Technology, Media, and Telecom Conference held on November 16, 2017, John Stephens, AT&T’s EVP and CFO, spoke about the latest updates on the Time Warner transaction. Stephens noted that the telecom company is currently in discussions with the Department of Justice (or DOJ) and that “the timing of the close is uncertain.” The deal had earlier been anticipated to close in 2017.

AT&T’s management continues to believe that the transaction will close. Furthermore, Stephens stated that “The ability to bring these two great companies together, will allow both companies to do what they do better. Better content, better delivery. We will be able to do better debt analytics, better marketing, better advertising, and we will be able to do it better for the benefit of our customers, all of that without taking a competitor out of the marketplace.”

Creating new revenue streams

The above graph shows AT&T’s total revenue over the last few quarters. In 3Q17, AT&T reported total revenue of $39.7 billion. The acquisition of Time Warner is seen as another attempt by AT&T to pursue revenue growth outside its domestic wireless division where competition has intensified.

Smaller wireless carriers such as T-Mobile (TMUS) and Sprint (S) are aiming to attract customers from other major US wireless players like AT&T and Verizon (VZ) with aggressive pricing strategies. In 3Q17, T-Mobile and Sprint added 595,000 and 279,000 postpaid phone net customers, respectively. Meanwhile, Verizon gained 274,000 postpaid phone net customers, whereas AT&T lost 97,000 postpaid phone customers during the same period.

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