AT&T’s debt levels
AT&T (T) has been battling to reduce its debt, which has spiked due to the $85.4 billion purchase of Time Warner last year in mid-June. AT&T had repaid ~$9 billion of debt in the fourth quarter, ending the year with debt of $176.5 billion. On the other hand, AT&T’s closest rivals Verizon (VZ), Sprint (S), and T-Mobile (TMUS) have net debts of $110.3 billion, $37.5 billion, and $26.3 billion, respectively, as of the end of 2018.
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AT&T’s debt reduction efforts
AT&T has been making efforts to cut down its costs and deleverage its business using its free cash flow. AT&T’s free cash flow grew 36% YoY to $22.4 billion in 2018 and expects it to increase ~16.1% YoY to $26 billion in 2019.
The company has stopped offering promotional discounts for phone and TV plans to reduce its costs. The recent sale of its ~10% stake in Hulu is further expected to reduce the debt levels. The 10% of Hulu will be distributed to the remaining owners of Hulu, Walt Disney (DIS) and Comcast (CMCSA), according to the agreement. Notably, AT&T is likely to review its non-core assets in 2019, as it hopes to reduce its debt levels soon.
Declining pay-TV market
Amid a high debt burden, the company is struggling to grow its pay-TV subscriber base (including U-verse and satellite TV customers) due to cord-cutting. Services such as Amazon Prime by Amazon (AMZN) and Netflix (NFLX) are some of the biggies ruling the OTT video streaming market. AT&T’s WarnerMedia is also set to launch its streaming product at the end of 2019 to combat the digital rivals.