WarnerMedia/Discovery Helps HBO Max, Connectivity: Stankey

Being vertically integrated with content helped AT&T's domestic connectivity business, but it became apparent its HBO Max platform needed to be global in scale to compete and wouldn't fit with the U.S. focus, hence the spinoff and Discovery deal (see 2105160003), CEO John Stankey said Monday during a JP Morgan conference. He said AT&T's smaller dividend after the DirecTV and WarnerMedia spinoffs will mean more capital the company can invest into wireless and fiber deployment for connectivity.

AT&T did see some benefits from WarnerMedia such as lower churn, and HBO benefited from AT&T's distribution strength and market clout in normalizing agreements, but the media assets needed more flexibility to seize opportunities to add subscribers, Stankey said. He said WarnerMedia/Discovery means synergies, a deeper content library and also international "heft." Stankey said a select number of streaming platforms, such as Disney+, HBO Max and Netflix, will have global scale: They will likely move beyond streaming video to aggregation of other types of content such as music or gaming.

The "incredibly strong" demand for fiber and wireless connectivity is partially driven by federal stimulus spending, and it's unlikely to collapse once stimulus spending ends, Stankey said. The move to more hybrid workplaces "is good for a business like ours," he said. Advertising revenue is starting to recover, as sports and sports programming return to their normal cycles, Stankey said. He said video content production "is now back in full swing."

Stankey said supply chains "are stressed in a way I have never seen," with products including broadband routers in short supply. He said federal stimulus spending potentially could disincentivize people returning to the workforce.

Stankey said AT&T sees a connectivity opportunity for "enterprise-grade networks" into homes. He said AT&T has a variety of planned efforts to increase customer retention. "We are still a little obtuse as to what the AT&T brand stands for," and it will step up its wireless network investments. He said fixed wireless will be used in some parts of its footprint stuck with slower speeds. An advantage to fixed wireless is it lets the company replace some aging landline infrastructure, he said. Stankey said AT&T could build an unspecified vertical service beyond connectivity atop its fiber.

Fixed/mobile convergence "is hard," Stankey said. He said AT&T management hasn't fully thought about opportunities. Stankey said he's using a prototype router with 5G capabilities for fixed broadband in his home. He said simplification of that should be an opportunity for AT&T due to the increasingly complex networking needs of customers.

Stankey said the amount of private sector money being invested in broadband infrastructure over the next three to four years "is going to be pretty impressive," with largely ubiquitous connectivity doable by 2025 as long as there's an effective policy approach for tackling affordability. He said there should be USF reform. Noting USF work for voice connectivity, Stankey said it's "time we do the same thing" for broadband via fiber, fixed wireless and potentially low earth orbit satellite. That ubiquity will require some federal incentivization for the 15 million or so homes that are too rural for companies to reasonably connect to on their own, he said.

WarnerMedia/Discovery is expected to pass regulatory muster. See our report here.