By some estimates, AT&T free cash flow overall is about 14 cents for every dollar of revenue, while Verizon earns 16 cents per dollar of revenue. So some worry about the cash flow generating capability of AT&T’s DirecTV business, which most reasonably expect to drop over time.
Some even speculate that AT&T would be better off selling DirecTV.
That might not be an easy decision. DirecTV still represents per quarter, or roughly $32 billion worth of annual revenue and probably $2 billion per quarter of free cash flow, $8 billion annually. For a firm whose financial model is based on high dividend payments, free cash flow to pay those dividends really does matter.
Beyond all that, does it really make sense that AT&T, whose new positioning is a “modern media company, really want to chop media revenue and cash flow to reduce debt, as important as that is? Does AT&T really want to lose the bundling and churn-reduction advantages it seemingly reaps from offering video plus internet plus mobility?
Even if Time Warner arguably represents the future of AT&T’s video streaming efforts, there is no way revenues and cash flow from streaming can replace the linear video business anytime soon.
Some believe AT&T should have spent its cash on something else, such as more fiber-to-home deployments, for example. Few believe there was any way for AT&T to expand by growing its mobile or fixed network assets inside the United States.
But for some of us, that is the primary issue: can AT&T wring much more revenue out of its fixed and mobile footprint? An argument can be made that more FTTH investments would not provide the revenue or cash flow lift of acquisitions such as DirecTV or Time Warner. In fact, some would argue higher returns, and better strategic value, is possible only elsewhere in the ecosystem.
We can argue about the merits of the DirecTV and Time Warner acquisitions, compared to other possible uses of cash. But it is hard to see where else AT&T could have gotten free cash flow and revenue gains, immediately, from other investments such as more fiber-to-home or advanced LTE.
Sure, AT&T could divest DirecTV. It could use the proceeds to reduce debt. But where else can AT&T quickly boost revenue and free cash flow, were it to do so? I just do not see it.
No comments:
Post a Comment