Cash flow is the issue and the rationale for the original purchase of DirecTV by AT&T. That remains the case, despite subscriber losses across the linear video ecosystem and the satellite delivery segment. Some might prefer that AT&T divest DirecTV assets, but there are big cash flow implications. And that, in the end, is the crux of the matter.
AT&T has huge free cash flow requirements, to support its dividend and reduce debt loads. It was never clear to me what else AT&T might have done--instead of acquiring DirecTV--to grow its cash flow fast.
The big attraction for any sale of the DirecTV assets is lower debt, but at the cost of lost cash flow. DirecTV might throw off about $6.3 billion in annual free cash flow, assuming DirecTV U.S. revenues of $27.5 billion and profit margins of 23 percent, translating into an EBITDA (cash flow) of about $6.3 billion.
Keep in mind that AT&T’s total interest obligations annually are about $6.8 billion. In other words, DirecTV cash flow funds abut 93 percent of AT&T’s total interest payments.
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