It never is hard to find critics of the Time Warner acquisition or DirecTV before that. While acknowledging that DirecTV has underperformed expectations, one can make the argument that the cash flow advantages still outperformed other assets AT&T might have acquired.
Organic revenue growth often is tough, and a firm such as AT&T requires huge amounts of free cash flow to support its dividend payments, debt reduction and capital investment needs. Sure, the video entertainment business is changing. But you would be hard pressed to name any other acquisitions AT&T might have made that boosted free cash flow as much as DirecTV.
Also, AT&T could not have afforded many other high-growth, high cash producing assets that were substantial enough to move the free cash flow needle. Even if mobility and business services produce higher profit margins, AT&T was not in position to acquire more mobile market share, because of antitrust concerns.
Nor is it clear whether any business segment assets could be acquired domestically or internationally that would be big enough to move the cash flow needle, and also fit a strategic rationale.
Keep in mind that AT&T always has grown principally by acquisition; only then secondarily by organic growth. Also, there are relatively few consumer services that are highly purchased, and video entertainment is one of those.
The right declining businesses can throw off lots of free cash flow, and might serve as a foundation to create a next generation of products that have growth prospects. AT&T was betting this would be the case with DirecTV.
Still, free cash flow is a big driver of AT&T thinking. Sure, now debt reduction is a priority, but that happens when a company’s growth strategy virtually requires big acquisitions.
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