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AT&T Reportedly Considers a Spinoff of Directv or Alliance with Dish

AT&T is counting whether to “part ways” with DirecTV, only four years later buying the satellite company, the Wall Street Journal reported today. The Journal report does not use the phrase “sale” to explain what AT&T is considering. However, the result might be AT&T no longer owning DirecTV.

It is still early within the process, so AT&T might end up sticking with DirecTV. “AT&T might ultimately decide to maintain DirecTV in the fold. Regardless of the satellite service’s struggles, as consumers drop their TV connections, it still contributes a sizable volume of cash flow and buyer accounts to its parent,” the Journal reported.

The cash generated by DirecTV helps fuel other investments at AT&T and helps the company pay down its “towering net debt load, which stood at greater than $160 billion earlier this year,” the Journal report mentioned. AT&T’s $49 billion purchase of DirecTV contributed to that debt load.

A spinoff of DirecTV possible wouldn’t happen “till mid-2020 at the earliest” for tax reasons, the Journal report stated.

AT&T completed the purchase of DirecTV in July 2015, with high hopes of dominating the pay-TV business utilizing each DirecTV satellite and a brand new online service primarily based on DirecTV. However, AT&T’s whole number of video subscribers dropped from 25.4 million in Q2 2018 to 22.9 million in Q2 2019, and AT&T told investors last week that it expects to lose another 1.1 million TV customers in the third quarter.

Since April, AT&T has been facing a class-action lawsuit alleging that it lied to investors to cover the failure of its DirecTV Presently streaming TV service. Last week, the lawsuit was updated to include allegations that AT&T supervisors encouraged sales reps to create faux DirecTV Now accounts and sign AT&T customers up for DirecTV Now “without the customer realizing.”

AT&T’s TV strategy was criticized in an open letter last week by activist investor Elliott Management Corp., which has a $3.2 billion stake in AT&T. Elliott urged AT&T to consider divesting DirecTV, which can have contributed to AT&T examining whether to offload the TV division.

AT&T additionally bought Time Warner Inc. in 2018 and is hoping to get a big chunk of the streaming business with next year’s launch of HBO Max. However, Elliott stated that “AT&T has but to articulate a transparent strategic rationale for why AT&T must own Time Warner.”