AT&T CFO Says He Is Feeling Even "Better" About Time Warner Deal Now Than Last Year

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"We continue to work" with the Justice Department and regulators abroad on the deal review and expect to complete the acquisition this year, John Stephens tells an investor conference.

Telecom giant AT&T's CFO John Stephens told the Deutsche Bank Media & Telecom Conference in Palm Beach, Fla., on Wednesday that he feels even better today about the planned acquisition of Time Warner than when it was announced last year.

"I feel better about the transaction today than I did the day we announced it," he said in a session that was webcast. "I felt good about it then. So we feel really good about our opportunities to combine and generate a really strong cash generation machine that will keep this company healthy for a long time to come.”

Asked to explain his comments further, he said: "It’s a great business. They continue to have great quarterly results." He also added that the entertainment company's lower capital intensity compared to AT&T's "is going to give us a real opportunity to deliver."

AT&T last year agreed to acquire Time Warner for $85.4 billion. Federal Communications Commission chairman Ajit Pai earlier this month reiterated his expectation that the U.S. regulator would not review the planned transaction.

Stephens reiterated that Time Warner is "not expecting to transact any licenses to us," which would mean a review would indeed be limited to the Justice Department. About the Justice Department deal review, he said: "We continue to work with the DOJ in the normal course, and we continue to move that forward.”

At the same time, the company has deal approval processes going on in Europe, Latin America and Asia. "Those are proceeding as you would expect," Stephens said.

He concluded: "We continue to expect to close this deal in 2017, and certainly we're working to close it sooner rather than later, but we’ll let the process play out."

 

He further underlined the companies' confidence in getting approval for the deal by reiterating that "these vertical integration deals get done, they make a lot of sense, they don't eliminate a competitor, and, quite frankly, in this case, bringing these two companies together is really going to accelerate innovation that will benefit customers.”

Asked about the new U.S. regulatory landscape, including new FCC chairman Pai, and whether it changes AT&T's perception of the merits of the Time Warner deal, Stephens said: "We are very positively encouraged about the new regulatory backdrop, particularly with the FCC. The new chairman has a record," which is widely viewed as positive for the pay TV business. "His early moves are support for an investment-based philosophy, support for mobile broadband."

Overall, AT&T's key priorities this year include getting the Time Warner deal done and continue to get added DirecTV acquisition savings and synergies. "Those things will remain," Stephens said. "They are reinforced by this good news and this improving situation from a regulatory front, but I don't want to imply any significant [regulatory] changes one way or another."

President Donald Trump during his election campaign said his administration wouldn't approve the deal, but AT&T and Time Warner executives have argued that there was no precedent for blocking the mega-combination. Analysts have mostly predicted that the Justice Department would approve the acquisition with certain conditions.

Discussing the DirecTV deal benefits further, the AT&T CFO said that the company last year hit its targeted financial benefits and more are on their way. “It’s been a little over a year and a half since the merger, so not all of the content contracts come up within that," he explained. "There is some more of those content costs” coming as more carriage deals come up for renewal and other savings also kick in.

Stephens didn't provide an update on the number of subscribers for the DirecTV Now streaming service launched late last year. The company previously said it ended 2016 with about 200,000 subscribers. “The 200,000 was very exciting, very successful,” he said, adding it gave the product attention and early users and allowing "pressure testing" of the service.

Stephens also said that the company can potentially use the DirecTV Now platform to add more services and products over time, saying: “So it’s just the starting point.”

Has there been any cannibalization of traditional DirecTV subscribers? “It’s been well within the modest assumptions we had," Stephens said. "We are comfortable with where that stands." He acknowledged though that DirecTV has seen more pricing competition from rivals for pay TV services.  

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