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A New Chapter in an Ugly Story as AT&T Reaches a Deal for DirecTV

Analyst Note

| Michael Hodel, CFA |

AT&T has reached an agreement to restructure its U.S. television business, selling a stake in the operation to a private equity fund run by TPG. The deal isn’t large relative to the size of AT&T core wireless and media businesses. The firm disclosed that U.S. television services generated about $4 billion of EBITDA in 2020, equal to about 7% of the total for the year. It likely generated around 12% of free cash flow, a percentage we project to rapidly decline. But we suspect the firm is anxious to beginning putting the DirecTV mistake—and the investor attention it commands—in the rearview mirror. We are maintaining our $36 fair value estimate and we believe AT&T shares are attractive.

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Company Profile

Business Description

Wireless communication remains AT&T's largest business, contributing nearly 40% of revenue. As the second- largest U.S. wireless carrier, AT&T connects more than 100 million devices, including 63 million postpaid and 16 million prepaid phone customers. The consumer and entertainment segment (about 25% of revenue) includes the consumer fixed-line and DirecTV satellite television businesses, serving 20 million television and 14 million Internet access customers. WarnerMedia now contributes a bit less than 20% of revenue with media assets that include HBO, the Turner cable networks, and the Warner Brothers studios. Fixed-line business communications (14%), Latin American satellite television (2%), and Mexican wireless services (1%) constitute the remainder of the firm.

Contact
208 S. Akard Street
Dallas, TX, 75202
T +1 210 821-4105
Sector Communication Services
Industry Telecom Services
Most Recent Earnings Dec 31, 2020
Fiscal Year End Dec 31, 2021
Stock Type High Yield
Employees 230,000

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