AT&T CFO expects OTT turnaround in 2018

John Stephens, CFO at AT&T, has been speaking at the UBS Global Media and Communications Conference in New York and he predicts brighter times for the content business in the near future.

The diversification strategy at AT&T has not been a smooth ride to date, as while there have been promised steps forward made with its OTT service, DirecTV Now, the numbers in the traditional TV business have been dwindling at a rapid rate. It seems all the cord cutters heading to the exit have not been turned on by AT&T’s solution.

The OTT platform topped 1 million subscribers the other day, which is certainly a positive milestone, but execs will be hoping this trend continues. Over the last couple of quarters, net losses of video subscribers have been negative (i.e. traditional is losing more than OTT is gaining), and considering the subscription cost is less for the OTT product, this is not an enviable business model. There will of course be efficiency and operational gains from the OTT side of things, but this is a minor win in the grand scheme of things.

That said, Stephens expects to address these losses in 2018, as well as net video gains in the fourth quarter of 2017. He also highlighted AT&T is on track to achieve $2.5 billion or more in annualized cost synergies from the DirecTV acquisition by mid-2018. Perhaps this is a case of a slow start before the bright future, but AT&T will have to start producing more positive numbers before too long.

Elsewhere in the AT&T plans is a greater emphasis on product bundling. When customers bundle DirecTV satellite service with wireless, the churn goes down significantly and the long-term value of the customer relationship increases, according to Stephens.

This push into bundling will also support high-speed internet, where the commitment to reach 12.5 million customer locations by mid-2019 has been reiterated. That said, we shouldn’t forget this is a target which was proposed as part of the DirecTV acquisition; AT&T don’t have much choice but to hit it.

AT&T might not be on the same upward curve as its disruptive rival T-Mobile, but the telco is not in a bad place. Should the team be able to realize the net gains in video over this quarter, while also increasing the convergence percentage, it could prove to be a very positive 2018 for AT&T.