AT&T said it expects to lose more pay-TV subscribers in the third quarter, due to tough negotiations over new distribution agreements with broadcasters and limited promotional activity. Speaking at an investor conference, CEO John Stephens said the loss of premium pay-TV subscribers is expected to exceed the previous quarter by 300,000 to 350,000.
Stephens said the company was taking a tough line in the content negotiations in order to keep costs down. AT&T is focused on maintaining margins at its Entertainment division despite the ongoing loss of TV subscribers. The aggressive stance in retransmission negotiations has led to some channel black-outs as well as less promotional activity.
In 2020, AT&T expects premium TV subscriber trends to improve due to fewer customers on promotional pricing and the nationwide launch of AT&T TV, its new streaming service. Other factors that may help improve Entertainment Group EBITDA beyond 2019 include broadband growth due to increased fibre penetration and availability of higher speeds; a higher-quality video and broadband customer base with lower churn and higher ARPU; continued cost management; advertising growth from Xandr and less pressure from declining legacy products, Stephens said.
In the near term, the subscriber losses will have an impact on Q3 revenues. Other factors expected to have an effect in the quarter include lower handset sales due to longer replacement cycles, around USD 400 million lower revenues at Warner Media due to a number of hit movies in the year-earlier period, and continued adverse foreign exchange effects in Latin America. These will impact revenue but not affect the company's EPS guidance, the CEO said.
AT&T otherwise reiterated its guidance and strategy. Net debt is expected to fall to 2.5x adjusted EBITDA by year-end thanks to a mix of cash flow and asset sales. Stephens said given the company’s confidence in reaching its leverage target, investors should expect share buybacks "will be in the mix this year". Additional asset sales may include towers in the US and Mexico and around USD 500 million in property up for sale.
