Three years after it said it would spend more than $100 billion (including assumed debt) for Time Warner Inc., AT&T is a pure-play phone company again, agreeing to spin off its WarnerMedia business into a separate entity with Discovery Inc., effectively ending its years-long experiment in the TV distribution and content business. 

This is the second spin-off the phone giant has made in about three months. In February, it said it would spin off DirecTV in a separate, publicly traded unit that would include private equity giant TPG, for about $16 billion, or less than half the $49 billion ($66 billion including debt) it paid for the asset in 2015.  

With the Discovery-WarnerMedia deal, AT&T has effectively given up on its media strategy, which a mere three years ago was supposed to be the foundation of the new AT&T. Now, AT&T gets $43 billion for an asset it paid $85 billion ($108.7 billion including assumed debt) for in 2018, and becomes a pure-play phone company again. 

In a research note, Bernstein media analyst Peter Supino said that AT&T management came to the realization that Time Warner executives did when they decided to look for a buyer three years ago: the new content model is tough.

“We think this merger discussion evidences AT&T's concern about the cost to make HBO Max a long-term winner in global streaming,” Supino wrote. “We believe that the capable [Time Warner Inc.] management team was elected to sell the company because it could not solve [Time Warner’s] market share problem as a public company prioritizing profits. In that context, we have thought it almost inconceivable that the phone company would solve that same problem. That the phone company is anxious about its adjusted leverage approaching 3.8x makes it even less likely to lead Warner Media to glory.”

Supino’s Bernstein colleague, media analyst Todd Juenger, wrote in a note to clients that the WarnerMedia-Discovery deal is proof that neither company believed it had the scale to make streaming a success alone. But he had doubts that this transaction will make the combined company big enough. 

“Taking two businesses where the vast majority of the cash flow is derived from linear TV, which is in our opinion a structurally impaired business (with cyclicality as well), does not create a better business,” Juenger wrote. 

Also Read: AT&T: Taking a Mulligan on Media 

In a conference call with analysts about the deal on May 17, AT&T CEO John Stankey talked a lot about 5G and fiber, two things that probably haven’t been top of mind for many investors as the company struggled with DirecTV subscriber losses and concerns over HBO Max’s sluggish customer growth. Now, with the distraction of the media business gone, maybe they can focus on what they appear to be good at -- the phone business. 

AT&T is coming a bit late to that decision. Its chief wireless rival, Verizon Communications, came to that realization a few years ago, after dipping its toes in the content creation and distribution businesses. Earlier this month it cleared the media deck with the sale of its remaining media assets to Apollo Global for about $5 billion. Verizon still has its Fios TV pay TV distribution business, but it's clear the real emphasis there is on broadband.

Now AT&T gets to focus on broadband too. During a conference call with media, Stankey  said the goals for the new AT&T would be “simple and straight-forward”: growing its wireless network to reach 200 million POPs by the end of 2023, and to more than double its fiber footprint to 30 million homes by the end of 2025. That sounds like a phone company talking to me. 

For WarnerMedia, which has been on a bit of a roller coaster ride in the past few years, it gets an owner that actually knows the TV business. In a conference call with analysts, Discovery CEO David Zaslav, who will head the new entity, noted that he’s known a lot of the media unit's employees for 30 years. Zaslav had a long career running NBC Cable before joining Discovery about 15 years ago, and he has managed to grow that company through acquisitions and organically. Now he’s leading it into the next stage.

That’s really important. Whatever your thoughts about WarnerMedia under the watchful eye of AT&T management, it’s pretty obvious that the old structure wasn’t working. Since taking over Time Warner in 2018, WarnerMedia has had three CEOs -- Stankey, who became CEO of AT&T last year; Bob Greenblatt, who was fired after about a year on the job; and Jason Kilar, the Hulu founder who suddenly made himself extremely available in the past few weeks, keynoting the MoffettNathanson Media & Communications Summit conference on May 13  and becoming the subject of a sprawling Wall Street Journal profile on May 14.

According to at least one outlet, in hindsight it appears Kilar was beginning to see the handwriting on the wall, and was trying to put himself and his accomplishments out there just in case he had to make a sudden move. The New York Times reported Monday that Kilar was assembling a legal team to negotiate his exit.  

Kilar was thrust into the role after Greenblatt, who had past successes with Showtime and NBC, was shown the door. About seven months after taking the job, Kilar caused some uproar in the talent ranks when he unveiled a plan to shatter theatrical windows, opening up Warner Bros. Studios’ entire 2021 slate to streaming and theaters simultaneously.  WarnerMedia is going back to the old windows for its 2022 movie lineup. 

On the conference call with media, Zaslav called Kilar “a fantastic talent,” but passed to Stankey on the call when asked about the Hulu founder’s future in the new company.     

Stankey said that Kilar remains the CEO of WarnerMedia, but that Zaslav “has got a lot of decisions to make on personnel and how things are structured moving forward during this transition period, as he works his way through it, I’m sure he’ll be talking with folks about where that’s going.” 

Not exactly a ringing endorsement.

Zaslav said that the new company will have a new name, coming in the next week or so, and that the idea is to fully integrate Discovery and WarnerMedia. Whether that means that the two companies’ respective streaming services will be combined as one, isn’t quite clear. Pricing also is going to be key. Currently, HBO Max is the most expensive DTC streaming service at about $15 per month and Discovery Plus is at about $4.99 ($6.99 for an ad-free version) per month. HBO Max is planning to launch an ad-supported version in June, which some reports say will be priced at about $9.99 monthly. How Zaslav melds and prices those two offerings is still a question, but most analysts believe that a $25 HBO Max/discovery plus service is hopefully not in the cards.

Juenger wrote that if the plan is to not offer the Discovery Plus and HBO Max products separately, then the price of one or both has to come down significantly, with no change in content. That, he said, would most likely lower the value of the companies’ current streaming plans. 

“For this new suite of streaming offerings to be more valuable than the current plans, one would have to believe that by sacrificing ARPU of one or both, there would be enough incremental additional subscribers to more than make up for that,” Juenger wrote. 

That could be hard because while some analysts (including Juenger) have noted how this deal will have a big impact on the linear channels, the real reason behind this is the failure for HBO Max to live up to expectations. While HBO Max has about 44.7 million subscribers, more than half of those are estimated to be linear HBO customers. Discovery, which launched its Discovery Plus streaming service in December, has about 15 million customers. While many of those are getting service for free through a promotion with wireless company Verizon, that is still strong growth with a lineup of reality shows that admittedly don’t have the same cachet as Game of Thrones or Mare of Easttown. Zaslav has said that Discovery makes more money per subscriber from streaming than from linear TV,  and that the average viewer watches Discovery Plus about three hours per day. Kilar said at the MoffettNathanson conference that HBO Max engagement is about two hours per day per active account. 

It’s not like AT&T didn’t have high hopes for content when it bought Time Warner in 2018, saying that it would combine the programmer's iconic HBO premium network and linear channels like TNT, CNN, TBS, Cartoon Network, TCM and others with its state-of-the-art telecom services. Chairman and CEO at the time Randall Stephenson was quick to talk about the 100 million-plus subscribers that AT&T had through its wireless services that would be able to access WarnerMedia content. Three years later, Stephenson retired and  Stankey, who had run WarnerMedia shortly after its purchase by the telephone giant, isn’t talking as much about engagement anymore. 

Also Read: AT&T and TPG: There Is No Why

One lesson phone companies seemingly have to learn year after year after year  is that the TV business is not the phone business. And a climate where Disney Plus, The Walt Disney Co. 's streaming content juggernaut, has more than 100 million subscribers but still took it on the chin for not growing fast enough, just shows that streaming, as it is currently modeled, requires an unprecedented level of scale and engagement. No one has been able to figure it out yet. Now, it’s going to be David Zaslav’s problem to solve.  

This story was updated to correct the pricing of the Discovery Plus streaming service.

WarnerMedia CEO Jason Kilar received total compensation of $52.2 million in 2020, mostly in the form of stock awards that will vest over a four-year period, according to parent AT&T’s annual proxy statement filed with the Securities and Exchange Commission Thursday.  

Kilar, a founder of online video pioneer Hulu, was hired to take the helm of WarnerMedia in May, about a  month before the launch of its HBO Max streaming service. Kilar overhauled the content unit, shaking up the management ranks and upending traditional theatrical movie windows by releasing all of Warner Bros. Studios' 2021 film slate on streaming and in theaters on the same day.

According to the proxy statement, AT&T offered Kilar a generous compensation package “with a heavier mix of stock-based awards'' to attract him to the job and to provide an incentive to create shareholder value. AT&T’s compensation committee, with the advice of a compensation consultant, arrived at a package including $2.5 million in annual base salary (he received $1.7 million in 2020), $2.5 million in annual short-term incentives and $48 million in restricted stock awards. While those stock awards were included in his 2020 compensation, they vest over a four-year period, putting their actual annual value at about $12 million. Overall, AT&T said it expects Kilar’s total annual compensation to work out to about $17 million annually.

Other AT&T executives saw their pay decline in 2020, mainly through voluntary reductions tied to the pandemic. 

AT&T CEO John Stankey gave up 50% of his base salary between July 1 and Dec. 31 to help ease the pain of the COVID-19 lockdowns, but still managed to take in more than $21 million in total compensation in 2020, according to the proxy statement. 

Stankey’s base salary fell to $2.05 million in 2020 (down 29.3% from $2.9 million in 2019), but a 42% rise in stock awards to $13.5 million helped lessen the overall compensation blow. All in, Stankey received $21.02 million in total compensation in 2020, down 6% from the $22.5 million he received in the prior year.

Former AT&T executive chairman Randall Stephenson, who also pledged to give up 50% of his base salary in July, finished the year with $29.2 million in total compensation, down 8.8% from $32.03 million in the prior year.  Stephenson’s base salary was halved to $900,000 from $1.8 million in the prior year, and his stock awards ticked up slightly (6%) to $21 million in the period. Stephenson retired on Jan. 21 and former Federal Communications Commission chairman William Kennard took his place.  

Randall Stephenson, former CEO of AT&T, retired as executive chairman of the company’s board of directors.

According to filing with the Securities and Exchange Commission, he told the company on Jan. 19 that he would retire on Jan. 21.

Stephenson and the company agreed on a one-year consulting services agreement that will pay Stephenson $1 million over the course of one year. He was paid $32 million in 2019. AT&T hasn’t yet released executive compensation data for 2020.

Stephenson became CEO of AT&T in 2007 and tried to move the phone company into the entertainment business with the $49 billion acquisition of DirecTV in 2015 and the $85 billion purchase of Time Warner in 2018.

He was succeeded by AT&T’s current CEO, John Stankey, last July.

Former FCC Chairman Bill Kennard will become chairman of AT&T when Randall Stephenson steps down in January.

AT&T announced earlier in the year that it would elect an independent chairman when Stephenson exited. Kennard has been a member of the board since 2014.

Kennard is on the corporate governance and nominating committees as well as the public policy and the corporate reputation committees.

Kennard was chairman of the FCC from 1997 through 2001, the first African American to hold the post. He is also former ambassador to the European Union. He was also with global asset management firm The Carlyle Group, which also employed former FCC Chairman Julius Genachowski.

“Bill’s deep knowledge of communications, media and technology, proven leadership and broad experience across capital markets and government uniquely positions him to serve as AT&T’s new chairman,” Stephenson said in a statement. “He is an outstanding choice to lead our board of talented directors who possess diverse expertise and experience.”

"I look forward to working with our CEO and fellow board member John Stankey and the entire board to continue creating long-term value for all stakeholders – investors, customers, employees and the communities we serve," said Kennard.

AT&T chairman Randall Stephenson said that collective bargaining agreements secured by police unions have to be on the table in any approach to law enforcement reform, part of what he signaled was an overdue effort to address systemic racism.

That came in an online open letter to elected officials at all levels.

"[Police unions must be part of the solution," he said in a blog post on the issue of racial equality and what was needed to bring that about. "To the extent that collectively bargained practices stand in the way of just treatment for Black Americans, those practices must be on the table. We must commit together to challenge anything which compromises accountability, trust, and confidence in law enforcement," he said. "AT&T has one of America’s largest union-represented workforces, so I appreciate this won’t be easy. But America can no longer overlook the extent to which these policies and practices are contributing to unjust treatment."

He said a hard look must be taken at legal precedents that exempt police officers from civil liability — so-called limited immunity — "even for shocking acts of misconduct and excessive force."

Stephenson said that the "horrific deaths of George Floyd, Breonna Taylor, Ahmaud Arbery and now Rayshard Brooks" demonstrate that the country has failed to establish equal justice for black Americans.

He said the cycle must be broken. "Outrage yields to protest, which leads to promises of reform. But in the end, little changes and the pattern repeats itself," he said, suggesting this was a moment when that could happen.

Stephenson pledged "to represent AT&T and work on equitable justice as part of a new Business Roundtable committee of large company CEOs committed to advance racial equity and justice."

He said the initial focus will be on changes in police practices, but would extend to "health and the disparate impact the pandemic has inflicted on black communities; financial systems; and education and workforce development."

AT&T CEO Randall Stephenson is stepping down from his long-held position as CEO, the telecom has confirmed

Chief operating officer John Stankey, who up until recently rant the company’s entertainment division, will assume Stephenson’s chief executive role.

Notably, amid a recent conflict with shareholder Elliot Management, Stephenson had pledged to stay with AT&T through 2020. He will remain executive chairman of the board until January 2021. The departure of Stephenson, 60, is being billed by AT&T as a retirement. 

Also read: AT&T Told to Sell DirecTV by Hedge Fund Investor

Amid a flurry of expensive acquisitions and tough calls in the competitive U.S. wireless industry, AT&T's stock is down around 15% since 2015. Stephenson had served as CEO since 2007. 

During AT&T's first-quarter earnings call earlier this week, the telecom struck a tone of a company in recession. Having loudly touted the benefits of the Trump Administration's corporate tax cut program in 2017, AT&T is now pledging $6 billion worth of spending cuts by 2023. 

It was Stankey who introduced that reduction program in Wednesday earnings call. 

"We're not backing off our cost and efficiency transformation initiatives that remain largely under our control," he said.

Stankey recently relinquished his title as CEO of AT&T's WarnerMedia division to newly hired former Hulu chief executive Jason Kilar. His appointed as AT&T's top executive officially begins June 1.

“I congratulate John, and I look forward to partnering with him as the leadership team moves forward on our strategic initiatives while navigating the difficult economic and health challenges currently facing our country and the world," Stephenson said in a statement. "John has the right experiences and skills, and the unflinching determination every CEO needs to act on his convictions. He has a terrific leadership team onboard to ensure AT&T remains strong and continues to deliver for customers and shareholders for years to come.”

AT&T said Stankey's selection "completes the final phase of a succession planning process that AT&T's board began in 2017, which included a thorough evaluation of internal and external candidates." 

AT&T's human resources committee in charge of the search was led by Director Beth Mooney, and was comprised entirely of independent directors and supported by outside consultants, the company said. The group conducted "an extensive five-month search process to ensure that the company's next CEO possessed the vision, experience, talent and leadership qualities necessary to deliver on AT&T's strategic plans," AT&T added. 

During his tenure as AT&T's top media executive, the telecom lost more than 30% of its pay TV scale to cord-cutting. The company seemingly has little to show for its $50 billion purchase of DirecTV in 2015. And its ambitious effort to create an SVOD service to compete with Netflix has a long way to go before it's proven successful. 

Still, Elliot Management--which has pushed for changes at AT&T--has apparently signed off on Stankey.

“We have been engaged with the company throughout the search process, which was a robust one, including a range of highly qualified outside candidates and overseen by independent directors,” Elliot Management said in a statement. 

Added Stankey: “I’m honored to be elected the next CEO of AT&T, a company with a rich history and a bright future. My thanks go to Randall for his vision and outstanding leadership during a period of tremendous change and investment in the core capabilities needed to position AT&T well for the years ahead. And I appreciate the Board’s confidence in me leading the company during our next chapter of growth and innovation in keeping people connected, informed and entertained. We have a strong company, leading brands and a great employee team, which I’m privileged to lead. I couldn’t be more excited about the new opportunities we have to serve our customers and communities and create value for our shareholders.”

AT&T CEO Randall Stephenson is stepping down from his long-held position as CEO, the telecom has confirmed

Chief operating officer John Stankey, who up until recently ran the telecom’s entertainment division, will assume Stephenson’s chief executive role.

Notably, amid a recent conflict with shareholder Elliot Management, Stephenson had pledged to stay with AT&T through 2020. Stephenson will remain executive chairman of the board until January 2021. The departure of Stephenson, 60, is being billed by AT&T as a retirement. 

Also read: AT&T Told to Sell DirecTV by Hedge Fund Investor

Amid a flurry of expensive acquisitions and tough calls in the competitive U.S. wireless industry, AT&T's stock is down around 15% since 2015. Stephenson had served as CEO since 2007. 

During AT&T's first-quarter earnings call earlier this week, the telecom struck a tone of a company in recession. Having loudly touted under Stephenson the benefits of the Trump Administration's corporate tax cut program in 2017, AT&T is now pledging $6 billion worth of spending cuts by 2023. 

It was Stankey who introduced that reduction program in Wednesday earnings call. 

"We're not backing off our cost and efficiency transformation initiatives that remain largely under our control," he said.

“I congratulate John, and I look forward to partnering with him as the leadership team moves forward on our strategic initiatives while navigating the difficult economic and health challenges currently facing our country and the world," Stephenson said in a statement. "John has the right experiences and skills, and the unflinching determination every CEO needs to act on his convictions. He has a terrific leadership team onboard to ensure AT&T remains strong and continues to deliver for customers and shareholders for years to come.”

Stankey, 57, recently relinquished his title as CEO of AT&T's WarnerMedia division to newly hired former Hulu chief executive Jason Kilar. His appointed as AT&T's top executive officially begins June 1.

AT&T said Stankey's selection "completes the final phase of a succession planning process that AT&T's board began in 2017, which included a thorough evaluation of internal and external candidates." 

AT&T's human resources committee in charge of the search was led by Director Beth Mooney, and was comprised entirely of independent directors and supported by outside consultants, the company said. The group conducted "an extensive five-month search process to ensure that the company's next CEO possessed the vision, experience, talent and leadership qualities necessary to deliver on AT&T's strategic plans," AT&T added. 

During his tenure as AT&T's top media executive, the telecom lost more than 30% of its pay TV scale to cord-cutting. The telecom seemingly has little to show for its $50 billion purchase of DirecTV in 2015. And its ambitious effort to create an SVOD service to compete with Netflix has a long way to go before it's proven successful. 

Still, Elliot Management--which has pushed for changes at AT&T--has apparently signed off on Stankey.

“We have been engaged with the company throughout the search process, which was a robust one, including a range of highly qualified outside candidates and overseen by independent directors,” Elliot Management said in a statement. 

Added Stankey: “I’m honored to be elected the next CEO of AT&T, a company with a rich history and a bright future. My thanks go to Randall for his vision and outstanding leadership during a period of tremendous change and investment in the core capabilities needed to position AT&T well for the years ahead. And I appreciate the Board’s confidence in me leading the company during our next chapter of growth and innovation in keeping people connected, informed and entertained. We have a strong company, leading brands and a great employee team, which I’m privileged to lead. I couldn’t be more excited about the new opportunities we have to serve our customers and communities and create value for our shareholders.”

Nationally deployed in the latter month of the first quarter, AT&T’s new premium IP-based pay TV service, AT&T TV, failed to reverse the steep subscriber losses the telecom company has been experiencing of late across its pay TV platforms.

AT&T, which reported the loss of nearly 900,000 subscribers in Q1 across a “premium” pay TV portfolio that lumps in AT&T TV along with DirecTV and U-verse TV, didn’t break out subscriber metrics for the former.

Also read: AT&T Loses Another 1M Pay TV Subscribers in Q1

However, AT&T CEO Randall Stephenson seemed to imply that uptake for AT&T TV hasn’t been incendiary since the product expanded nationally from limited beta release at the beginning of March.

Visit Next TV to read more stories like this one. 

“Our expectations on AT&T TV have been very consistent with what we have seen even with the suppression of the pandemic in the latter part of March where we were restricted on the certain number of dispatches and some of our capacity there,” Stephenson said, speaking during AT&T’s first-quarter earnings call Wednesday.

Stephenson cited a climate of “suppressed new add activity” in regard to consumers adding new entertainment services, despite the current uptick in video usage.

Also read: AT&T TV: Everything You Need to Know About the Streaming Version of AT&T’s Premium Pay TV Service

“So we feel pretty good about that launch and where we went,” he added. “As you know, we have to ramp that throughout the year, so one month does not a year make. But we are right on the plan of what we expected in terms of volume and the customer feedback on the customers. We have put on the product has been probably stronger than what we expected.”

AT&T is seeking to transition users of its DirecTV and U-verse linear platforms to AT&T TV, an Android TV-based service that's self-install and doesn't require satellite launches. 

Nationally deployed in the latter month of the first quarter, AT&T’s new premium IP-based pay TV service, AT&T TV, failed to reverse the steep subscriber losses the telecom company has been experiencing of late across its pay TV platforms. 

AT&T, which reported the loss of nearly 900,000 subscribers in Q1 across a “premium” pay TV portfolio that lumps in AT&T TV along with DirecTV and U-verse TV, didn’t break out subscriber metrics for the former. 

Also read: AT&T Loses Another 1M Pay TV Subscribers in Q1

However, AT&T CEO Randall Stephenson seemed to imply that uptake for AT&T TV hasn’t been incendiary since the product expanded nationally from limited beta release at the beginning of March. 

“Our expectations on AT&T TV have been very consistent with what we have seen even with the suppression of the pandemic in the latter part of March where we were restricted on the certain number of dispatches and some of our capacity there,” Stephenson said, speaking during AT&T’s first-quarter earnings call Wednesday. 

Stephenson cited a climate of “suppressed new add activity” in regard to consumers adding new entertainment services, despite the current uptick in video usage. 

Also read: AT&T TV: Everything You Need to Know About the Streaming Version of AT&T’s Premium Pay TV Service

“So we feel pretty good about that launch and where we went,” he added. “As you know, we have to ramp that throughout the year, so one month does not a year make. But we are right on the plan of what we expected in terms of volume and the customer feedback on the customers. We have put on the product has been probably stronger than what we expected.”

AT&T is seeking to transition users of its DirecTV and U-verse linear platforms to AT&T TV, an Android TV-based service that's self-install and doesn't require satellite launches. 

AT&T CEO Randall Stephenson told CNN that the communications infrastructure is holding up given the new coronavirus-driven reality of "face-to-face" interactions moving to the phone and computer.  

He said there were signs of "stress" and the need to do some "augmentation of networks." But he said the network was performing "quite well"--then upgraded that to "very well"-- and that it was a demonstration of the U.S. investment in communications infrastructure, and not just AT&T but T-Mobile and Verizon. 

He said that investment of billions upon billions of dollars is now paying off in a time of national crisis. 

He was saying this from a home web cam in a split-screen interview with CNN's Brian Stelter (Reliable Sources) in studio. CNN is owned by AT&T. 

Related: COVID-19: The Story of a Lifetime

Asked if the new work-from-home culture will effect long-term changes, Stephenson said AT&T had been thinking about that "a lot." 

He said he thought it was going to cause businesses to reevaluate how they do that business. He said he thought that one takeaway would be that technology can prove to be "a great enabler of communication and allowing people to do work from home, child care and work at the same time. [I] think when we come out of this, this is exactly what we're going to see." 

He said that was one reason AT&T was trying to make sure it shored up its balance sheet and continued to invest in that process because, "when we come out of this, and the United States will come out of this, we should come out maintaining leadership in communications technology," which means continuing to invest in 5G and new tech.  

Asked what he thought of the $2 trillion stimulus package Congress is working on passing early next week and whether that was enough, Stephenson said he didn't know. 

Related: AT&T Waiving Wireless Overage Charges for Voice, Data & Text

Stephenson is a member of a business roundtable that counsels the President. They met (virtually) with the President and they advised him the stimulus needs to be big and bold. He said they know it won't be as precisely targeted as it should be, "but we need to step up and help first the consumer [and] we need to help small business," he told Stelter.  

He said AT&T is also advocating for helping some of the "more stressed" businesses, like airlines, "that are really critical for a functioning society." 

He said, "directionally, the bill is in the right place, but it is hard to say if it is exactly what is needed.  

Stelter asked what it was like to own a news division during a story like this.  

Stephenson said he and other business leaders were looking at it as a time of war, "and everybody needs to step up and do their part." He said the press has a vital part, "to make sure that our people are informed, to make sure that our politicians have a means of communicating, to hold people accountable, people in power, whether it be CEOs like me or politicians, to hold people accountable during these times, and getting information to the public." 

He saluted CNN for what he called its "terrific" work. "[I] take my hat off to CNN. We've talked about the health care professionals, we've talked about the communications [infrastructure] people who are out risking themselves. CNN journalists are doing the same thing. I think of you as first responders, yourselves. So, just thank everyone at CNN for what you are doing." 

After losing another 1.16 million users across its DirecTV and U-verse platforms in the third quarter, AT&T is telling investors the worst of the cord cutting is over.

“We expect that our premium video losses have peaked,” AT&T CFO John Stephens told investment analysts during the company’s third-quarter earnings call Monday.

“We had about 225,000 net losses due to programming blackouts,” Stephens added. “Our gross adds were down about 400,000 due to new, higher intro pricing and credit thresholds, as well as more targeted promotions, and we continue to work through customers rolling off two-year price locks. Those video losses also impacted our broadband numbers, especially our bundled customers.”

For DirecTV, it was the ninth consecutive quarter of subscriber losses. The platform had just over 21 million users in the first quarter of 2017, during which it broke even in terms of customer growth. At the end of the second quarter, it had just over 17.9 million customers left.

AT&T didn’t break out its premium pay TV losses, but the bulk of the 1.16 million defections in the first quarter undoubtedly belonged to DirecTV. U-verse has held somewhat steady in recent quarters at around 3.7 million customers.

Related: AT&T Told to Sell DirecTV by Hedge Fund Investor

With DirecTV in free-fall, AT&T has faced investor pressure to divest the satellite TV platform, for which it paid $67 billion for in 2015.

For his part, AT&T CEO Randall Stephenson explained to investors that AT&T isn’t necessarily filled with regret about the purchase.

“Gaining scale in linear pay TV was the core rationale behind our DirecTV acquisition,” Stephenson said. “We realized the satellite business was mature, and we anticipated subscriber losses.

“However, the content savings quickly turned our U-verse pay TV business from loss to a profit. And since we bought DirecTV, it has generated healthy cash flows of over $4 billion per year or a total of $22 billion in cash by the end of this year.

With the full launch of its standalone streaming service HBO Max set for next year and an activist shareholder breathing down his neck, AT&T chairman and CEO Randall Stephenson tried to calm an industry audience Tuesday, adding that HBO Max would stand out among the growing list of streaming video competitors while recent criticism from investor Elliott Management is being addressed.

"This is going to be different,” Stephenson said of HBO Max at the Goldman Sachs Communacopia conference in New York Tuesday. “This is not Netflix. This is not Disney [Plus]. This is not Hulu. This is different, standing up a digital platform and driving fast penetration through customer relationships that you own in this distribution business.” Stephenson has said in the past that the service -- along with its sister streaming offering AT&T TV, which is scheduled to debut around the same time -- will leverage the 170 million customer relationships AT&T has through its various wireless and pay TV businesses.

Related: HBO Christens New SVOD Service HBO Max 

HBO Max, which will be unveiled at an investor meeting on Oct. 29 but will be launched in 2020, has come under fire because of what many analysts believe will be its pricing. Although AT&T hasn’t officially announced what the service will cost, most observers believe it will be between $15.99 and $17.99 per month, in the same ballpark as its standalone HBO Now streaming service. At that price point, HBO Max could be at a disadvantage coming out of the box, especially since its rivals Netflix ($12.99/month), Hulu ($8.99/month), Disney + ($6.99/month) and Apple TV Plus ($4.99/month) will be priced so much lower.

AT&T is not unaware of the controversy. Last week, AT&T chief financial officer John Stephens said that the HBO service itself is the main differentiator between HBO Max and its competition.

“Well, I think the first thing I want you to remember is that we also start with something called HBO,” Stephens said at the Bank of America Merrill Lynch Media, Communications & Entertainment conference in Los Angeles. “And so we only have a 40-year head start with a quality product that is a premium.”

WarnerMedia has been beefing up the content on HBO Max, adding seasons of popular broadcast shows like “Friends,” British TV series “Doctor Who” and “The Big Bang Theory” for the service. 

Stephenson also addressed the criticism of Elliott Management, which wrote a letter to AT&T’s board of directors Sept. 9,  calling for the sale of DirecTV and criticizing the purchase of Time Warner and Stephenson’s voracious appetite for acquisitions.

Stephenson said the Elliott management letter was a “mixed bag,” with some suggestions that are being addressed and others that don’t appear to make much sense for the telco. But he was open to starting a dialog with Elliott, calling the firm “smart guys” who have good ideas that AT&T needs to “sit down and engage with them on.”

Stephenson admitted that the diversity path he has taken the telco down -- beginning with the purchase of DirecTV in 2015 and the Time Warner deal last year -- couldn’t have been imagined five years ago, what he called the “old world.”

“In the new world, it makes all the sense in the world,” he said. “Content is king, I’m an evangelical on that. “But distribution matters.”

The AT&T chief also addressed pay TV subscriber losses --Stephens said last week that AT&T could lose between 300,000 and 350,000 pay TV customers in Q3 as a result of carriage disputes with CBS and Nexstar Media Group earlier this year. There are still retransmission consent and carriage deals yet to be finalized -- 17 smaller TV stations that went dark on May 30 are still unavailable to AT&T pay TV customers, as is regional sports network Altitude Sports and Entertainment, which went dark on Aug. 31.

Disney began warning DirecTV customers that they could lose access to ESPN, ABC stations, Freeform and The Disney Channel in the absence of a deal last week, but apparently has given AT&T an extension to its deal as talks continue. 

Stephenson said AT&T has had to make some hard, but necessary choices regarding programming renewals.

“Those were a painful few weeks,” Stephenson said of the CBS and Nexstar blackouts. “... but it was the right thing to do."

AT&T’s recent promotion of WarnerMedia CEO John Stankey to chief operating officer of the parent company has set in motion speculation that he will assume the top spot at the telco once Stephenson retires. 

At the Goldman conference, Stephenson said he hasn’t been informed by the board of his retirement yet, but added that Stankey has done a good job, adding that he would be in a "good position" if he “executes this play.”

AT&T said it has named John Stankey chief operating officer of the parent company, while retaining his role as CEO of WarnerMedia.

The newly created role comes on the heels of the retirement of AT&T Communications CEO John Donovan. Donovan is set to retire on Oct. 1, upon which time former AT&T Communications’ Technology and Operations group president Jeff McElfresh will replace him as CEO of the unit. McElfresh will report to Stankey, as will Xandr CEO Brian Lesser.

As head of AT&T Communications, McElfresh will be in charge of a telecom, wireless, broadband and pay-TV unit (which includes it DirecTV, U-verse, AT&T TV Now and AT&T TV divisions), with about 100 million customers.

In his new role Stankey will report to AT&T chairman and CEO Randall Stephenson, putting him a step closer to the top spot in the company. 

“Now is the time to more tightly align our collection of world-class content, scaled consumer relationships, technical know-how and innovative advertising technology,” Stephenson said in a press release. “It’s the natural next step in bringing together the distinct and complimentary capabilities of AT&T Communications, WarnerMedia and Xandr to deliver for consumers the benefits of a modern media company. AT&T is alone in the industry in being able to bring together these three great businesses for the launch of innovative consumer offers, relevant advertising and new entertainment services like HBO Max.”

Stankey takes on the new role just as AT&T is readying the full launch of its streaming video service AT&T TV, scheduled for the fall. The service began a test launch in a few markets in August. 

“John is an outstanding executive who has led nearly every area of our business, helped shape our strategy and excelled at operations throughout his career. The Board and I look forward to John hitting the ground running in his new role as president and COO,” Stephenson said.

Like Stankey -- who joined AT&T in 1985 -- McElfresh is a phone company lifer, with nearly 25 years at AT&T in a variety of roles. In addition to AT&T Communications’ Technology and Operations group, he has served as CEO of AT&T’s Vrio and its DirecTV Latin America and SKY Brasil businesses; and President of AT&T Mexico.

AT&T confirmed reports that its new IP-delivered pay TV service will be called AT&T TV, and will launch in beta in select markets “later this summer.”

The wireless company made the confirmation during its second quarter earnings report Wednesday.

“We have some really high expectations for this product, and we’re going to learn from the pilot, and then we’ll expand to more cities as we go to the year,” said Randall Stephenson, CEO of AT&T. (Stephenson’s comments were provided by Seeking Alpha.)

Related: AT&T Gives Up on DirecTV Brand in Latest Streaming Ventures

Unlike AT&T’s current flagship virtual pay TV service, DirecTV Now, AT&T TV—which the company previously described as its “thin client” service—will include a full bundle of channels, and it will ship with a self-install set-top.

However, the service won’t require truck-roll installation, or the launch and maintenance of satellites.

“This thin client product that we’re bringing to market, it literally takes the customer acquisition costs and cuts it in half,” Stephenson added. “And the beauty of that is that you can begin to address a fundamental problem with the current linear TV business, and that is the price point, but the content costs just continue to grow.”

Related: AT&T Now the No. 2 U.S. Pay TV Company Behind Comcast

Describing AT&T TV as the “work horse” for AT&T’s pay TV aspirations for the next several years, Stephenson added, “We’ve got to find a way to get the cost curve down on this product, so we can keep people into the product for a longer-term basis. So, as you drive customer acquisition costs in half on AT&T TV, the new product we’re bringing to market, then you can bring the price points down and hold margins and still have the same value equation from a customer standpoint.”

AT&T’s choice not to leverage the DirecTV brand name for either its new SVOD service, HBO Max, or its new IP pay TV product is conspicuous, given the company’s $67.1 billion investment to acquire DirecTV just four years ago.

“The DirecTV product is going to have a really long life, and they’re going to be segments of the market for a long time, but that’s how you’ll address those segments of the market,” Stephenson said.

He also touched on NFL Sunday Ticket, which is entering its final year on DirecTV under the current multi-billion-dollar distribution deal.

“That’s something that served DirecTV well for many years,” Stephenson said. “However, unfortunately, right now, that content is tied to our satellite product. And so, it serves a good value as we come into the fall. It’ll be an important retention tool. But in terms of an opportunity to grow our business with that, when it’s anchored to a satellite product, it’s kind of hard to utilize it.”

AT&T chairman and CEO Randall Stephenson told an audience of analysts and investors Tuesday that multichannel video programming distributors (MVPDs) will be partners, not competitors, to its latest WarnerMedia streaming video offering, slated to launch in Q4. 

At the J.P. Morgan Global Technology, Media & Communications conference in Boston, Stephenson said the product will become its “key video product,” centered around its HBO premium channel and surrounded by the content libraries of Warner Bros. studios and Turner.

Stephenson emphasized AT&T’s reach -- he pointed to 170 million points of distribution via its mobile and landline businesses.

“This is going to be a significant opportunity for us to drive video penetration and consumption,” Stephenson said at the conference. “That product, distributed through 170 million points of distribution, this will become a significant driver of our growth over the next few years. We think it is in the tens of millions of subscribers that we will have on this. We think that the portfolio is that compelling.”

And he added that the newest streaming offering -- which will launch a beta version in Q4 and be widely available by Q1 2020 -- will not compete with existing MVPDs. Stephenson said he sees MVPDs like Comcast, with their robust broadband offerings, as partners in this new service.

“If you are a Comcast subscriber and you acquire HBO, you will get this capability with your HBO subscription on Comcast,” Stephenson said. “Then we would want to continue to push digital distribution on top of that as well.”

Related: AT&T’s Change Agent 

The WarnerMedia service is the third streaming offering from the company -- DirecTVNow and AT&T Watch TV were first -- and comes at around the time The Walt Disney Co. and Apple are scheduled to launch their own streaming entertainment products. Disney + is expected to launch in November, chock full of original and library content at a $7 monthly price point. Apple TV + is also expected to launch around that time, priced at about $9.99 per month and offering a mix of original and library content.

Disney has estimated it could have between 60 million and 90 million Disney + customers worldwide by 2024. Stephenson didn’t give a time frame for his subscriber prediction.

WarnerMedia hasn’t said how much it will charge for the new streaming offering, but HBO has traditionally been priced at around $15 per month. 

AT&T lost another 83,000 customers for DirecTV Now in the first quarter, bringing the live-streamed pay TV service’s subscriber losses to 350,000 over the last six months.

Speaking to investment analysts today, however, AT&T CEO Randall Stephenson said he expects to see DirecTV Now losses “stabilize” soon. “We might see some slight customer losses in the second quarter as the price increases continue to flow through,” he explained. “But the second half of the year should be decent.

In addition to reconfiguring DirecTV Now’s packaging—less channels are being offered now at a higher $50 entry-level price point—AT&T cut steep promotional campaigns cold turkey late last year.

But AT&T recently re-introduced DirecTV promotions, including the offer of a free Apple TV 4K to new sign-ups committing for four months.

Meanwhile, Stephenson also said the introduction later this year of DirecTV’s premium OTT product—which will deliver a linear-like quantity of networks live-streamed over a proprietary, self-installed thin-client set-top—will return AT&T to growth, at least in terms of streaming video subscribers.

“As we get into the second half of the year, and we roll out our thin-client video product, we’ll see subscriber losses lesson, particularly as we get into 2020.

Related: DirecTV Now Drops NFL Network

However, with 544,000 customers lost across its linear platforms, DirecTV satellite and AT&T U-verse, Stephenson is less optimistic about the growth path.

“We’re going to continue to see declines in traditional video products,” he said, “particularly in areas where we can’t bundle services.”

With its satellite TV customers declining at an increasingly alarming rate, AT&T chief Randall Stephenson told Fox Business Thursday that he has no regrets in buying DirecTV, claiming that purchase laid the foundation for its current strategy to stream on-demand content.

AT&T agreed to purchase DirecTV in 2014 for about $48 billion, at the time the largest pay TV distributor in the country. But since that time DirecTV’s subscriber rolls have fallen sharply. The satellite service shed 391,000 subscribers in the fourth quarter and that  erosion spread to its streaming video service DirecTV NOW, which lost 267,000 subscribers in the same period.

“DirecTV was the platform on which we have made all these other investment decisions,” Stephenson said on Fox Business’ Mornings with Maria, on Thursday, telling host Maria Bartiromo that although AT&T knew satellite TV was a business in decline, it needed DirecTV’s content agreements to move its strategy forward. “DirecTV gave us that ability to do that immediately and then it also gives us a really large distribution channel now for all this Warner media content…”

AT&T is using WarnerMedia content to drive several streaming offerings, and has another direct-to-consumer service slated for later this year. He said that WarnerMedia’s content assets combined should spend about the same as rival Netflix will dole out for programming this year.

Some estimates have put Netflix’s new content budget at between $12 billion and $13 billion.

“When you talk about $12 billion of investment and content at Netflix, for example, if you look at the Warner Media portfolio, that's a number comparable to what we will spending Warner Media this year, between Warner Brothers, HBO and Turner,” Stephenson told Bartiromo. “So there's a big investment going on content in that side of the business.”

Stephenson also talked positively about AT&T’s 5G wireless plans, adding that the network will be a game changer for consumers.

AT&T turned on 5G service in 12 markets in December and plans to expand to another seven markets in the first quarter. The service should roll out to other parts of the country over this year.

Stephenson has been an obvious cheerleader for 5G, and told Bartiromo that AT&T is banking its future on the technology.

“I have seen a lot of technological innovation in this industry over my 36 year career, I have yet to witness what we’re about to see in 5G,” Stephenson said. “This is going to change everything.”

Related: Stephenson Says 5G Will Replace Wireline Broadband

The AT&T chief also threw some added support toward his news network, CNN, which has come under continuous criticism from President Trump. While there has been some speculation that a sale of the news network could ease some of the regulatory pressure, Stephenson said he has no intention of selling the channel.

“No. Heavens, no,” Stephenson said of any thought of selling CNN. “We just fought a bruising court battle over CNN and so I don't envision us selling CNN. As you think about a world where we're distributing content into our mobile environment, our mobile customers, what content's really relevant in the live basis? Sports and news. So, selling news content and disposing of that makes no sense as it relates to our strategy. So, CNN's a very important core to everything we're trying to do.”

The AT&T chief joked when asked about any issues that have arisen in the wake of Trump’s continued bashing of the network, calling it and other news outlets critical of his administration and/or its policies “Fake News.”

“I haven't noticed anything about that. What do you mean?” Stephenson said. “No, it's obviously -- it takes a little time and a little bit of preoccupation, but no, it hadn't been an issue for me.”

Making clear AT&T’s intentions to compete with wireline broadband providers over the next decade, the wireless company’s CEO, Randall Stephenson, said that the 5G standard will evolve over the next three to five years into a “fixed broadband replacement product."

“I am very convicted that that will be the case. We are obviously on a standards-based path that is mobile first,” said Stephenson Wednesday during AT&T’s fourth-quarter earnings call.

Related: Stephenson: AT&T Will Be ‘Assertive’ in Content Negotiations

In December, AT&T launched 3GPP-based service mobile 5G NR service to a handful of business users in select markets. As 5G-capable smart phones become available over the course of 2019 and 2020, AT&T will primarily focus its development of 5G services toward the mobile market.

This is in contrast to Verizon, which launched fixed wireless 5G services to a small number of users in October, declaring its intention to claim the American residence right off the bat. T-Mobile and Sprint, meanwhile, aim to have fixed wireless service enabled as part of their merger. 

AT&T chairman and CEO Randall Stephenson said the largest pay TV distributor in the country will be “assertive” in its quest to reduce the high cost of content, looking to shave pricing on programming that its customers don't engage with.

In speaking with analysts to discuss the telco’s Q4 results, Stephenson said the objective as content deals come up for renewal is “to move the needle.”

“It’s not one-size-fits-all,” Stephenson continued, adding that the goal is to maintain a balance between content where the value to consumers may be less evident compared to highly-engaged programming that may warrant a higher cost.

“The objective is to keep the equation in balance,” Stephenson said. “You cannot have a business model where subscribers are declining and you continue to increase costs by 7-8%.”

So far, AT&T has had success in rationalizing its content costs and has struck several deals over the past few months. But it is becoming increasingly evident that consumers are resisting higher prices for the same old shows, he said.

“We’ve got to get the content cost growth in line with what the customer is willing to pay,” Stephenson said. “And the customer is willing to pay virtually no additional money right now. So the content costs have to reflect that. We will be very assertive as we go through the course of this year to control the spend on content costs.”

Packaging also plays a role, he added, hinting that AT&T would try to focus more on being able to offer content that is more attuned to customer habits.

“You can control your margins and your content costs by getting the packages more right-sized to the customer,” Stephenson said. “Can you bring content costs down to keep margins in check by right-sizing the packages for the customer? There is a lot of smart analytical work being done there.”

He also offered some more insight into the company‘s planned streaming video service, adding that he believes the companies with the deepest content libraries will survive the long term.

“Those who have very, very strong IP, deep libraries of IP, are the ones we think are going to succeed over time,” Stephenson said, adding that the company is a strong believer in what WarnerMedia chief John Stankey calls the two-sided business model — a combination of commercial-free subscription services like HBO and Netflix coupled with ad-supported content.

Stephenson said when it comes to keeping its own content in-house or licensing it to other distributors, AT&T will evaluate each deal individually, pointing to last year’s decision to license Friends to Netflix exclusively for one year, with the option of having it on its own AT&T-branded streaming service after 2019. 

“As content deals come up, there’s not going to be a cookie cutter approach to that,” Stephenson said. “I don’t think all content is equal in that decision-making process.”

Regarding the decision to license Friends to Netflix, Stephenson said that was a case where the company found while it may not be critical to make that type of programming exclusive, it was critical to have on its platform.

“So we did license it to Netflix, but on a non-exclusive basis,” he said. “Each of these decisions on significant content like that are going to be evaluated in terms of how critical is it to our platform to have it as exclusive vs. the economics of licensing it to others. We actually do believe that having a 90-year inventory of incredible IP is a really important thing. 

"When you look at the landscape in terms of what is being consumed on a lot of other aggregators in steaming products, you would be surprised how much of that is Warner Bros. intellectual property," Stephenson added. ”We’re going to be making some decisions over the coming two to three years on which of that property will be brought in and which to be sold on a non-exclusive basis.” 

As it prepares to launch an IP-based video service that is more of a direct replacement to traditional satellite TV service in the first quarter of next year, AT&T will reconfigure and reposition its seminal streaming pay TV product, DirecTV Now.

Speaking at the UBS Global Media and Communications conference earlier this week, AT&T CEO Randall Stephenson said work is underway to “thin the content out” on the DirecTV Now bundle and “get the content out that’s really relevant to the consumer.”

Simultaneously, Stephenson seemed to indicate that further price hikes are in store for DirecTV Now, which already increased its base monthly fee from $35 to $40 over the summer.

Related: fuboTV’s Gandler: One or two vMVPDs Could Go Away in 2019

“We’re talking $50 to $60,” he said. “We’ve learned this product, we think we know this market really, really well. We built a 2 million subscriber base. But we were asking this DirecTV Now product to do too much work. So we’re thinning out the content and getting the price point right; getting it to where it’s profitable.”

It’s widely understood that DirecTV Now—as well most virtual MVPD service—operates at a loss, with monthly price points that average around $40 market-wide simply not providing enough revenue to offset fast-rising programming costs.

For example, asked by an investment analyst last month if Dish Network’s vMVPD service, Sling TV, was profitable, company chairman Charlie Ergen remarked, “It depends on how you look at it. But under Charlie Ergen's definition of profitability, I think I'd like to make a little bit more money than we're making today.”

Both Dish and AT&T have expressed hope that innovation in advanced targeted advertising enabled by these IP-delivered services will eventually offset their generally lower subscriber revenue.

“Sling is really seeing explosive growth with its advertising revenue,” said Dish programming chief Warren Schlichting, keynoting last month’s Streaming Media West conference in Huntington Beach, Calif. last month. “We’re seeing incredible results with targeted advertising.”

But when pressed, Schlichting conceded that these results weren’t yet incredible enough to move the needle in any significant way on the balance sheet.

For its part, AT&T—which already is seeing DirecTV Now customer growth decelerate from its previously torrid pace—seems to be biting the bullet, and trading profitability for growth. AT&T is in effect re-positioning DirecTV Now to sit in the middle of its video value proposition, between its upcoming premium OTT service and its bottom-end AT&T Watch streaming service. 

AT&T is prepping the launch of what Stephenson called “an over-the-top thin-client service” in the first quarter. The IP-based service will run on the open internet, with users plugging in a proprietary set-top that connects via USB port. AT&T hasn’t announced a price point for the new service, but it’s expected that it will be more expensive, and offer more channels, than DirecTV Now. 

AT&T chairman and CEO Randall Stephenson played the role of proud content parent at an industry conference Wednesday, patting his own HBO premium channel on the head while tweaking the nose of rival Netflix, calling the SVOD pioneer the “Walmart” of video streaming.

"HBO is a very, very unique asset," Stephenson said at the Goldman Sachs Communacopia Conference Sept. 12. "I think of Netflix kind of as the Walmart of SVOD; HBO is kind of the Tiffany. It’s a very high-end brand for premium content."

AT&T finalized its purchase of HBO parent Time Warner Inc. in June, and the telco has been vocal in its plans to increase audience engagement with its new content assets.

WarnerMedia chief John Stankey has spoken previously about increasing programming investments at HBO, which currently spends about $2 billion year on original programming. Netflix, in contrast, spends about $8 billion on original shows.

Stephenson echoed Stankey’s strategy, adding that the idea is to spend wisely.

“You’d like to fill out the schedule with a lot of other premium content,” Stephenson said. “We’re not talking about Netflix-like investments. Something that retains the quality of the brand, retains the quality of the content, but just gives a little more fulsome lineup and schedule of content.”

Stephenson called HBO chief Richard Plepler a “master” at identifying and programming this type of content.

“He is very bullish to have a modest amount of additional investment that he can really begin to do what we’re talking about here,” Stephenson said of Plepler. “This is not about getting to Netflix-level of content investment on HBO itself, but really just kind of filling out the schedule.”

The AT&T chief didn’t put a number on how much HBO’s budget would increase, but said the additional funds would mostly come from synergies in putting together the businesses.

“There’s a lot of opportunity at Warner Media to mine out some overhead costs,” Stephenson said.

While AT&T continues with its integration of the Time Warner assets, the federal government is gearing up for its appeal of the court ruling that gave the greenlight to the deal. The U.S. Dept. of Justice had argued that the AT&T–Time Warner union violated anti-trust regulations and would lead to higher prices for content. A federal court disagreed, clearing the path for the merger in June. The DOJ decided to appeal that decision in July. 

Stephenson said he was confident of AT&T’s position in the appeal, adding that it is the burden of the government to prove that the previous ruling was incorrect. He added that he expected the litigation to wrap up in January or February of 2019, adding that the company is not sweating out a decision.

“The transaction is closed,” he said. “We are about executing on Time Warner integration. The integration is going quite well. The teams are spending zero effort thinking about the appeal.”

AT&T told analysts late Tuesday just what is up its sleeve regarding its just-completed $108.7 billion Time Warner merger, and it’s fairly simple: grow revenue and the profits will follow.

The trick though, is how to go about doing that.

According to chairman and CEO Randall Stephenson, the path toward profits winds through the millions of customers, viewers and users of AT&T properties, ranging from DirecTV, DirecTV Now, wireless and broadband services, which he numbers at about 170 million relationships, and the literally hundreds of millions of unique viewers of its digital properties. On a conference call to discuss second quarter results, Stephenson noted that cnn.com alone has 200 million unique viewers per month. Tack on other similarly-viewed digital properties from Otter Media and Bleacher Report and the opportunities abound.

Related: AT&T Nearing Deal to Buy All of Otter Media: Report

On the call, Stephenson talked of the new advertising opportunities through the Turner and Time Warner relationship. He noted that when AT&T delivers ads on DirecTV, its yields improve three-to-five times.

“Turner has an ad inventory that's three times the size of our DirecTV inventory, and as we apply the same data to that inventory, we expect a significant lift,” Stephenson said. “You take these three elements -- premium content, 170 million direct-to-consumer relationships and great ad technology -- and then you combine those with our high-speed networks, and we think all of this is a game changer.”

On the content side, WarnerMedia CEO John Stankey said he isn’t concerned with scale and content, but he does want content that scales. I guess that means the goal is to get its shows in front of more people.

Stankey took some heat from a New York Times article earlier this month that cast a Town Hall meeting he had with Turner and HBO employees in a somewhat unfavorable light. Some of his comments – particularly those that likened the media business to childbirth and his assertion that while HBO makes money, it doesn’t make enough – turned out not to be as bad as originally thought (he was apparently laughing when he made the HBO profit comment). On the conference call, Stankey said the reports didn’t “effectively characterize what we are about.”

What WarnerMedia is about, he said, is driving engagement.

“We have a tremendous amount of great projects already in the funnel that as the HBO team and Richard [Plepler, HBO chairman] would describe it, they have not been in a position to say yes to because of constraints on certain resources,” Stankey said.

He added that the goal is to remove constraints from top-quality projects to balance out the schedule to drive engagement on HBO throughout the year.

“That will improve the fact that we can see, especially on the digital platforms, you have customers jumping in and out based on scheduling,” he said. “And if we can smooth that schedule, we can drive churn down or improve retention and power additional subscriber growth.”

Part of that includes ramping up HBO’s programming spend, currently at around $2 billion, or about one-fourth the $8 billion Netflix spends. Stankey wouldn’t be specific as to just how much HBO’s programming budget will rise, but said AT&T could reinvest some of the efficiencies it gets from the merger and by running the business differently.

Related: Netflix Investing 85% of New Spending on Originals 

Stankey said while HBO and Turner properties have created a number of initiatives that are good in their own right, they have relatively small audiences compared to a company the size of AT&T, which he said needs to generate tens of millions of viewers, not millions.

The way to do that, he added, is through togetherness.

Stankey said WarnerMedia’s brands are plenty strong on their own, but not as powerful as they could be if they banded together.

“You can assemble the genre of content and bring them together on one platform and one experience that aggregates and gets scale,” Stankey said, adding that over time the company will unify brands into a more consistent and more focused experience, which will in turn increase scale.

But some analysts see a real problem with the belief that you can ramp up spending, and drive engagement but still offer your product below cost.

In a research note, MoffettNathanson principal and senior analyst Craig Moffett wrote that while it’s nice to say you want to drive engagement, offer content across platforms and create more stuff, it’s not so easy to do that when you’re losing money on the distribution platform.

AT&T’s DirecTV satellite service has been bleeding customers for months – it lost about 286,000 customers in Q2. While its OTT service DirecTV Now gained about 342,000 subscribers (it has a total of 1.8 million customers, compared to DirecTV’s 19 million), that service is priced substantially lower than what it charges for the satellite service. DirecTV Now has also been bundling HBO for free in some of its packages and it offers a free Apple TV device to new subscribers. Moffett called the DirecTV Now subscriber gains a “pyrrhic victory.”

Although Turner had a good Q2 – ad revenue rose 3% and total revenue increased 6.3% -- Moffett isn’t sure it will last long. There is a risk that Turner’s growth rate cold fall sharply in the next round of affiliate renewals --- it’s last deals were heavily front loaded because of sports. And while AT&T said it was encouraged by increased advertising opportunities, Moffett’s colleague Michael Nathanson has written that TV ads are shrinking for the first time in a non-recession.

And when it comes to togetherness, the analyst hopes that is not code for heavy discounting under the guise of bundling.

“With DirecTV, AT&T’s bundling strategy has amounted to little more than giving customers more for less,” Moffett wrote, adding that may have helped with churn in the wireless division, it decimated the satellite company’s profitability. Moffett estimated that DirecTV’s cash flow declined 16.8% in Q2.

“They started giving away HBO even before they owned it,” Moffett continued. “That inflated HBO’s growth rate when [Time Warner] was a standalone company, but it won’t help now that it’s inside AT&T.”  

AT&T chair and CEO Randall Stephenson, a day after the U.S. Dept. of Justice said it would appeal a federal court decision that helped clear the path to its merger with Time Warner Inc., told CNBC Friday morning that the DOJ’s action could affect another potential mega-media merger: Comcast’s pursuit of 21 Century Fox assets.

Related: DOJ to Appeal AT&T-Time Warner Merger 

Comcast was expected to raise the ante again for certain Fox programming and studio assets pledged to The Walt Disney Co. Comcast had outbid Disney’s original $52.4 billion equity offer for the assets in June with a $65 billion all-cash proposal, only to be bested by another cash and stock offer from Disney worth $71.3 billion. The DOJ approved the Disney deal on June 27. 

Speaking to CNBC’s Squawk Box on Friday from the Allen & Co. conference in Sun Valley, Idaho, Stephenson said the DOJ’s plans to appeal the Time Warner purchase came as little surprise, adding that it probably isn’t great news for Comcast’s pursuit of Fox.

“[It] probably can’t help it,” Stephenson told CNBC, according to a transcript. Stephenson said he didn’t want to speculate on the government’s motives for appealing his merger, but said it could affect the Comcast-Fox “process.”

Related: AT&T, Time Warner Cleared to Merge 

“You’re in a situation where two entities are bidding for an asset, and this kind of action can obviously influence the outcome of those actions,” Stephenson said. “But who knows whether that’s behind us.”

The AT&T chief stressed that the appeal process – which he speculated could take five-to-six months to complete -- will have no effect on the way AT&T and Warner Media run their businesses.

“This changes nothing,” Stephenson said. “This changes nothing we’ll be doing over the next 30 days or the next 12 months. We’re about executing our plan. We think the likelihood of this thing being reversed and overturned is really remote. It’s a very narrow path that would have to be traveled to get this thing reversed in any way. So we’re about executing our plan. The merger is closed. We own Time Warner.”

Related: AT&T Completes Time Warner Purchase 

Stephenson said as part of the original agreement, AT&T would run Warner Media separately and independently, and the company has no intention of changing that.

“I mean, when you have content players who are both suppliers and customers, you just have an obligation to treat them that way anyway,” Stephenson said. “So this changes nothing about how we operate the business. It changes nothing about products we will launch. It changes nothing about other M&A we need to do like Appnexus.”

Related: AT&T to Acquire AppNexus as Start of TV Ad Marketplace

And while the AT&T chief said the appeal could pose some problems for Comcast-Fox, he doesn’t see the same chilling effect on other potential mergers.

“If [I] were a CEO looking at media acquisitions and deals, I don’t think I would be looking at them today any differently than I did yesterday,” Stephenson said. “I think this is a process that will play itself out. But I think there is such a slim chance of this thing being altered in some way that it wouldn’t affect my thinking much at all.

But he added that most other companies shouldn’t have been looking to the AT&T-Time Warner ruling as a regulatory template in the first place, because Judge Leon’s ruling was so specific to that transaction.

AT&T has come under fire lately over how it would run Warner Media, specifically a Town Hall meeting with HBO employees where Warner Media chief John Stankey appeared to want the premium network to be more like Netflix. Stephenson said that Stankey’s message of increasing engagement is a strong one. 

“At the end of the day that’s what this is all about, engaging the consumer,” Stephenson said. “Because the more engagement you have, the more opportunity you have to create value.”

More engagement could mean “pumping more content into HBO,” but it also means spreading it across AT&T’s other digital properties like DirecTV Now, WatchTV and online sites like CNN.com.

Still, the AT&T chief said the company is aware of the potential for culture clashes between Warner and other AT&T units, but added he wasn’t concerned about it.

“I’m conscious of it and we’re being very, very careful and mindful of that.” Stephenson said. “The way we’ve organized the business, it will be run separately, very independently. It’s important that we preserve the culture.” 

For AT&T and Time Warner, now comes the hard part.

In the months leading toward U.S. District Court Judge Richard Leon’s rejection of the federal government’s attempt to block the AT&T-Time Warner merger, both companies made a lot of promises. Now, with the $108.7 billion deal having closed last Thursday (June 14), they will have to make good on them.

On June 12, Judge Leon rejected the U.S. Department of Justice’s claims that the deal was anticompetitive, calling into question the DOJ’s math and its assertions that the combined company would restrict access to programming or raise prices.

He also attempted to nip any thoughts by the government of appealing his decision, adding any moves toward a stay would “cause irreparable harm to the defendants in general and AT&T in specific” and would be a “manifestly unjust outcome of this case.” The DOJ agreed, but still has the right to appeal.

Related: AT&T, Time Warner Cleared to Merge

Agreeing to Arbitration

Though Judge Leon imposed no conditions on the deal, AT&T and Time Warner pledged a few things they hoped would smooth the approval path. Perhaps the pledge with the biggest impact across the industry was the promise to offer “baseball-style” arbitration in carriage disputes between its networks, such as TNT, TBS, CNN and Cartoon Network, and other distributors.

In baseball-style arbitration, a third party arbitrator receives sealed proposals from both parties in the dispute, and after a hearing selects one of those proposals without modification. During the arbitration period, no networks could be blacked out.

AT&T-Time Warner had promised to extend the arbitration offer for seven years after the deal closed. According to AT&T, the arbitration offer still stands.

The American Cable Association, which was against the merger, said although the arbitration offer is flawed — it doesn’t include HBO — it is an essential part of the deal.

“If there is any saving grace in the Court’s opinion, it is that the Court recognized that the offer made by AT&T-Time Warner (via Turner Broadcasting) to agree to commercial arbitration to settle program access disputes ‘will have real-world effects,’ helping to prevent ‘new’ AT&T from raising prices to its rivals,” the ACA said in a statement.

AT&T made some other promises for after the deal closing, including launching a sports-free video bundle that will cost $15 per month for non-wireless customers, but will be free to AT&T Wireless subscribers with unlimited data plans. AT&T chairman and CEO Randall Stephenson said the service, called AT&T Watch, would include Turner channels and others, but would only come to life if the Time Warner merger were approved.

AT&T also promised to offer a broadband-delivered DirecTV product, priced at between $80 and $90 per month, but details on that product were sketchy. Still, analysts saw AT&T Watch — and the telco’s aggressive discounting strategies (wireless customers get the $35 DirecTV Now package for $10 per month) — as a critical look into how AT&T views the content business going forward.

Related: AT&T to Introduce Broadband-Delivered OTT DirecTV Product

Bundles and Other Promises

In a blog titled “AT&T Wants to Give Video Away for Free,” BTIG Media analyst Rich Greenfield wrote that creating another sports-free bundle is nothing new.

“What makes AT&T Watch so significant is that AT&T is planning to give this package of video channels to AT&T wireless unlimited plan subscribers at no cost,” Greenfield wrote, adding that with an estimated 15 million AT&T Wireless customers on unlimited data plans, uptake should be high.

All of these moves appear to be in line with what Stephenson has been saying all along — the days of high-priced, fat packages of linear TV are over.

“If you’d asked me seven years ago what this world would look like today, I would have missed it so far,” Stephenson said during the April DOJ trial, according to a court transcript. “The need for people, for content creators, to go through cable companies and satellite companies to get their content to the consumer, that is a thing of the past.”

AT&T chairman and CEO Randall Stephenson told an industry audience his top priority going forward is ensuring that its pending $108.7 billion merger with Time Warner Inc. is completed, and offered a glimpse at the advantages the combined company would enjoy.

At the J.P. Morgan Global Technology, Media & Communications conference in Boston, Stephenson said that getting the Time Warner deal done is Job 1. The merger, which the U.S. Dept. of Justice tried to block in November, is currently in the hands of U.S. District Court Judge Richard Leon, who is expected to make a decision by June 12.

“We stand ready to close,” Stephenson said.

The added heft of Time Warner brings with it huge opportunities in advertising, Stephenson said. The combined company would have a “formidable” advertising inventory through its 159 million mobile customers, 40 million pay TV subscribers, OTT services like DirecTV Now and HBO Go and HBO Now. Pairing that with the location data and viewer habits from its distribution businesses creates a “sizeable monetary opportunity,” Stephenson said.

Advertising is going to be a critical element to this,” Stephenson said, adding that the company recently hired former GroupM executive Brian Lesser, who has been assembling a team to take advantage of the ad opportunities the merger brings. “He [Lesser] is sitting and idle and ready to go once we close the Time Warner investment.”

Stephenson also announced some enhancements to DirecTV Now – it launched its own cloud-based DVR today as well as other enhancements, including changing the look and feel of the app, increasing on demand content and allowing customers to watch local channels outside the home. But those enhancements also will lead to higher prices, eventually, Stephenson said.

He noted that DirecTV Now is considered a premium product that is priced below market. That, he said will change.

“As you get this pricing right up and down the spectrum, you have the ability to take the streaming products to some nice profitability levels over the next couple of years,” Stephenson said. “DirecTV Now is priced at $30 to $35 today. It is a premium service. The market’s at $40. As this new functionality is rolled out, we expect to charge for that. So the price points on DTV Now will be moving up.” 

AT&T chairman and CEO Randall Stephenson pretty much stayed on message in his testimony in the ongoing federal antitrust trial concerning AT&T’s pending merger with Time Warner Inc., stressing that the deal is necessary for the distribution giant to continue to compete effectively against over-the-top providers.

Stephenson also dismissed government suggestions that AT&T would use Time Warner content, which includes CNN, HBO, TBS, TNT, Cartoon Network and others, as a club to force higher prices for programming or to lure subscribers to other pay TV services to AT&T.

Stephenson’s testimony followed that of Time Warner chairman and CEO Jeffrey Bewkes, who told the court Wednesday that government claims the combined entity would force higher prices or exclusivity were “ridiculous.”

According to reports, Stephenson said he viewed the Time Warner agreement as a “vision deal” that would help the company compete against emerging OTT providers like Netflix and Amazon. The Time Warner deal is a big shift in strategy for the company into the content arena, a move Stephenson said the company has to make quickly.

“We knew we had to have scale,” he said, according to Variety. 

Stephenson was the second AT&T executive to take the stand in the trial in as many days. Late Wednesday AT&T senior EVP of AT&T-Time Warner integration planning John Stankey, dismissed the government’s fear that the combined entity could join with fellow vertically integrated entertainment company Comcast to withhold content from rival distributors. Stankey said that wouldn’t make good business sense and given AT&T’s many battles with Comcast in the past, was extremely unlikely.

“I’m not going to cooperate with someone I don’t like,” Stankey said of Comcast, according to Bloomberg. “We don’t want to cooperate with Comcast and play their game.”

Customer erosion has come to U.S. satellite TV in a big way. And though the two main players — DirecTV and Dish Network — have tried to soften the blow with their own over-the-top services, they are still getting bruised.

Comcast’s $31 billion bid for U.K. satellite giant Sky has again put a spotlight on the domestic satellite-TV business. Adding to the surprise over Comcast’s move was a perception of satellite TV’s decline here, unlike their counterparts across the pond.

For years, Dish Network chairman Charlie Ergen has been the poster boy for satellite TV losses. Over the past five years, Dish has lost a whopping 3 million subscribers and, according to Ergen, that decline does not appear to be letting up. Dish’s pioneering OTT service — Sling TV launched in 2015 — is also beginning to show signs of slowing down.

Dish revealed customer numbers for Sling TV for the first time along with fourth-quarter results: the OTT service ended 2017 with 2.2 million subscribers, up 47% for the year. That was better than expected; some analysts had estimated Sling TV had about 1.8 million customers. Dish’s satellite results, though, were stark. Dish finished 2017 with 11.03 million satellite TV customers, 3 million less than the 14.1 million it had in 2013 and 3.1 million behind 2010, its peak subscriber year.

Headed to ‘Less than Zero?’
MoffettNathanson principal and senior analyst Craig Moffett estimated Dish’s satellite subscribers are declining at a rate of 8.8% per year and cash flow is falling at a 21.5% clip.

“One doesn’t often value businesses declining that quickly,” Moffett wrote in a research note, saying an argument can be made for valuing Dish’s satellite business at less than zero.

In the past, Moffett noted, revenue hits from Dish subscriber losses were outpaced by price increases and by declines in subscriber acquisition costs. “That phase is now over as well,” he wrote.

Barclays media analyst Kannan Venkateshwar said, “Overall, these results are likely to underline the need for Dish to make a pivot away from the DBS business sooner rather than later, especially given that incremental subs clearly are coming in at lower margins and even the pace of growth of these subs is slowing.

“It is tough to believe that 2018 will change any of these trend lines, given multiple new competitors like YouTube TV and Hulu,” Venkateshwar added.

Ergen has not been shy about satellite’s decline — for years, he has said the business is maturing — and he was no less candid on a conference call with analysts to discuss Q4 results.

“There’s nothing new on the video business, other than what we’ve been saying for the last five years, which is the video business is going to change,” Ergen said.

Dish’s new CEO — 23-year company veteran Erik Carlson, named to the position earlier this year — is cognizant of the decline but still sees some growth left in the old business.

Related: Sling TV Shakes Up Top Management

“We don’t have the growth dynamics that we had in early years, but we still see some opportunity,” Carlson said on Dish’s fourth-quarter conference call with analysts, adding that the core satellite business continues to be the “engine that’s funding our future.”

Carlson said Dish has spent the past two and a half years improving its subscriber mix, focusing on keeping and acquiring long-term profitable customers. But just how long-term remains to be seen.

Dish’s cash-flow margins have shrunk over the past three years, from 20.9% in 2015 to 17.1% in 2017. Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said the margin decline is mostly due to shrinking revenue, down about 5% in 2017, and Sling TV’s margins are thin in part because of the startup nature of the business. Still, Wlodarczak gave Sling credit for containing programming costs — he estimated they were up about 3% for the OTT service last year. Exerting further margin pressure is Dish’s plan to build out wireless licenses in an IoT network that will cost up to $1 billion by March 2020.

“I don’t expect margins to grow anytime soon,” Wlodarczak said. “In the end the [satellite TV] business is effectively a declining annuity that still throws off a decent amount of cash.”

Still, the subscriber declines appear to be accelerating. Adding to the pressure is the proliferation of OTT services that have come on the scene since Sling TV launched. In the past year alone, Hulu launched its Hulu Live OTT service, offering 50-plus channels for $39.99 per month, followed by YouTube TV, fubo TV and Philo. That’s on top of existing services like Sony PlayStation Vue, Netflix, Apple TV, Amazon Prime Video and Amazon Channels.

Watch MCN: vMVPDs by the Numbers

Other Options on Offer
Per Moffett, Dish reached its subscriber peak in the first quarter of 2010, finishing the period with 14.3 million customers. It ended 2010 at 14.1 million customers and see-sawed between losses and gains for the next two years, losing 166,000 customers in 2011, adding 89,000 in 2012, adding 1,000 in 2013 and losing 79,000 in 2014.

Subscriber rolls started to fall off a cliff beginning in 2015 — the year Sling TV launched — when Dish lost 607,000 satellite TV subscribers. Those losses doubled to 1.27 million in 2016 and tempered slightly in 2017, with a loss of 995,000 satellite-TV customers.

Satellite declines shouldn’t come as a surprise, and both Dish and DirecTV have been preparing for that eventuality for years. OTT services like Sling TV and DirecTV Now were supposed to take up the slack. For a moment, they did. Including Sling TV numbers in the mix, Dish lost just 82,000 customers in 2015 and 392,000 in 2016. The growth of those flanking services has begun to slow down, though.

Sling TV added 526,000 customers in 2015 and 878,000 in 2016, per Dish’s financial statements. In 2017, that growth slowed to 711,000 — a 47% increase over the prior year, but given 2016’s 141% gain, a slowdown just the same.

Part of the reason is churn, or the disconnect rate, is high at Sling TV: It was 3.09% in Q4, according to Moffett’s estimates, compared with 1.78% for the satellite business. Ergen blamed some of the volatility on customers switching services month to month to get better deals, and on those who sign up for a service just to watch a specific event and then drop their subscriptions the next month.

“One of the big factors that I don’t think is recognized totally by everyone is [OTT] is somewhat seasonal,” Ergen said on the Q4 call, adding that customers often sign on to view a specific event — mainly sports — taking advantage of a one-month free offer and then canceling when the promotion expires. “One-month churn is particularly high in the industry because people come in and out as a matter of convenience and can move around.”

That could mean that Sling TV and other OTT providers see a customer surge in March, just in time for the NCAA men’s college basketball tournament (March Madness), which begins March 13 and runs through April 2.

Related: Virtual MVPDs Growing 'Like Weeds,' Analyst Says

In addition, Ergen said hardware promotions from providers allow customers more flexibility to move around.

“I’m sure there are some college kids who are going a year and never paying a dime for multichannel TV and getting lifetime HBO from AT&T,” Ergen said, adding that pricing discipline is inevitable. “People aren’t suicidal out there in a capitalist society.”

That discipline won’t necessarily come from Dish. During the media portion of the conference call, Dish executive vice president and group president of Sling TV Warren Schlichting said Sling has no intention of eliminating its one-month promotions.

“We like where we are,” Schlichting said. “We feel like it really puts the onus on us to provide value.”

Growth Engine Has Cooled
Dish might be in the hot seat as the bulk of overall satellite losses have been attributed to the Colorado company. But it is not the only satellite-TV provider (or wired pay TV provider, for that matter) to see subscriber rolls decline. DirecTV, once the growth engine of the satellite sector, had its first full year of customer losses under new parent AT&T in 2017, shedding 554,000 net subscribers. That compares with a gain of 1.23 million customers just one year earlier. DirecTV lost about 550,000 customers in 2015, but gained them back as AT&T’s U-verse TV subscribers migrated to the satellite TV service.

AT&T chairman and CEO Randall Stephenson told analysts during its Q4 conference call that losses have been expected at the satellite unit ever since the telco purchased the company for $48.5 billion in 2015.

“Since the day we bought DirecTV, we assumed that traditional linear video would be in a declining mode since that’s kind of the nature of it,” Stephenson said on the call. “OTT and the ability to consume video on mobile devices, we believed would be the trend and the way where things went. We wanted to be in the leadership position and facilitating that kind of consumption of premium video on mobile devices. And we have been in the leadership position in that.”

The key was DirecTV Now, the virtual MVPD service AT&T officially launched on Nov. 30, 2016. DirecTV Now was supposed to take up the slack for losses at DirecTV and wireline offering U-verse TV.

Initially, the strategy worked. U-verse TV subscribers were first encouraged to switch to DirecTV service, and later to DirecTV Now, and a lot of them did. U-verse customers fell precipitously, dropping from 5.6 million in 2015 to 3.6 million at the end of 2017.

“I think if AT&T had not been ‘encouraging’ consumers to swap to DirecTV, satellite TV additions would be far more negative,” Wlodarczak said, adding that consumers focus on data service first and video second.

Cable years ago established itself as the broadband leader: It accounted for 100% of net broadband additions again in 2017. Wlodarczak said consumers looking for a reliable broadband service stop at cable first and quickly learn they can get lower prices if they bundle broadband with video. But even that hasn’t stemmed the bleeding: Cable operators lost 79,000 customers in Q4 and 780,000 for the full year.

Breaking Down the OTT Subs
Stephenson said AT&T firmly believes that it has the product — DirecTV Now — to drive subscriber growth over the next few years.

“We would expect to continue to grow video customers, with our DirecTV Now [product] outpacing our linear customer counts in the sense of net additions,” Stephenson said on the analyst call, adding that customer additions are evenly split between cord-nevers and cord-cutters/shavers. “We still haven’t seen a dramatic uptick in customers that are shifting from our full-value product to DirecTV Now, but we continue to watch that carefully and continue to come up with different ways to make sure we can prove that and track that.”

Nobody believes satellite service is going away tomorrow. For many rural customers — between 10 million and 15 million homes — it is the only reliable way to access broadcast and pay TV content. But subscriber erosion is here, and even with skinnier bundles and promotional offerings, it is likely to stay.

“I think it is going to get a lot worse for satellite TV,” Wlodarczak said.

Traditional pay TV service providers continue to face headwinds as cord-cutters seek out new alternatives, but that trend is not dampening AT&T’s enthusiasm about the video sector.

“We’re very bullish on video,” Randall Stephenson, AT&T’s chair, president and CEO, said Jan. 31 on the company’s fourth-quarter earnings call.

Though U-verse TV and DirecTV’s satellite TV service took it on the chin, losing 207,000 subscribers between them, DirecTV Now, AT&T’s OTT-delivered service, balanced it out by adding 368,000 subs, extending DirecTV Now’s base past 1.15 million.

OTT, and the experience that streaming services can deliver, will serve as the centerpiece of AT&T’s video strategy going forward.

AT&T, for example, is preparing for the spring debut of an upgrade for DirecTV Now that will add in a cloud DVR service, a third concurrent stream (up from two today), a refreshed interface, a bulked up VOD library and support for 4K.

Stephenson also shed some light on AT&T’s plans to introduce a new “home-centric” streaming device that will “repurpose” the company’s traditional linear TV platform.

He said the new in-home offering will take the form of an inexpensive, “very thin client” that can be connected to any broadband service and include a voice-controlled interface. In addition to supporting DirecTV Now, it will also integrate access and search to other OTT services, including Netflix, Amazon, Hulu and YouTube, among others.

Stephenson didn’t elaborate on that product further, but FCC documents that emerged last fall showed that DirecTV is working on a 4K-ready, Android TV-based streaming device that includes voice search and access to apps and services from Google Play.

AT&T chair Randall Stephenson said it is time for Congress to stop debating and start acting by "writing new laws that govern the internet and protect consumers."

The FCC last month voted to eliminate the rules against blocking, throttling and paid prioritization by ISPs, saying the Federal Trade Commission could sufficiently police conduct that was anticompetitive of unfair without those proscriptive rules.

"We intend to work with Congress, other internet companies and consumer groups in the coming months to push for an 'Internet Bill of Rights' that permanently protects the open internet for all users and encourages continued investment for the next generation of internet innovation," he said in an "open letter/ad" Wednesday (Jan. 24).

ISPs have argued that the FCC's Title II-based Open Internet order and proscriptive rules discouraged investment and innovation, an argument that backers of the rules strongly dispute.

Related: Burger King Takes Aim at FCC Net Neutrality Rollback

"AT&T is committed to an open internet," said Stephenson. "We don’t block websites. We don’t censor online content. And we don’t throttle, discriminate, or degrade network performance based on content. Period."

ISPs, including AT&T, have pledged not to block or throttle, though they have left open the possibility of paid prioritization, pointing to the need to prioritize health (remote diagnosis) or safety (self-driving cars) over cat videos, or to provide new services that can be a differentiator among competitors, with the operative word being "competitors" -- opponents say there is insufficient competition to provide alternatives if paid prioritization does not sit well with broadband subs.

Related: Dems Say Net Neutrality Will Be Mammoth Midterm Issue

While ISPs have said they will promise not to block or throttle, and support the FCC approach, they also recognize that the next FCC, under new political management, could reimpose hard-line regs.

Stephenson said he wants new rules to apply to all segments of the internet ecosystem, ISPs and edge providers alike: "The commitment of one company is not enough. Congressional action is needed to establish an 'Internet Bill of Rights' that applies to all internet companies and guarantees neutrality, transparency, openess, non-discrimination and privacy protection for all internet users."

Stephenson's blog also comes as congressional Democrats are pushing for a legislative solution ISPs do not support -- a Congressional Review Act resolution nullifying the FCC's December vote, which would reinstate the old regs. The CRA is highly unlikely to pass.

Related: Net Neutrality Bill Is Longest of Long Shots [subscription required]

Responding to the open letter, Fred Campbell, director of Tech Knowledge, said: “Tech Knowledge supports a legislative approach to net neutrality that embraces broader principles of internet governance based on traditional consumer protections, including online privacy, that apply equally to all similarly-situated internet companies. Unfortunately, those in Congress who continue to insist on strict regulation of ISPs that exempt so-called edge providers are ignoring serious consumer concerns about privacy and the growing monopoly power of tech giants in Silicon Valley to control online content. An approach to internet regulation grounded in traditional consumer protection and constitutional limits would transcend today’s artificially restrictive and anticompetitive version of the net neutrality debate while remaining true to free market principles that drive innovation and investment.”

The Internet Innovation Alliance said: “We have long advocated for Congressional legislation that would make permanent the core principles of an open Internet. Only Congress can craft a unified regulatory framework that would apply to all entities in the Internet ecosystem and provide the nation’s consumers and businesses with the online protections they deserve. Consumers should have one expectation of fair rules on the Internet rather than a confusing patchwork depending on what sites they visit or how they access the Internet."  

Public Knowledge, a big fan of the rules the FCC overturned, saw it differently.

“Public Knowledge is glad when AT&T, or any company, commits to supporting net neutrality and strong consumer protections online," Public Knowledge said. "Unfortunately, their approach isn’t enough and fails to support the most immediate solution -- reinstating the 2015 net neutrality rules."

An AT&T spokesperson said, "The purpose of today’s open letter calling for an Internet Bill of Rights was to begin a dialog on a comprehensive framework for basic consumer protections on the internet that applies to all internet companies.

"For new technologies, such as self-driving cars, remote surgery and augmented reality, to work, a higher level of internet performance is required," the spokesperson added. "If you’re in a self-driving car, buffering or data delays are not an option. As it relates to prioritization specifically, we don’t know what the ultimate answer is. We want to have a dialog about it with other internet companies and consumer groups, so that Congress is considering all angles as they begin to write the rules of the road on how the internet works, particularly for new innovation and invention, like self-driving cars or augmented reality. Working collaboratively with Congress, we believe we can develop the right set of policies to accomplish all of these goals."

While the government grapples with the latest tax reform bill, cable and telecom operators are waiting patiently for what could be a substantial windfall.

The bill is controversial among consumers — some have argued that it favors the wealthiest Americans. But for corporate America the benefits are simple: The new deal would slash the business tax rate from about 35% of profit to 20%. With more and more cable companies looking at a near future where they become full cash taxpayers, that could represent a substantial savings.

Profit vs. Spending
The cable business was founded on the premise of paying as little to the government as possible. And that was true during the early days of the industry, when operators borrowed heavily to build out networks, eschewing profits in favor of spending to build a network for the future.

Many operators still are not full cash taxpayers. Charter Communications for example, according to its 10-K annual report, has about $11.2 billion in net operating loss carry-forwards — an accounting method to reduce taxes — that expire between 2018 and 2035. But other operators have become taxpayers as capital expenditures have declined and profits have soared.

The House of Representatives voted to approve the bill last Thursday (Nov. 16) by a 222-205 margin, largely along party lines in the Republican-controlled body.

While that approval was largely expected, the next move may be trickier. The Senate has its own version of the bill — the main differences are centered on consumer, not business issues — which will be voted on in December. If that bill is passed — the Senate has a thin two-seat Republican majority — it will then need to be amended with the House bill and voted on again.

There is no guarantee that the bill will get passed — the House also passed health care reform, which has gone nowhere to date. Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak added that it continues to be a tough call, especially with the House and Senate offering different bills.

But as legislators hash out the vagaries of the bill, Comcast, AT&T and Verizon are already closing in on become full cash taxpayers. The three companies paid 27%, 26% and 18%, respectively, of pre-tax income to the government in 2016, according to UBS research.

Comcast’s cash income tax rate was 35.7% in 2013, 21% in 2014, 29% in 2015 and 27% in 2016, Wlodarczak said. He estimated the rate will be about 30% in 2017.

President Donald Trump has pushed for the rate to fall to 15%, while House Speaker Paul Ryan has put forth a 20% rate. Still, even at that more conservative level, the savings could be substantial. UBS estimates that every 5% decline in the corporate tax rate translates to a $1 billion to $1.5 billion annual benefit, or a 5% to 10% increase in earnings per share and free cash flow at each of the three companies.

“In other words, a corporate tax rate of 20% (in line with Paul Ryan’s proposal) would drive accretion of 15%-plus,” UBS wrote.

Verizon declined comment, but according to UBS could see its taxes reduced from an estimated $8.7 billion in 2017 to $4.2 billion in 2018 if the bill is passed.

Another windfall could be the extension of bonus depreciation, which allows companies to deduct capital expenditures on an accelerated basis. Bonus depreciation is currently at 50% and would be bumped up to 100% for five years before returning to normal rates, according to the bill. Some estimates have put the bonus depreciation savings at between $1 billion and $2 billion annually for the three companies alone.

AT&T has already come out in favor of the bill, adding that a 20% corporate tax rate would allow the company to invest an additional $1 billion to stimulate job creation and economic growth.

AT&T Commits
“With a rate of 20%, combined with provisions for full expensing of capital expenditures for the next five years, we’re prepared to increase our investment in the United States,” AT&T chair and CEO Randall Stephenson said in a statement. “If the House bill is signed into law, we’d commit to increase our domestic investment by $1 billion in the first year in which the new rates are in place. And research tells us that every $1 billion in capital invested in telecom creates about 7,000 good jobs for the middle class.”

In a conference call with analysts in January to discuss fourth-quarter results, Comcast chair and CEO Brian Roberts said tax relief and/or regulatory reform — like a repeal of Title II — could lead to more investment.

“We’re looking forward to working with the new administration and the new regulatory leaders to try to frame something that’s good for consumers,” Roberts said in January. He added that such moves would create a more stable platform that should allow companies to accelerate business opportunities.

‘‘Winter is coming” may be the ominous tagline for HBO’s hit show Game of Thrones, but for parent Time Warner’s pending merger with AT&T, winter is already here. More than a year after the two corporate giants unveiled their $108.7 billion merger plans, a distinct chill has enveloped the union of the largest pay TV distributor and the second-largest content provider, brought on by what many perceive as strong signals from the White House that the deal, once expected to be a shoo-in through the regulatory approval process, is now facing very real hurdles just steps from the finish line.

Media outlets were abuzz last week as reports flooded in that the U.S. Department of Justice, charged with determining whether the AT&T-Time Warner merger would violate antitrust laws, was asking that the combined company divest either its Turner cable network unit or its DirecTV satellite-television operation. The Turner request was most curious, or perhaps revelatory, because it is the home of CNN, the cable news network that President Donald Trump has excoriated in public statements and on his Twitter account as “fake news.”

While the focus is on CNN and Turner, the broader implications — that a sitting president is trying to negatively influence a merger involving a news organization that has been critical of him — are even more chilling. While much of the recent media focus has been on CNN, if the merger is successfully blocked it would send a strong message to media companies that have been waiting for this deal to close to open the merger floodgates.

In a research note, Barclays media analyst Kannan Venkateshwar noted that if AT&T walked away from the deal, other companies such as The Walt Disney Co. or technology companies like Apple would be logical suitors. Even 21st Century Fox, which attempted an $80 billion hostile takeover of Time Warner in 2014, only to be rebuffed, could make a new deal pitch. But the government’s stance may put a damper on any of that. (Last week, Fox was considered to be a takeover target by Disney; read Would a Mouse Eat a Fox?)

The government, in theory, is concerned about media companies becoming too big. AT&T could raise the price of HBO for rivals, create exclusive programming or even refuse to sell to rivals such as Dish Network.

“There are good reasons for the Justice Department to be concerned about this merger,” Columbia Law professor Tim Wu wrote in The New York Times. But “the unfortunate fact is that Mr. Trump has engendered so much distrust in government that everything that any federal agency does these days seems questionable,” he added. Wu said the Justice Department should do a better job of “explain[ing]its concerns about the merger to the public and to Congress.”

Chilling Effect
If a vertical deal such as this (distribution and content) is blocked by the Justice Department, analysts don’t see how other media companies would get comfortable pitching a horizontal deal (content plus content or distribution plus distribution).

“Technology companies in theory could increase competition in the distribution market by acquiring media companies,” Venkateshwar wrote. But if the AT&T-Time Warner deal implodes, all bets are off. “Therefore, while we could see multiple buyers in theory, it is tough to believe such a transaction would be attempted without greater regulatory clarity.”

Most analysts see the new conditions as a message from the Justice Department that it will block the merger. Without Turner and its stable of pay TV networks — like TBS, TNT, Cartoon Network, TCM, CNN and truTV — there is little reason to do a deal. And owning content without the distribution that comes from the DirecTV satellite assets — which have more than 20 million subscribers across the country — flies in the face of the original reasoning for the transaction.

AT&T is apparently ready to draw a line in the sand. When reports surfaced that the DOJ claimed that AT&T offered to spin off CNN to get the deal approved, which the DOJ rejected, AT&T chairman and CEO Randall Stephenson fired off what was for him a heated denial.

“Until now, we’ve never commented on our discussions with the DOJ,” Stephenson said in a Nov. 8 statement. “But given DOJ’s statement this afternoon, it’s important to set the record straight. Throughout this process, I have never offered to sell CNN and have no intention of doing so.”

At The New York Times’s Dealbook conference in New York on Nov. 9, Stephenson doubled down on his insistence that CNN was not for sale. He also said he has not felt pressure from the government to sell the network, which may be a case of carefully selecting his words. Early reports on the DOJ’s demands centered on selling Turner, CNN’s parent, or DirecTV.

Related: AT&T’s Stephenson: 'No Intention' to Sell CNN

But Stephenson echoed what others have said regarding a sale of CNN, Turner or DirecTV to win approval of the deal: It makes little sense.

When AT&T officially announced the merger on Oct. 22, 2016, the telco saw huge opportunity in pairing Time Warner’s content with AT&T’s distribution. Stephenson brought home that point again at the Dealbook conference.

“One of the key benefits of putting these two companies together is to stand up a new advertising capability,” Stephenson said. “We have built an amazing distribution platform — 150 million mobile subscribers, the largest pay TV base in the United States, a huge broadband base. There’s a lot of information and data that we think can be used to stand up a new advertising business. Pairing that with the Turner advertising inventory is a really powerful thing, we believe. That’s what we aspire to do. Selling CNN makes no sense in that context.”

But despite Stephenson’s protestations — he also said the Nov. 6 meeting with the DOJ, the fulcrum of all the recent controversy, was “productive” — Time Warner stock continues to sink.

In just the past two weeks, Time Warner shares have dropped nearly 15% from $102.20 per share on Oct. 19 to $87.05 per share on Nov. 9, precariously closer to their price just prior to the deal announcement ($82.99 each) and nearly 20% below the $107.50 per share at which AT&T valued the company for the deal.

Related: Wall Street Looks at Options for Time Warner Assets

If the DOJ decides to block the deal — and indications are that, unless the agency has a dramatic change of heart, it will — the first step will be for the government to file a suit stating that the deal violates antitrust rules. Stephenson said if that is the case, AT&T wants the case expedited to further accelerate the process.

“We are prepared to litigate now,” Stephenson said at the Dealbook conference.

A Justice Department suit to block the deal would be nearly unprecedented: Stephenson said the agency hasn’t challenged and defeated a vertical merger in more than 40 years. It is even more surprising given that the new head of DOJ’s antitrust division, assistant attorney general Makan Delrahim, said months ago that he didn’t see any problems with the merger.

“It reinforced what we thought about the transaction,” Stephenson said of Delrahim’s earlier comments. “He made comments that were exactly what we thought about this transaction going in.”

He added that the Nov. 6 meeting with DOJ was more of a “getting to know you” session, and the next step is to continue the process.

“As you might guess, when you’re doing a big negotiation, you spend a lot of time just getting to know each other,” Stephenson said. “You spend a lot of time trying to understand what the bid/ask is in a transaction like that. I think we had a very productive meeting on Monday. I think we both learned a lot about where each other are. Now we continue this process to see if we can get to a negotiated settlement.”

If the DOJ is pushing for asset divestiture, it would appear to be more in line with the president’s stance on big mergers than the head of the agency’s.

At a speech at the New York University School of Law on Oct. 27, Delrahim said that competitive impact was the main focus for the agency when reviewing mergers.

“That’s an important part of the process, because blocking a procompetitive transaction can be as dangerous as clearing an anticompetitive one,” Delrahim said, according to a transcript on the DOJ website. “The goal should be to promote, not stifle, competition.

“Our role in the antitrust division is the pursuit of justice in the marketplace,” he continued. “When we do our jobs correctly, we protect the competitive process around which our economy is organized and on which the American Dream is premised. And we do so through law enforcement consistent with limited government and the rule of law. It’s a compelling mission.”

Related: FCC's Pai Says DOJ Will Do Right Thing With AT&T-Time Warner

Delrahim’s boss, Trump, has made his stance on CNN clear since his campaign, when in a speech in Gettysburg, Pa., last October he said he would block the AT&T-Time Warner merger because it created “too much concentration of power in the hands of too few.”

Perhaps even more chilling would be implications on past and future deals if the government sues to block the AT&T-Time Warner merger and is successful. Trump has vowed to dismantle Comcast’s 2011 purchase of NBCUniversal. In the same Gettysburg speech, he said that deal created “one massive entity that is trying to tell the voters what to think and what to do.”

Stephenson also downplayed Trump’s role in influencing the DOJ, adding that he has only had contact with Justice officials throughout the merger process. But no one is suggesting that Trump is actively involved in the approval process. Several reports have said that DOJ officials are well aware of the president’s feelings toward the deal, and especially CNN, through his countless Twitter posts and comments criticizing the network.

Shifting Political Winds
But any presidential opposition to the deal could also have the reverse effect. Already several organizations that have publicly opposed the merger because it concentrates too much media power in one entity are beginning to rethink that position.

Free Press, which in the past has said it would back a requirement that AT&T spin off CNN or Turner to decrease media concentration, said it doesn’t approve of such moves if they are merely a manifestation of Trump’s apparent hatred of the news media.

“While there are plenty of good reasons to oppose AT&T’s Time Warner takeover, punishing CNN for trying to hold this administration accountable isn’t one of them,” Free Press president Craig Aaron said last week. “No matter where you come down on this merger, everyone should agree that the government shouldn’t base antitrust decisions or FCC rulings on whether it likes a newsroom’s coverage.”

For its part, AT&T is forcing the government to either go big or go home. In a research note, BTIG media analyst Richard Greenfield noted that AT&T certified compliance with the DOJ on Nov. 6, which started a 30-day shot clock for the government to make a decision either way. If litigation is filed, it could go on for at least four to five months even at an expedited rate, meaning AT&T would miss its earlier target of a year-end close and would be hard pressed to complete the deal by April 22, the official termination date for the merger — and Stephenson’s birthday.

The AT&T chief claimed he didn’t know about compliance certification, but expressed his frustration with the process.

“We need this to move along,” Stephenson said. “This has been well over a year for a vertical merger, and we each need to take actions that will get this to closure. Either we settle or we litigate, one of the two. I think we’re both aligned on that.”

Washington bureau chief John Eggerton contributed to this report.

AT&T CEO Randall Stephenson shot back at reports that claimed the U.S. Department of Justice said the telco had offered to sell CNN to clear the path toward approval of its pending merger with Time Warner, issuing a statement that AT&T has no intention of selling the network.

“Until now, we’ve never commented on our discussions with the DOJ,” Stephenson said in a statement Wednesday (Nov. 8). “But given DOJ’s statement this afternoon, it’s important to set the record straight. Throughout this process, I have never offered to sell CNN and have no intention of doing so.”

Earlier Wednesday, a report in the The New York Times said DOJ would require a divestiture of either Turner Broadcasting, which includes CNN, or DirecTV as a condition of the deal. It was the latest in what has been a growing sense that the merger, once thought to be a shoo-in for approval, may face more hurdles. 

Prior to that, AT&T chief financial officer John Stephens had said at the Wells Fargo Media & Telecom Conference that the timing for the deal’s approval was “now uncertain.”

AT&T will begin beta testing a “wireless-centric,” direct-to-home video offering built off its DirecTV Now service in the fourth quarter, with an eye toward a full launch next year, CEO Randall Stephenson told an industry audience Tuesday.

Stephenson, at the Goldman Sachs Communacopia conference in New York, said that AT&T has been moving in this direction since it purchased satellite TV provider DirecTV in 2015. That purchase, Stephenson said, allowed the company to obtain wireless distribution rights to DirecTV’s content in record time. A year after the purchase, DirecTV launched an over-the-top product dubbed DirecTV Now at a lower price point than traditional pay TV services.

READ MORE: Comcast's Roberts tries to calm investors

Pay TV subscribers have been on the decline for years – the second quarter was the worst ever for pay TV companies, which shed more than 900,000 video customers in the period. Stephenson said that with average monthly revenue per pay TV customer well above $100, the reason should come as no surprise.

“It’s a price issue,” Stephenson said of the decline. “Content costs continue to escalate, prices on the cable bundle continue to go up, so people are opting out of the cable bundle.”

He estimated that 20 million households have shed their cable service in the past several years, adding that those who are cutting the cord are younger and tend to live in apartment complexes, an ideal environment for an internet-based video offering.

“We concluded early on you need a wireless-centric approach to that market,” Stephenson said. “As soon as we closed DirecTV, we went to work getting the rights of all the content to deliver to a mobile device, it was the main benefit that came with DirecTV. And we were able to get these rights in very short order. Within a year we were standing up DirecTV Now, this is not a $115 bundle of content, this is a $30-to-$60 bundle of content. Here is a much lower-priced bundle of content that is well integrated with our wireless service, it’s created a very unique and I think compelling value proposition in the market.”

Wireless video delivery has been seen as the future for pay TV as more and more people regularly watch content on mobile devices. But streaming services have run into capacity issues as traffic increases. DirecTV Now notoriously ran into service issues after its initial launch, and streaming problems are commonplace during popular events – most recently the Mayweather-McGregor Pay-Per-View boxing match, where thousands of customers that paid to stream the fight last month via the Showtime app couldn’t access it. 

Stephenson said the key to reliably deliver these new services is to consistently deliver 1 Gigabit per second data speeds.

READ MORE: Rutledge says Charter is not fighting OTT video

AT&T is on a trajectory that moves it toward 1 Gigabit per second data speeds and has sufficient spectrum to handle capacity issues. 5G technology, expected to be widely deployed in the next two years – will address the problem.  

Despite those issues, Stephenson said the software-based solution will be the platform on which AT&T delivers all video in the future because it delivers video efficiently and at a lower cost which can then be passed to the customer.

Stephenson also talked about the pending merger with Time Warner Inc., which the company hopes to receive regulatory approval for by the end of the year. Stephenson reiterated that he intends to keep Time Warner separate from AT&T’s other businesses.

“I know very little about running a media company,” he said.

But he does believe that the inclusion of the content giant into the AT&T fold will present new opportunities, and added that he expected other distributors to eventually follow suit.

Stephenson said the integration planning for Time Warner is complete and that he believes the logic behind the deal is more apparent today than when they first announced the merger last October. Most attractive is the treasure-trove of data that AT&T has across its communications products that can in turn be used to enhance the video business.  

“We have data at the device level and at the location level,” he said, adding that AT&T has particular insights into viewing habits on traditional TV sets, smartphones, tablets and PCs. The use case, no surprise, for a media company in terms of taking advantage of that data is advertising. The advertising opportunity we think is significant.”

AT&T chairman and CEO Randall Stephenson said he was encouraged by his recent meeting with President Donald Trump, adding that the nation’s chief executive was “focused” and if his tax reform plans take hold could accelerate business growth.

Stephenson met with Trump at his New York City residence in Trump Tower on Jan. 12, a meeting that many speculated was damage control from the AT&T executive. The day before the meeting CNN – the property of Time Warner Inc., which AT&T is trying to buy for $108.7 billion – incited the President’s ire after the news network reported of possible damaging information the Russians may have on the leader of the free world.

Stephenson said his talk with Trump centered on economic policy, an in particular tax reform.

“I was impressed,” Stephenson said. “I was meeting with a CEO, that was obvious. The President has a very specific agenda in terms of what he thought was critical, and that was tax reform and regulatory reform. We spoke at length about each of those. I will tell you, the President is focused on these. I left with a degree of optimism that this could actually be pulled off this year.”

Trump has mentioned plans to reduce corporate taxes, which Stephenson said was likely to happen. Stephenson wouldn’t say specifically what those reforms would allow AT&T to do differently or better, but hinted it could allow the company to expand the buildout of high-speed fiber optic Internet access to 12.5 million homes that was a condition of its $48.5 billion merger with DirecTV.

“ Would we accelerate the 12.5 [million homes]? I think we would try to look if we could bring some of those forward,” Stephenson said when asked if tax reform would allow him to accelerate the 12.5-milion –home buildout. “We are in the process of deploying 40 MHz of [wireless] spectrum. Are there some things we would do to bring forward some of the wireless build and bring our mobile speeds up considerably? …There’s a long list of things that the business case is really good where you could accelerate some of your build requirement and accelerate some of the business cases on many of these.”

WASHINGTON — AT&T chairman and CEO Randall Stephenson is pitching the AT&T-Time Warner Inc. merger to Congress as creating a new, disruptive video entrant to compete against established dominant players, something of a switch for the iconic company used to being regarded as an 800-pound incumbent telecom gorilla.

That is according to Stephenson's prepared testimony for a Dec. 7 hearing in the Senate Antitrust Subcommittee on the proposed merger.

He says the combined company would "disrupt the entrenched pay-TV models," while accelerating the deployment of 5G wireless broadband.

He says AT&T is already shaking up the status quo, and used over-the-top service DirecTV Now as exhibit A in making that case.

He plans to tell Congress the new subscription-based online service is targeted to the 20 million-plus households who have cut the cord or had the scissors in hand.

While merger critics are concerned about combining that online distribution with Time Warner content, afraid the company will favor that, Stephenson bills the combination as a way to bring more innovated services to the marketplace more quickly to "threaten cable's entrenched and still dominant position."

He said the ability to give customers what they want has been constrained because AT&T owns little of its own programming. “Instead, we have to negotiate those matters with third-party content owners, and in a fast-changing marketplace like vide, it is particularly difficult to obtain flexibility to pursue new and untested business models.”

The deal will help AT&T “break out of that box and reshape the competitive landscape” with a “stable” of Time Warner content to use as a “launching pad” for an array of content, Stephenson said, including for mobile. Armed with those content resources, the company can “innovate more quickly, experiment more readily, tweak our offerings as we gauge consumer response, and bring consumers the options they seek.

He also framed the “zero-rating" portion of the plan as instead data charges included in the price for AT&T Mobility customers. The FCC has signaled zeroing out the cost for an affiliated service like DirecTV Now may run afoul of network neutrality rules, though that is the Democratic-led FCC and a new Republican FCC would likely take a different view.

As to speeding 5G, he said that with the Time Warner content, AT&T will have a strong incentive to optimize the additional value of our content by having a robust mobile network and can deliver advanced video services made possible by the transaction."

Stephenson said it would be a “gross mistake” to view the merger as anything but pro-competitive, a mistake a number of merger critics and congressional Democrats have apparently been making given some of their comments following the deal's announcement. He says it would be irrational for AT&T to do anything but offer widespread distribution of Time Warner content, which he says "is more valuable when distributed to as many eyes as possible."

As to limiting access to competing programming, “as a distributor of video services, AT&T must offer the programming its customers want, regardless of whether or not AT&T owns that programming.”

Stephenson’s final word was an assurance about Time Warner’s news operations.

"We are committed to continuing the editorial independence of CNN," he said. “That independence is what makes CNN so popular and valuable, and we will not do anything to change that.”

AT&T will soon join a growing mix of carriers and service providers that have developed and launched mobile entertainment services.

AT&T’s offering will “turn some heads” in January, company CEO Randall Stephenson said Tuesday at the UBS Global Media and Communications Conference, according toDeadline.

Stephenson didn’t offer many other details, other than that it would tie in AT&T’s acquisition of DirecTV and feature “new capabilities, integrated products, and pricing,” Deadline noted.

"We will get to put some details on this, announce it and launch it in January the idea that you put that portfolio of mobile stacked content together with a really robust wireless asset," Stephenson said, per The Hollywood Reporter.

Stephenson also said the coming offering would work within the parameters set by the FCC’s network neutrality rules.

On that, he didn’t pull any punches, holding that the Commission “has succeeded in creating first-rate jumbled mess.”

Any new mobile video offering from AT&T would come on the heels of Verizon’s “mobile-first” service go90 and Comcast’s recently launched Watchable offering for set-tops and mobile devices.

The exec also said AT&T is interested in developing more original programming, following up on DirecTV’s work around series such as You Me Her.