Apollo Global Management agreed to pay about $5 billion to acquire Yahoo and AOL from Verizon as the wireless company exits its ill-fated foray into the media business. The private-equity firm is paying $4.25 billion in cash for a 90% share of the media assets. Verizon will keep a 10% stake and $750 million of additional preferred stock in the new company, called Yahoo, that will be formed to operate the business. Verizon Media, which mostly struggled to grow against Alphabet's Google and Facebook, generated $7 billion in revenue in 2020.
AT&T agreed to sell a stake in its pay-TV unit to private-equity firm TPG and carve out the struggling business, pulling the telecom giant back from a costly wager on entertainment. The transaction would move the DirecTV and AT&T TV services in the US into a new entity that will be jointly run by the new partners. AT&T will retain a 70% stake in the business. TPG will pay $1.8 billion in cash for a 30% stake.
Stonepeak Infrastructure Partners said it is buying Astound Broadband, the sixth-largest US cable-TV provider, for $3.6 billion, in one of the biggest leveraged buyouts of 2020. Astound, owned by private-equity firm TPG and cable-management company Patriot Media Management, is the operator of RCN Telecom Services LLC, Grande Communications, Wave Broadband, and enTouch Systems.
[Commentary] The first wireless deal after a government-imposed hiatus is bad news for the biggest carriers and could scramble the likely outcomes of other anticipated combinations.
Cable operators Comcast and Charter Communications said they would form a year-long partnership to expand their wireless offerings. The deal signals the two companies are serious about expanding into the industry. It also ensures that the two biggest cable companies will work together—and not bid against one another—when it comes to wireless deals. For Comcast and Charter, which are more peers than rivals because their coverage areas don’t overlap, teaming up makes sense. It will allow them to integrate their networks of Wi-Fi hot spots, which cover about 80% of the country, according to New Street Research. This should help them offer better service to subscribers and considerably lower the cost of running wireless networks on Verizon Communications’ airwaves. The partnership could also signal a desire for a deeper relationship between the two cable giants—even possibly a merger down the line. The success of the venture would make things much worse for the industry’s two giants, Verizon and AT&T , which are already losing subscribers to T-Mobile US and Sprint amid a bruising price war.
[Commentary] Shares of broadband providers have run up since the election on the hope that the Trump administration will bring a lighter touch to telecom policy. But even with looser network neutrality rules on the horizon, little may actually change.
New rules are expected to end the policy of classifying broadband as a utility subject to price regulation and return providers to a more limited regulatory framework. That would remove a big long-term risk for cable and telecom companies. But it may not make much of a difference in the short term, raising the question of whether recent stock-price gains are fully justified. Critics of the current rules argue that the threat of price regulation has chilled investment. But cable capital expenditures at Comcast , the largest wired broadband provider, have continued to climb since the new rules and are expected to rise again in 2017, according to UBS. Any declines in capital spending at other companies could be chalked up to normal pauses between investment cycles.
The Trump administration at times wears its populist hat and at others its pro-business hat. When it comes to antitrust enforcement, investors are betting it is sporting the latter. Perhaps the clearest evidence of this wager is the spread between Time Warner’s share price and the price implied by AT&T’s deal for it, announced Oct. 22. If it were to close by the end of 2017, holders of Time Warner shares would stand to gain 12%. That compares with 21.6% on Oct. 31. The narrowing suggests investors are increasingly convinced that President Donald Trump won’t follow through on his pre-election threat to block the proposed merger. It also speaks to a general optimism about lenient antitrust enforcement under President Trump.
[Commentary] Regulators say AT&T’s free-data offering for DirecTV violates network neutrality rules. But come January 2017, the regulators may be out the door and those rules may be under threat.
AT&T received a letter from the Federal Communications Commission saying its practice of exempting its own video-streaming service from data-usage caps may violate net-neutrality rules. AT&T has until Nov. 21 to respond, and analysts say the FCC is likely to issue a final ruling halting the offering over the next couple months. But the election of Donald Trump has thrown the agency’s willingness to uphold such a ruling into the air. That makes AT&T’s position the most visible example of the speculation and uncertainty brewing over Trump’s stance on net neutrality—the signature issue of the Obama FCC. Most Republicans strongly oppose the agency’s net neutrality rules, which reclassified broadband internet service as a utility. And the market is betting that the Trump administration will appoint an FCC chairman who shares that view. But President-elect Trump has yet to lay out a clearly defined view of telecom policy.
AT&T is buying Time Warner to help it succeed in the future world of media consumption. In many ways, it already is living in that world, and it isn’t doing all that well. That alone is an important warning sign of the risk the telecom company is taking.
AT&T’s deal to buy Time Warner for $85.4 billion in cash and stock marks the wireless carrier’s second major bet in as many years on beefing up its exposure to the pay-TV ecosystem. With DirecTV, AT&T became the country’s largest pay-TV distributor. With Time Warner, it would become the owner of some of TV’s most popular networks and programming. Both target companies achieved their dominance in the world of traditional pay TV. AT&T, which is preparing to launch an Internet TV service, hopes to use those assets to be ready for a world where people predominantly watch video online and on their mobile devices. Still, there is no guarantee that future will be as lucrative as pay TV’s past, and that could erode the value of AT&T’s purchases. If that future is anything like the present for AT&T, it will be hard for the company to justify the price of the deal. AT&T has lost 200,000 video customers in the past year, despite the purchase of DirecTV last July. That could be a sign of things to come for Time Warner, as it tries to grow sales of its content to pay-TV providers. AT&T’s strategy is also far bolder than that of rival Verizon. The latter has chosen to tackle the wireless problem by pursuing a lower-risk strategy of growth through short-form video, funded by Internet advertising. That means a failure for Verizon would be less costly. To justify its purchase of Time Warner to investors, AT&T needs a Hollywood ending.
[Commentary] A recent court ruling could mean big things for privacy regulations governing telecommunications, cable and internet companies—mostly because it highlights what those regulations may not cover. The Ninth Circuit Court of Appeals ruled that the FTC cannot regulate any aspect of a common carrier’s business. That includes cable companies and other broadband providers, which are classified as common carriers under new net neutrality rules. Meanwhile, the Federal Communications Commission, which regulates common carriers, doesn’t have jurisdiction over non-communications services. As companies with common carrier status expand into new lines of business such as mobile video and online advertising, the decision could be interpreted to mean that some of their business lines are left effectively unregulated when it comes to privacy. And that void could push lawmakers to act. Any gap in the law should worry investors because of the uncertainty over what might fill it.
For T-Mobile US, it may still take two to tango. After Sprint's decision to shelve a plan to bid for its rival, T-Mobile shareholders who had counted on an offer are scanning for other potential suitors.
One possible contender: Dish Network. Owning T-Mobile could help Dish put its wireless spectrum holdings to use if the combined company can invest in building a network based on Dish's airwaves. Dish would avoid the regulatory hurdles that quelled Sprint's ambitions.
But a deeper look at the satellite company's balance sheet suggests a deal might be hard to swing.