Content is no longer king for the US telco giants

• This year marked a turning point for the big North American telcos
• Where once both Verizon and AT&T saw their futures in content alongside their traditional mobile and fibre businesses, this year both organisations more or less rushed the exits

AT&T is being praised by investment analysts for making good progress with its telephony and connectivity business as its old and fast-diminishing ‘media’ business fades away following its ‘unwinding’ strategy. Earlier this year it said goodbye to its old (well 6 years old at the most) content strategy under which it had bought a bunch of media properties including DIRECTV and Time Warner. A new company was established and into it went DIRECTV, AT&T TV and U-verse video service. 

So AT&T was largely free from those cash-draining assets which together represented perhaps the worst investment strategy ever in telecoms. 

Could it now show that it had the ability to get its connectivity house in order to regain a bit  of lost ground?

In fact it appears to have done rather well so far, experiencing the biggest cell phone customer jump in more than a decade during the last quarter. And its ‘mobility’ revenues rose by 7%, the company claimed during its recent earnings call, with its mobility EBITDA up nearly $300 million or 3.6% for the year driven by growth in service revenues and transformation savings, according to AT&T Chief Financial Officer, Pascal Desroches.

Run away!

AT&T wasn’t the only telco giant to lumber off in a new direction this year. In May Verizon announced that it was selling its media business too, having spent $9 billion buying over-the-hill Internet era Yahoo and AOL to form the core of its digital media effort (which it initially burdened with the name Oath). Verizon announced the sale of its Media business to US private equity group Apollo Global Management for $5 billion (it had bought the ‘properties’ for around $9 billion - AOL cost it $4.4 billion in 2015; Yahoo cost $4.48 billion in 2017).

That sounds bad, but AT&T’s cash-splashing was huge. It bought Time Warner (the parent company of CNN, HBO and Warner Brothers) for $85.4 billion in 2018!

So why the collective insanity exhibited by the US giants? It wasn’t as if there weren’t plenty of voices expressing caution about the wisdom of moving into a completely different business with its own culture, capital requirements and risk profile,  much of it diametrically opposed to the way the telecoms and networking industry traditionally ran themselves…  there were. 

But underpinning this debate was a question that had been floating about for at least a couple of decades. 

Content or connectivity

What was more important (and ultimately more valuable) content or connectivity?

By early part of the last decade the telco industry had convinced itself that the content businesses were walking off with the profits from online and that it, and not the OTT players, needed to take a position in content to right matters. That conviction was clearly part of the motivation for both AT&T and Verizon to look to at least having a presence in content to offer the chance of creating some powerful synergies between network and applications such as video. 

That ‘content or connectivity?’ question hung around our annual Great Telco Debate (GTD) just about every year up to the present. As luck would have it the next GTD is nearly upon us (December 9) and as part of the agenda Chris Lewis, GTD’s originator, is going to cast a glance back at past debates to see how the content v. connectivity debate has evolved over the years. Has the industry reached a new understanding - as Verizon and AT&T appear to have? 

“There have been some big pushes (by telcos) into media and we can now see that it’s been a step too far,” says Chris. “Competition is now fierce at every layer and that’s driven the telcos back out again.” See you at the Great Telco Debate.