WHEN: Today, Wednesday, January 26, 2022
WHERE: CNBC’s “Squawk on the Street”
Following are excerpts from a CNBC exclusive interview with AT&T CEO John Stankey on CNBC’s “Squawk on the Street” (M-F 9AM – 11AM ET) today, Wednesday, January 26th. Following are links to video on CNBC.com:
All references must be sourced to CNBC.
STANKEY ON WIRELESS BUSINESS PERFORMANCE
JOHN STANKEY: More postpaid phone net adds in 2021 than we’ve done in the previous 10 years. It was our fourth consecutive year of over a million fiber broadband net ads and we’re now increasing the footprint and have an opportunity to ramp that up and look at 13.8 million HBO Max ads and what we’re able to do to launch on two continents and ultimately broaden that product to not only be a subscription-based service, but have advertising support associated with it, look, it was a home run for the team this year.
STANKEY ON GOLDEN AGE OF CONNECTIVITY
STANKEY: If we just kind of went through the golden age of television, we’re about ready to get into a golden age of conductivity which is how do we take all that robust capability that we’ve become very accustomed to in our homes and in our office and take it everywhere we go. And then what is that able, enable for innovation? And when I think about where AT&T goes with that is one, we start with the largest fiber footprint in the United States. The most dense and distributed fiber footprint the United States and I think, to be in this new age of conductivity and be able to deal with the demands that are occurring, that’s kind of a basic fundamental infrastructure piece that needs to be there. Two, what happens at work and what happens at home is now blurring and, you know, we’ve the pandemic kind of brought this to a head. Everybody is doing everything they do within their life no matter where they are and I think a company like ours that has incredible strength at the top end of the business market and also incredible strength at the consumer market and everything in between, distribution channels, how our infrastructure lines up, our ability to do product development, the positioning of our brand for reliability, and how we can bridge those things, I think that’s where we play moving forward.
DAVID FABER: Yeah. Alright. Does that mean that differentiation then will move away from what I would argue at this point for those of us who watch football, for example, is largely about price or, or how much I can get from my trade in?
STANKEY: Well look, I think customers are always going to be value centric. And I think that’s just part of when you’re in a competitive market, they think about those things and I believe the wireless industry functions that way today, as you know, there’s a pretty broad ARPU difference between the different players in that market. So, there’s clearly a segment of the market like many of the customers that choose AT&T that are looking for that very consistent execution and kind of scale and the kind of reliability that we can bring and when we do things, like build our network to accommodate first responders and the extra reliability they need around those things, those are the things that our reputation and brand stand for. And so, I think value will always be an element that value doesn’t necessarily mean low price.
FABER: Yeah, you know, I mentioned earlier, of course, T-Mobile and Verizon being your main competitors which they are, but do you see Comcast, the parent company of this network, and Charter with its Spectrum offering as real competitors in the wireless industry?
STANKEY: Well look, as I just said, I think what a customer wants is a customer wants to go to a provider and say, handle what I need to be connected. And they don’t want to really think about it and say handle what I need to be connected at the house or handle what I need to be connected on the go and I believe where the market is going to go is they want to go to one provider. And as you alluded to earlier, value is going to be really important. I think what we’ve seen in capital intensive and infrastructure intensive businesses over time is it’s very difficult to be competitive if you don’t own and operate infrastructure and have owners economics on things over time. And so my belief is while there’ll be a segment of their customer base where they’ll be able to put an attractive bundle together from a resale perspective, as you see more capable fixed solutions and more dense fiber being deployed, and as you see wireless networks evolve in the way they are, I think it’s going to be very important to own both sides of the infrastructure to actually meet the customer’s expectations and have the kind of economics that are necessary to be successful in this industry moving forward.
FABER: Yeah. Which gets to of course, broadband, which you, you mentioned, you continue to add in your fiber footprint. You’re building that out as well. What are we talking 30 million locations by year end 2025. What is the ambition there then John, and from a competitive standpoint again, coming after the incumbents that I just mentioned of course in that business namely Charter and Comcast the two largest, what is, what is the hope for AT&T?
STANKEY: Well look, our product does incredibly well in the market today in the 16 million plus households that we offer it to. We see differentials and customer satisfaction between us and our competitive base that are over 10 points. We’re moving share and what we have is really kind of I think a once in a lifetime opportunity with the government from a policy perspective now making a decision that there’s going to be overt policy that every American should be connected to the internet and in places where the market doesn’t necessarily support investment of infrastructure, government coming in in a public private partnership and subsidizing some of that investment, I think AT&T can be a key player in bringing every American on the internet and partnering with governments around the country to use our expertise, add scale to build those networks in a responsible way and actually, in the next five years, see us accomplish what I think would be a really important social policy perspective, which is to get every American household on the internet and competent and capable to use it.
STANKEY ON WARNERMEDIA-DISCOVERY AND STOCK PERFORMANCE
STANKEY: When you look at valuations of kind of where Netflix stands today versus maybe a valuation of the components of AT&T that are represented by media, or when you think about the combined Discovery WarnerMedia, there’s a pretty big chasm between those two valuations. And my belief is that they built an incredible franchise and there is a great business and distribution direct-to-consumer. You’ve heard me say it before, I don’t think it’s going to be a business that there’ll be six or seven companies that are successful globally, but just a small handful and it’s a race to see who establishes themselves. I believe in 2021, we clearly indicated that HBO Max, and what we’re able to do on that platform will be one of those. I’d like to see our valuation actually start to edge up to what Netflix is.
FABER: You know, John, on that note, of course, through last year after the announcement in May through the end of the year, your stock underperformed, underperformed against competitors since then, by the way it’s been outperforming this last month, but were you, were you taken aback at all by that? Was there a lack of understanding do you think perhaps in part amongst your investor base in terms of the value that you believe you’re going to be delivering through this obviously very important transaction?
STANKEY: You know, David, it’s a good question. I think if you go back to May of last year when we announced the transaction, at least in my comments and discussions with folks. You know, I made it very clear that we were doing what we thought was the right thing to unlock value for the shareholder for the near and long term. And we understood that there were a lot of moving parts. This is a, you know, admittedly, to do this and structure it in the right way and avoid things like tax leakage so that all that benefit flows back to the shareholder, there’s some moving parts to this deal. And there’s some moving parts and restructuring, the, what I would call remain co AT&T to make sure that the capital structure is set up properly. I’m not surprised that it went on. I obviously, in my job, I would have preferred that it didn’t and that there was a little bit more stability around it. But I do believe what we have set up in the combination of WarnerMedia with Discovery, the remain co AT&T and its focus and the respective capital structures and charters and missions for each of those companies is a very, very compelling, value creating equation and what I believe we’re seeing right now, as you alluded to, as we get closer to the close date, as the uncertainty comes away, as all the questions about whether or not this is going to happen or when it’s going to happen, I think we’re now seeing investors look at it and say it is compelling.
FABER: One of the key questions among some of your investors certainly is whether you’re going to do it as an exchange offer, or a spin essentially a split or a spin. I know you’re not ready to share that decision, but can you at least share some of the thinking behind either one of those because they both have their benefits and or potential drawbacks, whether you simply as essentially give a share, a percentage share of Discovery, Warner-Discovery to each of your shareholders or actually do an exchange offer whereby you really would end up retiring potentially a good amount of AT&T shares.
STANKEY: Yeah, we kept that option open for good reason because we wanted to assess what the state of the market was as we got closer to the close of the transaction. When we think about going through the dynamics of a split, it’s, it’s what you said earlier, which is we’d like to possibly over time reduce the AT&T share count and this may be one way to do that. However, it is a very, very large split. It’s unparalleled in terms of anything that’s been done ever in history. And you know, that certainly gives me some pause and we have a very large retail base in the AT&T stock right now as well and that retail base sometimes isn’t quite as deep in some of these issues as the institutional base is and so I’m very mindful of the fact that whatever we decide to do, it has to be something that can be clearly communicated so that there isn’t confusion in the marketplace and a lot of people carping. One of the things that’s guiding us as we started this, we wanted to do this for shareholder value. Everything we’re doing right now is about shareholder value. As you know, to execute a split, especially one of this size, it would require some value leakage to execute that and actually get the shares placed. I’m not sure I’m really a big fan of that value leakage dynamic right now and being second guessed on it. I’m also pretty interested in moving through this as quickly as we can. There’s some advantages to doing a spin in terms of how mechanically it can be done and how much quicker it can be done.
FABER: On the dividend question, let me understand something because you can set a dividend on a per share basis or on a total basis for what you expect in terms of what your payout is going to be and obviously if you did an exchange offer that would shrink the number of outstanding shares, thereby increasing it per share. Is that, do you have a dividend number for ’22 in mind, or is that also part of this exercise?
STANKEY: The day we announced the transaction, we did clearly in, you know, like the first page of the transaction say that we expected that the payout level was going to be between $8 billion and $9 billion. And we gave that range and the reason we needed the range is because we didn’t know what the market dynamics were going to be on the price of the stock of the time and what was occurring. I think what’s important to understand is anywhere in that range, even if it’s at the low end of that range of $8 billion, the yield on AT&T’s dividend in the restructuring of the business will be in the 95-percentile range of yields, of dividend paying stocks in corporate America. So, it’s a very, very attractive return at current levels and what’s going on.
FABER: Understood. You know, I’ve asked you this before, but I’ll ask it again. I mean, why pay dividend at all? If you’re going to fashion this as a growth company, a real growth company, why not pour a lot more money into potentially, you know, paving ways for future growth of great significance? Not that 4% isn’t something, but perhaps is not necessarily reflective of the kind of growth that those investors would expect.
STANKEY: David, you have asked me before and I think the answer to some extent that I’ve given is, you know, what you need to be able to do as a management team is to gain the confidence of the investor base that were allocating capital in the right way and in their best interest. And I think last time you and I spoke maybe several months back, I indicated that I was well aware that as a management team, we have to establish that kind of credibility and I think six quarters of performance and the way we’ve done it is started to establish a track record that when we say something, we get done what we say we’re going to do.
