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AT&T takes $15.5B pretax write-down for its declining video business

AT&T Inc. took a major write-down on its declining premium video business even as defections slowed during the fourth quarter of 2020.

The telco took a $15.5 billion write-down amid reports it is in advanced talks to sell a stake in its DIRECTV satellite business to private equity firm TPG Capital LP.

The pretax, noncash impairment reassessed the book values of its video assets, including goodwill and other long-lived assets and was reflective of the company's decision to operate its broadband and legacy voice operations separately from its video business unit.

AT&T CEO John Stankey on the company's Jan. 27 earnings call declined to comment specifically on any potential M&A. However, he did say the company has been debating on how to set up its operations for some time.

"We all know about the declines in the pay TV market, and we're also seeing it disconnected a little bit from broadband. It's a fairly mature offering," Stankey said. Getting the management team focused on what to do in the latter stages of the product's life cycle and effectively manage it is "a wise thing to do for that product on a stand-alone basis," he added.

During the fourth quarter, AT&T lost a net 617,000 customers across its bundled premium video services, comprising DIRECTV and U-verse, its telco TV offering. That was a marked improvement from the 948,000 customers lost in the fourth quarter of 2019. However, AT&T closed 2020 with 16.5 million of these subscribers, down 15.3% from 19.5 million at the end of 2019.

Meanwhile, in the virtual multichannel business, AT&T recently announced that it was no longer accepting new customers for its AT&T TV Now virtual multichannel package as it tries to migrate customers to its AT&T TV offering. AT&T TV Now lost 27,000 subscribers in the quarter, compared with 219,000 in the fourth quarter of 2019. There were 656,000 AT&T TV customers at the end of 2020, versus 926,000 at the conclusion of 2019.

Video segment revenues declined 11.2% to $7.17 billion over the three months ended Dec. 31, 2020, from $8.08 billion in the prior-year period. Total operating expenses decreased 12% to $7.07 billion, as segment operating profits totaled $98 million, up from $39 million.

For the full year, the video segment posted a 10.9% drop to $28.61 billion in revenues from $32.12 billion. Operating costs were down 10.6% to $26.88 billion, with profits receding 16.2% to $1.73 billion from $2.06 billion.

AT&T's total operating revenues for the fourth quarter declined 2.4% to $45.69 billion from $46.82 billion in the prior-year period. The company reported a net loss attributable to common stock of $13.94 billion, or $1.95 per share, in the fourth quarter of 2020, compared to net income attributable to common stock of $2.39 billion, or 33 cents per share, in the prior-year period.

The S&P Capital IQ GAAP EPS consensus estimate for the quarter was 46 cents.

For the 12 months ended Dec. 31, 2020, total revenues decreased 5.2% to $171.8 billion from $181.2 billion. The net loss attributable to common stock was $5.37 billion, or 75 cents per share, compared with net income attributable to common stock of $13.90 billion in the prior year.

The S&P Capital IQ GAAP EPS consensus estimate for 2020 was $1.71.