AT&T to ‘go hard’ on zero rating, CEO Stephenson says

DirecTV Now devices (DirecTV Now)

With a new operator-friendly FCC chairman in place, AT&T CEO Randall Stephenson said to expect the operator to “go hard” with its controversial “zero rating” strategy for its virtual MVPD service, DirecTV Now. 

“Our customers are loving this value proposition,” Stephenson said during AT&T’s fourth quarter earnings call Wednesday. “We have more than 200,000 DirecTV Now customers on it, the service is not counting against their data cap, and that’s a big deal.”

AT&T teased its earnings call by revealing last week that more than 200,000 customers have signed up for its virtual pay-TV service since it launched Nov. 30. Those customers can stream DirecTV Now video on AT&T’s mobile network without it counting against their usage caps. 

“We were confident that zero rating was fine before new FCC Chairman Ajit Pai took over,” Stephenson said. In previous months, while the agency was still chaired by Tom Wheeler, the FCC sent a number of letters to AT&T challenging the zero rating strategy. Those letters, Stephenson said, had no “legal basis.”

Subscribers

In addition to adding over 200,000 subscribers to DirecTV Now in its first month of operation, AT&T said it added 235,000 customers to its traditional DirecTV satellite platform in the fourth quarter. 

Notably, the company reported fourth-quarter losses for its legacy U-verse platform of 262,000 video customers. AT&T has been strategically moving customers from U-verse to DirecTV. It ended 2016 with 21.01 million DirecTV customers and just 4.25 million U-verse video subscribers. 

AT&T CFO John Stephens said promotions and pricing helped drive the quick DirecTV Now subscriber growth, and it’s too early to get too excited. Addressing the technical issues experienced early on by DirecTV Now, Stephens described them as “expected challenges.”

Corporate tax reform 

All eyes were on Stephenson two weeks ago when he met with Donald Trump, the day after the then president-elect eviscerated news outlet CNN, which is owned by AT&T acquisition target Time Warner Inc, in a press conference.

Stephenson said his discussion with Trump didn’t center around AT&T’s proposed $85.4 billion purchase of Time Warner Inc., but rather corporate tax reform.

“I got to tell you, I was impressed,” Stephenson said. “It was obvious I was meeting with a CEO. He has a very clear agenda—tax reform and regulatory reform. I can tell you that he’s focused on these things. And I left with a degree of optimism that this could be pulled off this year.”

Describing himself as a “supply-side guy,” Stephenson added that “If you saw tax rates move to 20-25%, we know what we would do. We would step up our investment rate.”

In regards to deregulation, he added, “Nobody thinks that regulations should go away. We all believe the customer needs protection. But the problem is that we’ve had regulation that’s unpredictable, and it’s interfering with how we’re designing products, how we enter markets.”

Financials 

Overall, AT&T saw revenue decline slightly year over year from $42.1 billion in the fourth quarter of 2015 to $41.8 billion in the fourth quarter of 2016.

Stephenson conceded that the company has endured several years of “heavy investment,” but he tried to outline the payoff. 

“We’re getting ready for a world where mobile technology and video entertainment would intersect,” he said. 

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