AT&T Says Early Demand for DirecTV Now Is ‘Exceeding Expectations’

Plus, Verizon details its 5G deployment plans

Last week's launch of DirecTV Now was plagued with errors, but AT&T says it's thrilled with the early interest in its new streaming bundle offering.

"The early demand has been rather dramatic … we've been pleased with it," Randall Stephenson, AT&T's chairman, CEO and president, said this morning at the UBS Global Media and Communications Conference in New York. (Yesterday, execs from Netflix, CBS, 21st Century Fox and Discovery Communications spoke at the conference.)

Stephenson said that John Stankey, CEO of AT&T Entertainment Group, told him that AT&T met its goals for December subscribers last Wednesday, the first day DirecTV Now was available. Demand is "exceeding expectations," he added, especially in apartment buildings. He was also pleased with the interest in adding on HBO or Cinemax, for an additional $5 per month.

So how will AT&T make money on a service that is offering $35 a month for a bundle of 100-plus channels? The company is "perfectly content" with "lower, thinner margins," said Stephenson, adding, "early on, I do expect the margins to be fairly thin."

But as AT&T collects viewership data on DirecTV Now customers, as well as those DirecTV customers who can now stream programming on mobile devices (AT&T says half of all DirecTV customers will stream some of their content by year's end), "the advertising opportunity here we think is rather significant," said Stephenson. Next year, one of the company's top priorities is to "really begin to scale those advertising models" for DirecTV Now.

And the company hopes to pair products, like wireless and broadband or DirecTV and wireless. When that happens, "churn goes down precipitously," said Stephenson, referring to subscribers who don't renew. "We have high expectations for churn reduction in this environment."

Stephenson said that DirecTV Now was "a 5G service being launched on a 4G network," and hopes that new products like that will accelerate efforts to bring 5G.

As the regulatory process continues for AT&T's $85 billion merger with Time Warner, Stephenson said "we're hopeful that perhaps a more moderate approach to some of these regulations" will be in the works under President Trump's administration, later calling it "a more rational level of regulation."

He was hopeful about achieving "meaningful corporate tax reform" with Trump as president, noting that for the first time in many years, the company's 2017 scenario includes better than expected economic growth.

Stephenson had no updates about the Time Warner deal beyond his comments right after it was announced, explaining that "we do not compete. This is a classic vertical merger."

Verizon prepares for 5G

While Stephenson briefly mentioned 5G, the next-generation wireless network was also on the mind of Verizon Communications chairman and CEO Lowell McAdam, who also spoke this morning at the UBS conference. McAdam said Verizon is planning pre-commercial 5G trials in "relatively small towns" for the first quarter.

Verizon sees 5G as "wireless fiber," where the fiber connection ends 200-1000 feet from the home, and data is transmitted into the home via  "a wireless last leg." The trial will also include 1G wireless broadband and an over-the-top bundle, said McAdam.

"The early phase is not mobile-oriented," said McAdam, adding that he expects to have a better sense of the timeline for Verizon's 5G rollout by the middle of 2017.

McAdam said that there was "really not a lot to say" about the company's efforts to acquire Yahoo for $4.8 billion, a deal which was threatened by Yahoo's subsequent revelation that 500 million user accounts were hacked in 2014. "They've been doing all their work on the breach. We need to give them a lot of time to do that analysis before we move forward on that," he said.

And Verizon doesn't feel pressure to match AT&T's big merger with Time Warner. "I respect the strategy; it makes perfect sense for them," said McAdam, but his company's approach is "mobile, snackable, internet-based video" like its Go90 platform.

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