AT&T is now on the receiving end of a Class Action filed on the basis the company misled investors over the growth of DIRECTV NOW in the build-up to the Time Warner acquisition.
The lawsuit was filed on April 1 in the United States District Court Southern District of New York and essentially implies AT&T deliberately misled investors (as well as the market as a whole) to help close out the Time Warner deal.
AT&T first announced it was acquiring Time Warner in 2016 although it wasn't complete until 2018 due to the the amount of oversight the deal went through. As part of that process the company issued a Registration Statement to the SEC which the Class Action alleges is where the misleading began.
The primary accusation leveled at AT&T is the company used predicted strong DIRECTV NOW subscribers gains as reassurance the Time Warner purchase was the right move – it was needed to help expand an already growing side of the business.
The Class Action states AT&T also explained that losses (that were at the time) incurred through the company's traditional TV products (DIRECTV) would be further offset by those predicted DIRECTV NOW gains.
AT&T did apparently caveat those predictions by explaining the risks that might develop and could in turn alter those predictions and even drastically, but the lawsuit directly suggests the potential risks were not theoretical at all. Instead they were already in motion, and AT&T was aware of this – hence the misleading.
As per the filing, AT&T warned of the risks "while failing to disclose that these very "risks" had already materialized at the time of the Acquisition."
The explanation for this is that AT&T had "increased prices, while at the same time discontinuing promotional discounts for its DIRECTV Now service." A move which the papers suggest led to many subscribers leaving.
To the point where "by the time of the acquisition, AT&T's reported "Net Additions" growth trend was already reversing into a severe "Net Loss," according to the lawsuit.
The implication of this is AT&T built up a large subscriber user base through heavily discounted prices at the time when it was pushing through the acquisition. Whether knowingly or not, the suggestion seems to be AT&T should have at least been aware that once it increased prices and did away with the promotional deals, the level of growth was unlikely to continue.
Especially considering the decline was already said to be in effect.
Again, whether intentional or not, the Class Action argues it was AT&T's responsibility to not only better account for this situation, but also to disclose the likelihood of the situation unfolding in this way in the Registration Statement.
According to the filing, these failures, along with the situation in general has "materially and adversely" affected "AT&T's future results and prospects."
It's worth noting that as this is suggesting the situation unfolded by the time the Time Warner purchase was complete, it is not taking into account the recent changes made to DIRECTV NOW which further seem to echo the sentiments made.
After AT&T raised the price of DIRECTV NOW in 2018, in early 2019 AT&T once again raised the price.
In comparison to the first price rise, AT&T did not simply up the price the second-time around. Instead, it completely re-imagined the plans it offers by decreasing the number of main plan options available, along with an increased baseline cost.
This was in addition to also significantly cutting down on the number of channels included with the new plans compared to the older, cheaper plans.
A move which so far has been heavily criticized by many, including currently subscribers who have since voiced their intention to switch to a new provider.
Whether the latest price increase does further add to a drop in subscribers won't be fully known until firm quarterly figures for Q2 come in.