AT&T’s definitive agreement to combine its WarnerMedia assets with Discovery’s entertainment operations is both timely and necessary. AT&T needs to unravel its misbegotten ambitions to remake itself into an entertainment company and refocus on its core strength as a Tier 1 telecommunications company.

AT&T paid $85 billion for Time Warner a mere three years ago and is only getting about half that amount – $43 billion, subject to adjustment – for the assets it is contributing to the new company being formed with Discovery in a deal slated to close during mid-2022.

Nonetheless, AT&T is wise to forget the sunk costs, massive debt and management distractions that marked its brief Hollywood foray and focus on building up its 5G and fiber broadband services so it can retain its competitive edge in telecom.

The win-win horizontal merger of Discovery and WarnerMedia content assets will create an entertainment juggernaut with considerable scale that is better positioned to take on the likes of Netflix and Disney. However, it would have made more sense for Time Warner and Discovery to go down this path together several years ago before AT&T acquired Time Warner and transformed it into its WarnerMedia unit. Furthermore, the newly merged entertainment company will be saddled with $55 billion in debt from the outset.

Telcos + entertainment = oil + water

AT&T is not the only U.S. telco to stumble after getting caught up in the content-bundling frenzy that marked the waning years of the last decade. Verizon’s recent deal to sell Verizon Media – created from its acquisitions of AOL and Yahoo – to Apollo Global Management and T-Mobile’s shutting down of TVision – built upon the assets of its Layer3 TV acquisition – also represent failed gambles made in the name of service diversification and a desire to expand outside the core, but stodgy, telco sector.

All three telcos have figured out that focusing on their core competencies will enable them to grow and prosper while still leaving room to partner with pure-play content companies.

It is unclear how services such as HBO Max and Discovery+ ultimately will or will not be combined in the direct-to-consumer streaming world under the new WarnerMedia and Discovery business combination. But it’s a fair guess to say that AT&T rival Verizon is already rethinking its decision to bundle Discovery+ for free with certain of its wireless service plans given that AT&T will have a stake in the combined entertainment company controlling Discovery+.