As an industry analyst I have closely followed AT&T, and its competitors for decades. Recently, I was interviewed by the media about my thoughts on how well new CEO John Stankey is doing with his task of rescuing AT&T and turning things around. I have been following them for decades. So, let me share with you some of what I think are the most important parts of this story whether you are an investor, worker or executive with the company.
Let’s pull the camera back and take a look at AT&T from a longer-term, historical perspective.
First, this is not the company we think of when we hear the name AT&T. You see, AT&T has been with America for well more than a century. But things changed in the mid 2000’s.
Longer-term historical perspective for AT&T
In the early 1980’s, it was broken up into one large and national long-distance provider called AT&T, and seven baby bells. The AT&T break-up was a result of an anti-trust case brought by MCI. This breakup created two separate industries, a local and a long-distance industry.
By the time the late 1990’s came, the Baby Bells had grown into giant companies offering local, long distance and wireless.
So, the Baby Bells were growing, but AT&T was not.
To achieve growth, AT&T, under CEO John Armstrong acquired TCI or Telecommunications Inc. This was the nation’s largest cable television company. That instantly changed AT&T into the nation’s largest cable TV company.
And for one brief and shining moment it looked like the sky was clearing for AT&T. However, that bubble quickly burst and deflated AT&T to a an even weaker and smaller version of itself.
Struggling for survival, AT&T sold off their cable television business to Comcast. They had no real consumer business anymore. So, AT&T was just a business services company. A shadow of its former self.
Next, in the mid 2000’s, SBC acquired AT&T. At the same time Verizon acquired MCI and that quickly ended the long-distance industry. It was just another service offered by larger companies.
So, unfortunately breaking them up in the early 1980’s set themselves up for long-term failure. And in fact, the entire stand-alone long-distance industry as well.
In fact, SBC, the smallest of the baby bells transformed itself overnight by acquiring AT&T, BellSouth and Cingular. That was under the leadership of CEO Ed Whitacre just before he retired, making them a powerhouse in wireless and telecom of that time.
SBC changed their name to AT&T and grew
SBC took the name AT&T and that is the company we know today. So, the AT&T of today is not the same company that was with us for more than a century.
The headquarters of the new AT&T started in San Antonio as SBC, then moved to Dallas. As an aside, Verizon bought the old AT&T headquarters building in Basking Ridge NJ.
After Ed Whitacre, the next CEO was Randall Stephenson. He successfully digested all these companies and with plenty of Texas get-up-and-go managed to turn AT&T into a leader in wireless and telecom.
In fact, for many years AT&T and Verizon shared the leadership of wireless and telecom. Next were Sprint and T-Mobile, who were both struggling at that point.
So, at that time AT&T was a solid, top wireless, telecom and Internet performer for the consumer and business community.
However, knowing the rapid wireless data growth would only last for so long, Stephenson prepared for the next generation of AT&T as any good CEO would. He chose TV. He started moving into the television industry.
They started to offer Uverse, then acquired DirecTV and then Time Warner, which they renamed WarnerMedia. This owned CNN, Warner Brothers Studio and so much more.
This was the decade long journey which failed and is being unwound now.
AT&T WarnerMedia was too highly leveraged and weak link
This looked very exciting. The problem was that AT&T was now highly leveraged. That was the weak link in their chain.
If everything continued without a hitch, AT&T could have been successful at transforming themselves into this multi-media company. The same way Comcast did when they acquired NBC Universal.
Comcast acquired NBC years before Covid-19, so they had the wherewithal to handle the pressure. The problem with AT&T was, one they had just acquired WarnerMedia and two, they were too highly leveraged.
Then they were hit by a punch in the gut called the Coronavirus.
CEO Randall Stephenson, who had successfully grown AT&T into an enormous player over the previous decade, was now under intense pressure.
Bottom line, he retired and was replaced by John Stankey as CEO about a year and a half ago.
AT&T CEO John Stankey key jobs: stop bleeding, re-start growth
This is the giant mess Stankey inherited. He had two key jobs. One was to stop the bleeding. Two was to start the growth once again. And to do both at the same time.
So far, he has been in control of AT&T for about a year and a half. This job is incredibly tough right now. There are no easy or quick solutions.
Unfortunately, there is still more pain to get through before they come out the other side.
Stankey decided to spin off DirecTV, Uverse and WarnerMedia to Discovery. This will eventually let AT&T breath once again.
When everything is done, AT&T could once again be one of the top three wireless, telecom and Internet providers in the country. Of course, today they are third behind Verizon and T-Mobile, but they have to start somewhere.
Where is AT&T today under CEO John Stankey?
Unwinding this ball of TV yarn will take a few years and they are still in the middle of that process.
At the same time, they are focused on building as the 5G revolution picks up steam.
What’s interesting, is that while companies like Qualcomm, Huawei, Ericsson, Nokia, Cisco and many others are showing strong growth and expansion with 5G, AT&T, Verizon and T-Mobile are not growing as rapidly.
So, I would say CEO John Stankey is doing the job so far, but it’s hard to see progress so far. We are still in the early stages of what will be a multi-year recovery and transformation process.
Where AT&T is on the growth curve today
I always talk about the growth curve. About how companies are either on the upside, the growing side, or they have crested, or even worse, they are on the downside.
AT&T has been on the upside for much of the last several decades. As they diversified into television during the last decade, they stretched themselves too thin. This was not healthy. This meant every day had to show strong growth.
With Covid-19, this sent AT&T’s plans into a tailspin. It will take them several years to recover.
AT&T needs to put its feet firmly on the growth side of the growth wave once again with 5G, wireless, telecom and Internet as quickly as possible.
Where AT&T CEO John Stankey needs to focus
That’s what John Stankey needs to focus on. He needs to be focused both on separating the company from the TV business and on growth.
To make matters worse, over the last year or so, AT&T has haphazardly cut costs by taking a chainsaw to their business rather than a surgeon’s scalpel.
In my opinion, this is a self-created problem. A company is a living thing. You just cannot cut off an arm or a leg to remove the wart, and expect it to grow back again. It just does not work that way.
So, AT&T put themselves deeper down the rabbit hole with these cuts. Something that is causing them more problems and something that will take them longer to recover from.
AT&T drastic cost cutting weakened them further
Because of these actions, it will take them longer to bounce back and that’s a shame.
So, I don’t expect any quick changes at AT&T. They are in the middle of the process which will take years. Hopefully, they are on the right path. Hopefully they will look much better and stronger over the next few years. Hopefully.
Don’t get me wrong. I like AT&T. I want them to be successful. We need three strong wireless carrier competitors. Especially as we move further into the world of 5G and prepare for 6G.
I would like nothing more than to write about their successes and their growth.
However, this is not the wireless industry we expected when we had four competitors and two of them wanted to merge a few short years ago. This is a completely different world.
Let’s hope AT&T can get back on the right rack sooner rather than later. Let’s hope they can pull the rabbit out of the hat for their own good, and the good of their shareholders, workers, executives and their customers. Stay tuned.
