The Poor Quality of Management at AT&T
- 82newsbulletin
- Sep 23, 2020
- 3 min read
Written by Eashan Trehan
The largest telecommunications company in the world, AT&T is an iconic American company that has been around for more than a century, however, in recent years, the company has been plagued by poor decision making by its management. The conglomerate recently announced its plans to sell off its advertising platform Xandr and subsidiary DirecTV, likely at significant discounts, amidst having to deal with high levels of debt on its shoulders.
AT&T has racked up more than US$150 Billion in debt and although that figure is lower than the company’s 2019 revenue of over US$180 Billion and appears comfortably serviceable given its low interest rate, what is still concerning is the sheer volume of the debt load. The management of the company has exuded confidence in the face of rising questions concerning these debts, but recently seems to have acknowledged the need to pare it down to more manageable levels.
A huge chunk of this burgeoning debt is attributable to the inorganic growth strategy that the American company’s management has been fervently pursuing through costly acquisitions such as its US$85 Billion purchase of WarnerMedia. The aforementioned subsidiary, DirecTV was acquired for US$48.5 Billion and has been mounting losses for the conglomerate, which is now expected to offload it at a sizable loss. Xandr, which was AT&T’s bet on using the data collected from its various businesses for offering advertisements, is now also on the verge of being divested from, highlighting another mistake in a slew of failures for the company’s key decision makers.
The company recently launched HBO Max, an online streaming service competing with the likes of Netflix, Hulu, Disney+ etc. in a bid to leverage its high profile acquisition of WarnerMedia. The launch of the service offered just another example of the management’s stark instability to execute, as its launch first got delayed by several months and then wasn’t available on Amazon’s Fire TV and Roku, which control 70% of the streaming platform market, thereby hurting distribution. HBO Max should however benefit from the strong volume of content that came as part of the deal for acquiring WarnerMedia.
Amidst all of these efforts to transform AT&T into a new age media and telecommunications giant, one should not forget about the company’s telecommunications business which contributes the bulk of its profits. Recent consolidation in the industry, thanks to the merger of Sprint with T-Mobile has left the American telecommunications with an oligopoly consisting of three major players including AT&T and Verizon. This could lead to higher revenues for AT&T from an increase in prices. The advent of hotly anticipated 5G technology could also provide a boost to AT&T, especially if the sales of mobile phones picks up, adding to its potential for increasing subscriber count.
Overall, the company’s future hinges heavily on the actions of its executives, which have thus far been binging on debt to integrate AT&T with businesses which have little to no synergy with its core telecommunications business. Even activist shareholder Elliott Management which last year took a stake in the conglomerate with a view to cajole it into opting for a more favourable strategy for shareholders has been unable to steer the ship right. Going forward, the management needs to shed AT&T’s non-core businesses and focus more on maintaining synergy across its various, largely unrelated businesses that require careful integration.
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