from the growth-for-growth’s-sake dept
This wasn’t how it was supposed to go for AT&T. In AT&T executives’ heads, the 2015, $67 billion acquisition of DirecTV and the 2018 $86 billion acquisition of Time Warner were supposed to be the cornerstones of the company’s efforts to dominate video and online video advertising. Instead, the megadeals made AT&T possibly one of the most heavily indebted companies in the world. To recoup that debt, AT&T has ramped up its efforts to nickel-and-dime users at every opportunity, from bogus new wireless fees to price hikes on both its streaming and traditional video services.
Not too surprisingly, these price hikes are now driving subscribers to the exits.
The company’s latest earnings report indicates that AT&T not only lost another 778,000 “traditional” video subscribers last quarter (satellite TV, IPTV), but it lost another 168,000 subscribers at its DirecTV Now streaming service — due to “higher prices and less promotional activity.” While the stupidity of these efforts (not to mention AT&T’s absurdly confusing TV branding) has been apparent to analysts and the press for a while, investors have also now started to criticize AT&T’s “growth for growth’s sake” mindset.
For example, “activist” (a generous term) investor Elliott Management recently conducted a detailed review of AT&T’s business management over the last decade and came away notably unimpressed. In a public letter to AT&T executives, the investor — whose funds own around $3.2 billion in AT&T stock — makes it pretty clear that AT&T’s obsession with merging is not doing it any favors:
“AT&T has been an outlier in terms of its M&A strategy: Most companies today no longer seek to assemble conglomerates. This approach is more characteristic of a prior era, calling to mind the Conglomerate Boom of the 1960s or the Mike Armstrong years at the “old” AT&T. It also represents a departure from the approach articulated in 2007 by the Company’s Chairman and CEO at his first analyst day after being named to that position: “When there’s a temptation to want to launch off into areas that may not be closely tied to our strengths or which are going to distract us from an operational focus, that won’t happen.”
We firmly believe that AT&T’s M&A strategy has not only contributed directly to its profound share price underperformance, but has also caused distractions that have contributed to the Company’s recent operational underperformance.”
Granted AT&T’s merger mania has had a number of additional downsides investors probably actually support, like the billions in regulatory favors and tax breaks the company has received in recent years, only to pocket that money before laying off employees and skimping on network investment. Amusingly, Eliot’s complaints excited the President, who was quick to use said complaints to bash his longstanding nemesis, CNN:
Great news that an activist investor is now involved with AT&T. As the owner of VERY LOW RATINGS @CNN, perhaps they will now put a stop to all of the Fake News emanating from its non-credible “anchors.” Also, I hear that, because of its bad ratings, it is losing a fortune…..
— Donald J. Trump (@realDonaldTrump) September 9, 2019
Granted somebody might want to inform Donald that despite a lot of whining about the news divisions of both AT&T/Time Warner and Comcast NBC Universal, his administration has doled out more regulatory favors and handouts to both companies than any administration in American history — with little to nothing to really show for it.