When asked on his CNBC show Mad Money, Jim Cramer said AT&T is not a buy. He said “right now I think they are doing terribly. It’s just not a great company”. While in my opinion that may be a bit over-the-top, the hard truth is the company has been on the wrong course for many years. Even though they are now trying to right the ship, is just has not happened, yet.
So, what can we expect going forward with Ma Bell? Let’s dig in and see where AT&T is today. Look at their history, their current struggle and when we can expect their eventual recovery and how strong it will be.
Industry analyst following AT&T for decades in telecom and wireless
I have been following AT&T as a wireless and telecom analyst for more decades than I can count. So, I am very familiar with their history, what they’ve done right and wrong over the years and what we can look forward to going forward.
Over the last decade, AT&T has been off course in search of growth to keep shareholders satisfied. Today, they are still struggling to recover from and reverse the wrong path they have been on.
However, if we look at them from a longer-term perspective, I believe they will eventually recover and grow. The big question is when and how strong will it be?
Who is AT&T?
Let’s start with this simple question. Who is AT&T?
They have been changing so much over recent years, so that question is valid.
Who were they, who are they today and who will they be going forward? You may be surprised by some of the changes they have gone through over the decades. You may also be surprised at their current direction.
The company has a historic name in the world-wide telecommunications industry. Decades ago, AT&T was one of the largest, strongest and most successful brand names in the United States and in fact, the world.
Then things started to unravel. They were broken up in the divestiture decades ago. Then in the late 1990’s things started unraveling even further with the company because they were in the entire United States telecom industry.
If you recall, for as far back as we can remember, AT&T was Ma Bell. They were the nation’s largest local and long-distance telephone company.
Then, in the early 1980’s MCI started selling long distance. AT&T tried to strong arm this small competitor and as a result, the US government broke them up. That was a big blow to Ma Bell.
Suddenly there were seven baby bells which sold local phone service and AT&T, which sold long-distance.
Those were chaotic times, but in comparison to today, they were the simpler days of the industry.
MCI, Sprint and other long-distance companies competed against AT&T and over decades weakened them further.
Next, in the 1990’s, the Baby Bells were allowed to sell long distance and that was another blow to AT&T.
Transformation of US wireless and telecom industry over decades
This step was very serious for AT&T. Losing long-distance telephone customers meant they were in trouble.
Trying to expand into other industries they acquired TCI or Telecommunications Inc. And for a brief and shining moment, that made AT&T the largest, national cable television company in the country under then CEO Mike Armstrong.
However, at the same time the baby bells started offering a cable TV kind of service as well. They were also offering early generation wireless services in their regions.
After years of chaos and what seemed to be unbridled growth, suddenly in the late 1990’s and early 2000’s the entire telecommunications industry both collapsed, expanded and painfully transformed.
What resulted was a collapse of the stand-alone long-distance industry. AT&T, MCI and Sprint were in trouble. They were suddenly struggling and becoming irrelevant as the industry change marched on ahead of them, leaving them behind.
AT&T sold their cable television business to Comcast, transforming this small cable TV company from a tiny competitor to the largest in the industry.
Next, Comcast acquired NBC Universal, and they remain a new kind of leader in the industry.
By this point, AT&T was battle weary and defeated.
The moment AT&T changed and was re-born
It had become just a business service provider and was ultimately acquired by SBC, the smallest baby bell in the mid 2000’s.
At the same time Verizon acquired MCI.
The Baby Bells had won this multi-decade battle.
SBC also acquired BellSouth, another baby bell and Cingular, then perhaps the nation’s largest wireless phone company.
So, SBC acquired several industry players and changed their name to AT&T.
That was the moment AT&T changed forever. The new AT&T was born.
AT&T CEO’s Ed Whitacre, Randall Stephenson, John Stankey
Going forward, the company was a supercharged SBC, building on the AT&T name and brand.
Then CEO Ed Whitacre, who pulled off this great transformation of SBC, retired. Randall Stevenson took over and he ran the company well for quite a long time.
Over the last decade however, his dreams for the company were just too much large to pull off. His work started slipping through his fingers.
Stevenson had a dream. He tried to expand the company into an unrivaled giant in the wireless, internet, pay TV, news and entertainment industry.
Coming up with a way to describe this huge new company was difficult for them. They struggled with different phrases, but nothing worked.
They acquired DirecTV, then Time Warner which they renamed WarnerMedia. This was a mix of Warner Brothers Studios, CNN and more.
If this worked, AT&T would have been the big kid on the block. They would have looked similar to what Comcast has become.
It was a huge dream and an even bigger undertaking.
Unfortunately, over the last few years it all started to unravel. Part of this was due to the Covid-19 shutdown. Part was because the cultures of the different companies in different sectors didn’t fit well. There were many problems.
AT&T was highly leveraged with WarnerMedia and DirecTV
The big problem was AT&T was too highly leveraged and with income being reduced because of the pandemic, they had to rob Peter to pay Paul.
They made big and dramatic cuts rather than strategic ones.
Randall Stephenson ultimately stepped down and was replaced by John Stankey who inherited this mess. His job it is to save AT&T and start it back on a growth track going forward.
AT&T spent quite a few years diving deep into this hole, so it will take time to dig themselves out.
5G wireless, telecom, internet still on strong growth wave
However, once the WarnerMedia assets are finally spun off, AT&T will once again focus on their core, which is wireless, telecom, Internet and other similar services for business customers and consumers.
The good news is 5G is an enormous growth opportunity for the company and the entire industry. And AT&T is a player in this new world.
The bad news is they took their eye off the wireless ball over the last many years and that cost them. They have quite of bit to make up for just to get back to even.
You see, as AT&T was so distracted, T-Mobile recovered from their mistakes, and took over second place in the wireless race.
Today, leaders in wireless are Verizon Wireless, T-Mobile and AT&T in that order.
Currently, under Stankey, AT&T is struggling to get back into growth mode. That’s why Jim Cramer of CNBC says they are not a buy and are doing terribly.
It’s not just AT&T who is struggling with this challenge. Every competitor is as well. It’s just that AT&T was further down the rabbit hole and will take them longer to recover.
Can CEO John Stankey put AT&T on growth track once again?
The good news is wireless, telecom and Internet are still services on the growing side of the growth wave. The industry is changing with 5G and other new technologies.
And in fact, with self-driving cars, automated driving, telemedicine and healthcare and so much more, the future looks very bright for the telecom and wireless industry.
And that’s the industry that AT&T finds itself in.
That’s their core business. That means the future of AT&T and every competitor can be as bright as they make it.
That being said, it’s all up to CEO John Stankey to stop the losses and get restart their growth engine. Can he pull the rabbit out of the hat? And if so, how quickly and how strong?
These are the big questions.
Their new strategy for moving forward makes sense. It focuses on who AT&T is, a wireless, telecom and Internet company.
Now they must deliver. Now we wait and watch. So, let’s hope they can once again become a strong and growing competitor in the space.
