With its headquarters in Dallas, Texas, AT&T is a diversified, global leader in telecommunications, technology, media, and entertainment. Consisting of four businesses, their media business is a world leader in creating premium content, owning a massive list of entertainment, and operating one of the world’s largest film and TV studios.
AT&T is the largest telecommunications company worldwide and the second-largest mobile services provider. They are also the largest fixed telephone services provider in the United States.
In 2020, AT&T ranked 9th on the Fortune 500 rankings as one of the largest corporations in the United States, with $181 million in revenue.
AT&T provides nearly 3.5 million customers with highly secure, high-speed connectivity and intelligent solutions. AT&T International is the fastest growing wireless provider in Mexico, serving both businesses and consumers.
History of AT&T
AT&T was founded in 1875 by Alexander Graham Bell, Gardiner Greene Hubbard, Thomas Watson, and Thomas Sanders as Bell Telephone Company, and later became American Bell Telephone Company. The company was founded after Bell patented the telephone. The American Telephone and Telegraph Company (AT&T) was established in 1885 and, in 1899, acquired American Bell Telephone, becoming its new parent company.
Due to their monopoly in the United States (known as the Bell System), they were forced to separate their local subsidiaries. They grouped them into seven individual companies and started facing competition from overseas competitors.
One of the companies that got created was Southwestern Bell Corporation (SBC), which bought AT&T Corp. for $16 billion in 2005. They adopted the AT&T name and brand, as it was more widely known.
AT&T Purchases and Acquisitions
In late 2014, AT&T purchased both NII Holdings and lusacell, merging them to create AT&T Mexico. In 2015, they bought DirecTV for $48.5 billion, combining it with their existing brands to develop AT&T Entertainment.
In 2015, AT&T acquired Nextel Mexico from NII Holdings, which is now AT&T Mexico.
The Purchase of Time Warner
In 2016, AT&T announced they would be buying Time Warner for $108.7 billion to increase their holdings. The Department of Justice filed a lawsuit to prevent the merger with Time Warner in 2017, as they felt it would harm competition and increase bills for its customers.
In June 2018, The US District Court gave AT&T permission to proceed with its $85 billion deal for Time Warner. Two days after they got given the go-ahead, they closed the merger with Time Warner and gave them a new name, WarnerMedia.
The acquisition of WarnerMedia included the following key assets:
- Warner Bros. Pictures film and television studios
- 50% stake in The CW
- WarnerMedia Studios & Networks Group – includes CNN, Cartoon Network, TBS, etc
- US satellite/cable channels such as HBO
A few months after the acquisition, AT&T reorganized into four companies. The structure allows the individual operation of each business independently. The four companies include the following:
- AT&T Communications: Provides broadband, video, mobile, and other communication services to consumers based in the US and nearly 3.5 million companies. These companies are various small businesses to almost all the Fortune 1000 and get provided with smart, secure solutions. These services had revenues that accounted for more than $150 million in 2017.
- AT&T’s Media Businesses: Consists of Warner Bros, Turner, and HBO. These businesses had combined revenue of more than $31 billion in 2017.
- AT&T International (AT&T Latin America): Provides mobile services under the Vrio brand to businesses and consumers in Mexico and pay-TV service across South America and the Caribbean. In 2017, revenues were more than $8 billion.
- AT&T’s Advertising and Analytics (Xandr): Provides advanced advertising solutions to marketers using customer insights attained from AT&T’s mobile, TV, and broadband services.
In 2020, then CEO Randall L. Stephenson announced AT&T’s COO John Stankey would replace him. AT&T also made it known that their acquisitions of Time Warner and DirecTV had resulted in a $200 billion debt burden for the company.
To cut costs, they considered selling Warner Bros. Interactive Entertainment, DirecTV, and others. The sale of Warner Bros. Interactive Entertainment got canceled after growth experienced during the COVID-19 pandemic. There was also a positive reception to upcoming movies relating to Lego Star Wars, DC Comics, and Harry Potter. As of September 2020, the other subsidiaries were still receiving bids.
In May 2021, it got announced that AT&T would merge WarnerMedia with Discovery Inc into a new standalone company for $43 billion. The transaction is still subject to regulatory approval. Discovery + and HBO Max streaming services will get combined, and CNN will get included in the transaction.
The spin-off will help AT&T pay down its massive debt and will, according to AT&T and Discovery Inc‘s announcement, “receive $43 billion (subject to adjustment) in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt.” Discovery CEO David Zaslav said that the new company would start with a debt of $55 billion. A new name for the company will get released in the coming weeks.
AT&T’s shareholders will get 71% of the shares, with Discovery’s shareholders getting 29%. After the announcement, AT&T’s shares saw a rise of about 2%, with Discovery’s shares dropping about 2%.
The all-stock deal will be a tax-free transaction and will get structured as a Reverse Morris Trust. The process will start with MarnerMedia spinning off from AT&T and then get combined with Discovery.
Both AT&T and Discovery have ambitious subscriber targets and streaming plans, meaning they will need to invest billions of dollars in the production of content, licensing, and marketing in the years to come. Both companies forecast an annual cost savings of $3 billion as a result of the merger.
Controversies Surrounding AT&T
Hemisphere Database
Since 1987, AT&T keeps a database of call detail records of every telephone call passed through its network. AT&T employees work at High-Intensity Drug Traffic Area offices to turn over data quickly to law enforcement agencies. Via an administrative subpoena, records get requested, which gets done without any grand jury or court involvement. This falls under the Hemisphere Project and gets paid for by the White House.
Censorship
AT&T released its new legal policies in September 2007. It stated that they could terminate or suspend your service, IP address, member ID, electronic mail address, or domain name without notice if they believe that any conduct performed by you causes damage to AT&Ts name or reputation. These actions will be a violation of their terms or conditions. The public scrutiny and outcry from their uses were enough to cause them to alter their terms and conditions just a month later. The public claimed that they have no right to silence subscriber’s transmissions regardless of their viewpoint.
Copyright Enforcement
Reports emerged in 2008 that AT&T had plans to start filtering all internet traffic that went through its network for intellectual property violations. If this got implemented, the media predicted many subscribers would cancel their AT&T subscriptions.
Advocates for internet freedom have used these developments to justify network neutrality that’s government-mandated.
Under the current copyright enforcement program, contact owners can notify AT&T if they suspect any unlawful sharing of their material. Customers that have gotten accused of copyright infringement have had their broadband subscriptions canceled by AT&T.
Information Security
In June 2010, Goatse Security, a hacker group, discovered a vulnerability within AT&T. The hackers were able to get email addresses that belonged to customers of AT&T’s 3G service, and specifically for iPad 3G owners.
The email addresses got accessed without a protective password. Via a third party, Goatse Security notified AT&T of the security flaw. The hacker group then disclosed about 114,000 of the email addresses to a media publication, who then published an article about the flaw.
AT&T got fined $25 million in 2015 over the data security breaches, making this the largest fine ever issued by the Federal Communications Commission (FCC) for breaking data privacy laws.
Racism
Aaron Slator, the company’s President of Content and Advertising Sales, got fired for sending racist text messages in 2015. The African American employee who filed the claim, Knoyme King, also hit Slator with a $100 million discrimination lawsuit. Protestors voiced their opinions at the Dallas AT&T headquarters and the home of CEO Randall Stephenson to protest their policies. The protestors demanded that AT&T use black-owned media companies to curb the systemic racism in the company.
In 2017, Slater went to the Los Angeles Superior Court to sue AT&T for wrongful termination and defamation. Slater stated that AT&T had known about the text messages since late 2013 and assured him that he wouldn’t get fired for it. He believed that AT&T used him as the scapegoat by company executives as they were amid a $48.5 billion acquisition with DirectTV. AT&T never wavered on their decision to fire Slater and stood by their decision.
Overcharging on Government Contracts
In 2020, more than $48 million was given to government agencies from lawsuits that AT&T settled out of court. Although AT&T denied the claims, they still got sued for not providing the lowest cost available as stated in their contract.
AT&T CEO John Stankey
In the second quarter of 2020, AT&T announced that CEO Randall Stephenson would be retiring, with COO John Stankey taking over his position. Following the announcement, there were no significant changes to AT&T’s shares.
Stankey joined AT&T in 1985 and has served the company in leadership roles spanning 35 years in every area of AT&T’s business. He is also the former CEO of WarnerMedia, and in 2015 and 2018, led AT&T’s acquisition of Time Warner and DirecTV.
AT&T Inc (NYSE: T) Stock News
As of May 20, 2001, AT&T Inc’s stock is trading at $29.55, with an increase of 0.100% YTD.
AT&T stock has always been an attractive choice for investors due to dividends paid out quarterly, but with the recent spin-off between WarnerMedia and Discovery, investors have their concerns. This is due to AT&T planning to reduce its dividend to “account for the distribution of WarnerMedia to AT&T shareholders.” After the deal closes, AT&T will spend about $8 billion of its free cash flow on dividends, compared to last year’s nearly $15 billion.
Simply put, AT&T will have its dividend nearly halved and will end its 36-year streak of annual dividend increases. Because of this, AT&T will no longer get classified as a Dividend Aristocrat of the S&P 500. A Dividend Aristocrat refers to a company in the S&P 500 that has paid and increased its base dividend annually for a minimum of 25 years consecutively.
Currently, AT&T pays a forward dividend yield of 6.5%, so as an investor in mid-2022, you can expect a lower yield of 3% to 4% after the deal closes. The new spin-off might not even pay dividends, as they will probably reinvest most of their cash into new content for Discovery and WarnerMedia.
With the cut in dividends, investors might consider selling their stock.
AT&T’s Financials 2020 – 2021
In fiscal 2020, AT&T’s adjusted earnings and revenue declined 11% and 5%, respectively. Its wireless business stabilized in the year’s second half, and it continued to get streaming subscribers. However, 2020’s free cash flow saw a drop of 5% to $27.5 billion.
For the first quarter of 2021, AT&T’s adjusted earnings and revenue rose 2% and 3%, respectively. As they gained 595,000 wireless subscribers, its mobility revenue increased by 9%. During this period, there had been an increase of 10% of WarnerMedia’s revenue due to HBO and HBO Max gaining new subscribers.
AT&T expects a 1% increase in their revenue in the coming year and their adjusted earnings to come in flat. Their FCF should drop another 5% to $26 billion. AT&T doesn’t expect the WarnerMedia spin-off to conclude until mid-2022, so these estimates should remain the same.
AT&T’s Expectations for the Future
Once the spin-off gets finalized, AT&T expects to free up more cash for “incremental investments in 5G and fiber broadband.” AT&T expects to have its 5G network expanded across the United States to cover 200 million people by the end of 2023. They also intend to reach 30 million fiber customers by 2025. AT&T’s 5G ambitions are lackluster, as T-Mobile’s 5G network is across the United States, reaching 295 million customers.
AT&T will consider resuming its buybacks by the end of 2023, which got suspended since the beginning of last year’s pandemic.
Based on an annual free cash flow of about $20 billion, they plan to keep a yearly payout ratio of 40% to 43% for its dividends. This is still lower than the last decade’s average cash dividend payout ratio.