AT&T: back to basics after four decades of botched dealmaking


Jeff McElfresh was born to mother and father who spent their total careers at AT&T. He has himself labored 25 years on the US telecoms group that traces its roots back to the phone pioneer Alexander Graham Bell.

Now chief govt of the corporate’s telecoms enterprise, McElfresh is a self-confessed “bellhead” — a time period used to describe AT&T employees that dates back to a time when the monopoly US telecoms enterprise was the most important and most revolutionary expertise group on the planet.

“Whether it is laying out a POTS [plain old-fashioned telephone service] line from station wire, or going into a hurricane to reconnect a generator or antenna, or parachuting in during a fire in parts of the states where we have to deploy a cell site on wheels for firefighters — that’s a bellhead,” he says.

Alongside John Stankey, chief govt since 2020 and one other proud bellhead, McElfresh is in cost of navigating one more new chapter for AT&T after it introduced in May it deliberate to flip its back on Hollywood and split off its media assets.

The sudden, pricey and humiliating U-turn is the fourth time that AT&T has “reinvented” itself in as many decades and returns the corporate’s technique to its roots — plain old style telecoms providers. But the dilemma it now faces is that it has fallen far behind its telecoms rivals in 5G in the course of the time that it was dabbling in media.

AT&T spent about $170bn since 2015, together with taking up new debt, to remodel itself right into a media conglomerate through the acquisitions of US satellite tv for pc broadcaster DirecTV and Hollywood studio proprietor Time Warner. So it’s nonetheless making an attempt to justify its rapid reversal, having destroyed tens of billions of {dollars}’ value of shareholder worth.

The resolution to unwind the $100bn acquisition of Time Warner — the corporate behind WarnerBros, HBO and CNN — took many individuals unexpectedly, together with some inside AT&T. “It was an utter shock for pretty much everyone at the company, everyone in the top ranks of the company,” says a senior AT&T govt who spoke on situation of anonymity.

Stankey, who was promoted to chief govt final 12 months, now finds himself below intense stress. He was deeply concerned within the media investments and shared a $9m bonus with different executives after the completion of the 2018 deal to purchase Time Warner. But he has additionally received some grudging reward for the velocity at which he determined to shift away from Hollywood and get back to basics as soon as it was clear the technique was not working.

An govt at a rival telecoms firm says that the longer he stored AT&T in each the media and telecoms worlds, the hazard of creating two weak companies quite than one sturdy entity was rising.

“In many ways, Stankey was courageous to acknowledge that there were clear problems between the old and new AT&T,” says one veteran on the firm. “Everybody who came from Time Warner hated being part of AT&T, it’s just a fact . . . we were seen as the guys wearing suits and they, the Warner guys, were the cool ones.”

AT&T has invested closely in increasing its fibre broadband community throughout its six-year media foray however analysts say it additionally wanted to put extra money into the community particularly as its rivals Verizon and T-Mobile have been racing forward within the period of 5G.

McElfresh says it’s simple in hindsight. “If you had a flux capacitor and a DeLorean and you could go back to the future, would you tell yourself [to do] something different? Yeah,” he asks himself with a reference to the movie Back to the Future and the fictional expertise that allowed time journey. “There’s a reason why the windshield on a car is so big compared to a rear view mirror.”

John Stankey, AT&T chief executive since last year and proud bellhead
John Stankey, AT&T chief govt since final 12 months and a proud ‘bellhead’ © Mike Coppola/Getty/WarnerMedia

‘Trail of carnage’

The route that has taken AT&T back to its core telecoms enterprise has been a protracted and tortuous one. In its monopoly days, “Ma Bell” as AT&T was recognized colloquially, created some of probably the most important applied sciences that underpinned the evolution of communications together with radar, the transistor, digital listening to aids and the phone itself.

It was arguably probably the most influential telecoms firm ever and, in accordance to Brian Cheffins, an writer of a ebook on the historical past of public firms, the “bluest of blue-chips”.

The enterprise was damaged up in 1984 when seven so-called “Baby Bells”, or regional phone firms, have been cut up off from AT&T, ushering in a brand new age of competitors. After struggling to adapt AT&T’s subsequent shopping for spree set a precedent for the corporate’s technique over the subsequent four decades, characterised by one veteran banker as a “trail of carnage”.

Bob Allen was the chief govt who launched into a collection of offers culminating within the takeover of pc maker NCR Corp for $7.4bn in 1991, the most important deal within the historical past of computing on the time. The acquisition resulted in losses of round $6bn, together with write-offs, and AT&T was pressured to reinvent itself 5 years later when it cut up into three new firms.

Michael Armstrong, an aerospace specialist who was instrumental in launching DirecTV, was drafted in as chief govt of the slimmed down telecoms firm in 1997.

AT&T simplifies its core mix, New ebitda* mix and pre-asset sales/spin-off ebitda mix

His imaginative and prescient was to remodel the long-distance telecoms firm right into a cable big. AT&T spent greater than $100bn on firms, together with TCI, managed by billionaire John Malone, to convey telephony, pay TV and web entry below one roof. It was the precise technique however spiralling prices meant it backfired. In 2004 Armstrong spun out the cable property into a brand new three way partnership firm with Comcast, which went on to turn out to be the world’s largest broadband supplier.

By 2005, a denuded AT&T was purchased for $16bn by SBC Communications, one of the Baby Bells. The baby of the 1980s telecoms cut up took its former father or mother’s identify and inherited some of its dealmaking habits below the stewardship of Randall Stephenson, the Oklahoman son of a cattle farmer.

Dubbed the “deal junkie” by bankers, Stephenson’s largest gamble turned out to be a plan to purchase the then struggling US wi-fi community T-Mobile in 2011 for $39bn. Regulators blocked the move on competitors grounds and AT&T was pressured to hand over a $4bn break-fee plus spectrum — the precious airwaves that carry cell phone alerts. Those airwaves helped remodel T-Mobile over the subsequent decade right into a wi-fi development engine that drove down costs and took big quantities of market share off its bigger rivals.

American Telephone & Telegraph Co’s 98th and last annual meeting. It was founded in 1885 to build a network in New York
American Telephone & Telegraph Co’s 98th and final annual assembly in 1984. It was based in 1885 to construct a community in New York © Bettmann Archive/Getty

A rebuffed Stephenson solid a watch towards Europe the place Vodafone, Telefónica and the UK community O2 have been thought of targets. But as an alternative he opted to purchase DirecTV for $67bn in 2015, together with debt. AT&T made clear its ambitions with the next Time Warner acquisition for $100bn, a deal that closed in 2018 after a two-year battle with the Department of Justice to get the acquisition cleared. That took AT&T into direct competitors with world content material gamers Netflix, Amazon Prime and Disney on high of its conventional native telecoms foes.

When he was named chief govt, Stankey, who labored alongside Stephenson in the course of the acquisition spree, had to take care of internet debt that had soared to $180bn on the back of the offers. It then spent one other $23bn on spectrum in February. He began to discover choices for the media enterprise that finally led it to one other reinvention: the spinning off of DirecTV and merger of Time Warner’s assets with Discovery. The latter deal, struck in May, will cut up WarnerMedia into a brand new media firm run by Discovery’s administration and majority owned by AT&T’s shareholders.

One banker says that AT&T’s collection of botched offers have primarily benefited those who have picked up the items: Nokia in telecoms gear, Comcast in cable, T-Mobile in wi-fi and now, doubtlessly, the Malone-backed Discovery in media. “They need to stop building empires [for other people],” he says.

Jeff McElfresh: ‘If you had a flux capacitor and a DeLorean and you could go back to the future, would you tell yourself [to do] something different? Yeah’
AT&T Communications CEO Jeff McElfresh: ‘If you had a flux capacitor and a DeLorean and you could go back to the future, would you tell yourself [to do] something different? Yeah’ © AT&T

‘Content arms race’

AT&T’s try to crack the media market is simply the latest example of a telecoms firm making an attempt to use its big money reserves to increase into content material, sports activities broadcasting or promoting. Few have succeeded and most, like Verizon and Vodafone, have struck offers with media firms like Disney or Spotify to bundle the content material into their broadband and 5G packages quite than taking management of producing the content material.

Taking on Netflix and Disney requires an “all in” mentality due to the quantity of cash that wants to be spent, says Jimmy Maymann, a former AOL and Huffington Post govt who sits on the board of Swedish telecoms and media firm Telia. “If you are not willing to play in the content arms race then you can’t win,” he says, one thing AT&T struggled to do due to its debt and the price of operating its telecoms community.

For months, AT&T toyed with the concept of promoting or spinning off CNN, whereas some HBO executives have been additionally hoping to be bought or cut up from the mothership. Stankey, nonetheless, considered its HBO Max streaming platform — dwelling to hit exhibits together with Succession and Mare of Easttown — as a key tenet of AT&T’s imaginative and prescient to be the world’s largest built-in content material and distribution firm.

The reversal has left AT&T combating a rearguard motion in opposition to accusations it has destroyed tens of billions of {dollars} in shareholder worth, largely at DirecTV, and distracted itself at a vital time within the evolution in direction of 5G and fibre.

McElfresh insists that the mix benefited either side of the enterprise, with HBO Max given a robust begin by the distribution energy of AT&T’s telecoms enterprise and gross sales of its fibre and 5G packages bolstered because the premium content material was bundled in. What was lacking was the “reward” for shareholders. AT&T’s market worth has been treading water whereas these of pure play media firms like Disney and Netflix soared. That disparity pressured the problem.

Stankey had viewed AT&T’s HBO Max streaming platform — home to hit shows including ‘Mare of Easttown’ — as a key tenet of its vision to be the world’s largest integrated content and distribution company
Stankey had considered AT&T’s HBO Max streaming platform — dwelling to hit exhibits together with ‘Mare of Easttown’ — as a key tenet of its imaginative and prescient to be the world’s largest built-in content material and distribution firm © HBO

‘The great escape’

Barry Diller, the media billionaire, described the cut up of AT&T and what shall be known as Warner Bros Discovery as “the great escape” for either side of the enterprise. More telling was his view, in an interview with CNBC, that after so many missteps, “Ma Bell should have been dead and buried by now”.

That is a media trade view, shared by some M&A bankers, however AT&T stays an enormous, cash-generating enterprise with 186m wi-fi subscribers, together with sensible devices, and 14m broadband clients throughout the US.

“Walking away from content was the right call,” says the veteran govt. “What we do next is very unclear. Being just a wireless and broadband company isn’t very exciting and the competition has [become] significantly harder.”

According to McElfresh, the goal is to increase its fibre community to 30m properties by 2025 and to go “full throttle” in 5G. AT&T plans to spend $24bn in 2023 — round 20 per cent of its income — on its community, which might make it the one largest infrastructure investor within the US.

AT&T workers install fibre optic lines for a mobile phone tower station in LA’s Chinatown neighbourhood last year
AT&T employees set up fibre optic strains for a cell phone tower station in Los Angeles’ Chinatown neighbourhood final 12 months © Damian Dovarganes/AP

The firm, like its US and European friends, has gone back to the long run by returning its community to the centre of its technique whereas additionally slicing its dividend. Some level to Verizon’s resolution to wash its palms of its personal ill-advised media acquisitions. Since the beginning of the 12 months, it has bought the rump of the AOL and Yahoo property it owned so as to goal supremacy in 5G.

AT&T is not in pole place. Spinning out WarnerMedia fairness may worth the core “new” AT&T at about $130bn. That compares with Verizon at $232bn, Comcast at $262bn and T-Mobile at $175bn.

McElfresh, who was promoted to run the then struggling telecoms enterprise in 2019, has presided over two of the perfect quarters for wi-fi subscription additions in a decade over the previous 12 months. But he admits the corporate “has nothing to brag about”, having fallen behind Verizon and T-Mobile within the wi-fi market.

“We don’t like being number three in a three horse race,” he says, pointing to the corporate’s heritage and revolutionary previous — as any true bellhead would.

AT&T: decades of dealmaking

© FT montage

1899

American Telephone & Telegraph Company was based in 1885 to construct a community in New York and 14 years later the thriving operation acquired its father or mother — the Bell Telephone Company established by Alexander Graham Bell

1913

‘Ma Bell’ acceded to calls to reel in its management of the wired communications market by divesting Western Union. The deal allowed it to construct a nationwide community and purchase rivals, making a profitable telecoms monopoly. After the second world battle two it grew into the most important firm on the planet, using 1m folks.

1984

After authorities stress the monopoly is damaged up with the creation of seven regional working firms, the so-called Baby Bells, to present competitors to AT&T for the primary time

1991

AT&T buys pc and money register maker NCR for $7.4bn. The deal backfires and 5 years later AT&T splits into three, a reinvention that noticed it jettison its Bell Labs division — now half of Nokia

1997

Now run by Michael Armstrong AT&T spends $100bn to purchase cable firms TCI and MediaOne however its debt turns into unsustainable and the cable property are merged with Comcast in 2001

2005

AT&T is bought to SBC Communications, the smallest Baby Bell, for $16bn. It takes its former father or mother’s identify and shortly buys out rival BellSouth

2011

After increasing into Latin America, AT&T agrees the ‘deal of the decade’ to pay $39bn to purchase wi-fi rival T-Mobile from Deutsche Telekom. US regulators block the deal on competitors grounds

2015

AT&T totally strikes into the media world with the $67bn takeover of DirecTV. It then acquires Time Warner however the $100bn deal isn’t accomplished till 2018 after a two-year battle with the Trump administration. It provides AppNexus, an promoting firm, to the group in a $2bn deal that 12 months

2021

With debt hitting $180bn in 2020, AT&T rethinks once more. It sells off DirecTV, which had been dropping clients, for 1 / 4 of the $67bn it initially paid for it, after which agrees to offloads Time Warner



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