AT&T case analysis

Topics: Financial ratio, Financial ratios, Asset turnover Pages: 22 (1995 words) Published: September 30, 2014


Case Analysis
Benchmarking and Trend Analysis

The telecommunications industry in the United States today is a prime example of an oligopoly where the major players, AT&T, Verizon, Sprint and T-Mobile, control nearly all of the market. These companies, more specifically AT&T and Verizon, are able to dictate terms and pricing to consumers due to their massive infrastructural competitive advantage over any company attempting to enter the industry. High rates attached to use of existing infrastructure as well as the preventative cost of building new infrastructure stops smaller companies from gaining market share. To concentrate power and money further, both Verizon and AT&T serve more customers separately than the next two biggest companies (T-Mobile and Sprint) combined (Reardone). This has left AT&T with Verizon as its only real competition in telecommunications. Though there isn’t direct collusion between the two (as it would be illegal), these companies often proceed to engage in financial activities that indirectly push smaller companies out (Snyder). This has prompted a recent bid by Sprint to acquire T-Mobile, citing neither being competitively feasible against the two industry leading giants. As of July 2014 the proposal is being sorted out in regulatory courts. So far, things are looking more promising than AT&T’s 2011 bid to acquire T-Mobile from Deutsche Telekom where they eventually withdrew their bid due to significant consumer opposition and a bleak outlook of approval from the FCC. In recent years, AT&T has been diversifying its product offering in an attempt to move with market trends to where it sees the most potential future revenue. In particular, it has been investing a great deal more in paid TV subscriptions and video streaming with the U-verse service and their current acquisition of DirecTV is under review. Buying DirecTV marks a substantial widening in AT&T’s focus. The company is also focusing on initiatives like a partnership with GM to releases cars with built in internet connectivity (Cheng) and the GigaPower program which is their high speed fiber-optic internet rollout (Baumgartner). Internally, AT&T has had a good track record of corporate governance, with their own published guidelines outlining what it expects of its employees and overall corporate mission. They are guilty of massive overcompensation of leadership however. Randall Stephenson, the CEO and board member, was compensated over $20 million in the middle of the recession in 2009 and has continued to receive over $20 million every year since. Though this is not far from some other major corporate CEO’s compensation, periods of scarcity require reductions from every member of the company. A company’s financials cannot be analyzed inside a bubble but instead should be put in the context of: 1) how similar competitors in the industry are faring and 2) a period of time instead of a point in time in order to determine the long-term trends. First, we compared AT&T to its main competitors: Verizon, T-Mobile and Telephone and Data Systems (Sprint was dropped due to a combined balance sheet that muddled calculations). Despite this list representing the first, second, third and fifth largest wireless cellular service providers in the US, Verizon and AT&T capture exponentially more actual market share (Chetan Sharma). It is also worth noting that Verizon’s financials are drastically different than previous years due to the $130 billion purchase of the remaining 45% of Verizon Wireless from Vodafone. Both of these points show why an analysis over a period of time is more true to the position of the company since you can determine its approximate trajectory using trends from previous years. Regardless, we derived the ‘industry average’ benchmark from these four companies and can use it as long as we keep all of this in perspective. When we analyzed AT&T’s financial ratios, we noticed a slump in 2011. This slump can be...

References: Cheng, Roger. "AT&T, General Motors to Sell 4G LTE-connected Cars next Year." CNET. N.p., 24 Feb. 2013. Web. 19 July 2014. .
Raice, Shayndi. "AT&T to Buy Rival in $39 Billion Dollar Deal." The Wall Street Journal. Dow Jones & Company, 21 Mar. 2011. Web. 19 July 2014. .
Reardone, Marguerite. "Competitive Wireless Carriers Take on AT&T and Verizon - CNET." CNET. N.p., 10 Sept. 2012. Web. 19 July 2014. .
Wortham, Jenna. "AT&T in $6.7 Billion Loss on Failure of T-Mobile Deal." The New York Times. The New York Times, 26 Jan. 2012. Web. 19 July 2014. .
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