There’s a picket line around the corner from my house in front of an AT&T (NYSE:T) training center. Over 20,000 workers in nine southeastern states are now on strike against the company.
The strikers work in AT&T’s wireline business, its phone and home internet services. They don’t work at its cellphone unit.
Their struggle is a demonstration of just how bad AT&T’s technology debt burden has grown. Those wires are increasingly obsolete. AT&T’s own wireless services helped make that happen, but their business model depends on their continued maintenance.
T Stock and Technology Debt
Today’s AT&T was built from the remains of four regional Bell companies – Southwestern Bell, Ameritech, BellSouth and Pacific Bell – which themselves descend from the old AT&T monopoly.
That monopoly promised universal wired service in exchange for its monopoly status. The monopoly’s founder, Theodore Vail, even coined the term “public relations,” and the idea that profit “is just one element in an equation” of financial health. (Sound familiar?)
But mobile service, which AT&T began to dominate after buying McCaw Cellular in 1994, is making those wires obsolete. The 5G services AT&T and its competitors will soon roll out have plenty of speed for even advanced TV streaming. In an increasingly mobile world this is the kind of “cord cutting” AT&T stock has to fear, not people switching from cable to Netflix (NASDAQ:NFLX) but leaving wired Internet as well.
Financial Debt and AT&T Stock
It was cash flow from the wires that gave AT&T the financial power to buy Time Warner. But to make that happen AT&T also took on an immense amount of financial debt it must now find some way to pay back.
AT&T had $168.5 billion of long-term debt on its books a year ago, which it whittled down to $158 billion as of this June. With 6.5 billion shares outstanding it costs over $13 billion to service its 51 cent per share dividend, now yielding 5.86%. It expects to spend $23 billion in capital this year, most of it on the wireless side.
To pay down the debt faster, AT&T is seeking to plug every financial hole it can find. The newly-renamed WarnerMedia unit is cutting ad jobs and over 100 CNN workers took buyouts during its move to Hudson Yards. Top executives at HBO were let go. The company believes it can squeeze $1.5 billion in cost savings and $1 billion more in “synergies” from the acquisition.
But that may not be enough. AT&T lost 778,000 cable customers during the second quarter of 2019 alone. It may start losing internet-only customers as 5G rolls out. We know 5G can replace wired services because AT&T is already doing it in rural areas.
The company’s “skinny bundle” plan, formerly DirecTv Now, has been renamed AT&T TV Now, with even higher prices. This follows several quarters of customer losses. It seems most people who cut cable don’t want “cable lite.”
The DirecTv satellite service, which AT&T bought in 2015 for $48 billion, is also losing customers even faster than the cable service.
The Bottom Line on AT&T Stock
AT&T is counting every penny as it deals with its technology and financial debts.
The company is squeezing its employees and its suppliers, having taken a long outage from CBS (NYSE:CBS) to cut programming costs.
AT&T believes it can compete with Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) for programmatic ads with its new Xandr unit but that depends on its having eyeballs on its TV shows.
The strike is the just the tip of the iceberg in AT&T’s fight against its technology debt. Market skepticism is high and warranted, which is why the stock yields nearly 6% when you can’t get 2% on a 30-year government bond.
Dana Blankenhorn is a financial and technology journalist. He is the author of the mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
