AT&T Inc. Strategic Analysis

Name of the company 

The essay focuses on AT&T Inc., a major telecommunications player in the United States and the rest of the world. AT&T is the holding company to several subsidiaries spread around the globe operating in telecommunications, technology, and media industries. AT&T was first incorporated in 1876 by Alexander Graham Bell and his partners as “Bell Telephone Company” after the invention of the very first telephone. By 1882, American Bell had significantly experienced growth to enable it to acquire a significant interest in Western Electric, a company owned by Western Union at the time ( Hill et al., 2008 ). The company later rebranded in 2005 as AT&T and is today the world’s biggest communication company. 

2.0 The Business that AT&T Competes 

AT&T is a United States multinational corporation specializing in mobile telephony and internet, broadcast subscription TV services, and fixed telephony. The company has headquartered in Dallas, Texas, and the current CEO is John Stankey ("AT&T Company Profile and Facts," 2020) . The company has derived its business from four significant segments: Warner Media, Xandr, communications, and Latin America. 

The main competitors to AT&T include Comcast Corporation, Verizon Communication, Vodafone, KDDI, Deutsche Telekom, and China Mobile ("AT&T Competitors," 2020) . AT&T remains the major global player in the telecommunications business, reporting a total revenue turnover of $181.2 billion in 2019 with a presence in over 200 countries around the globe. SingTel reported $12.5 billion in revenue in 2019, Verizon $131.9 billion, Vodafone $50.56 billion, KDDI $45.72 billion, and China Mobile $107.93 billion revenues the same year.

3. 0 AT&T Mission and Vision 

AT&T’s mission is to explore and exploit technical inventions and innovations for the benefit of the company and its clients through the implementation of next-generation technologies and the advancement of networks in the company’s operations and services. 

AT&T Vision 

AT&T inspires to be the most valued and admired company around the globe ("AT&T Mission Statement 2020 | AT&T Mission & Vision Analysis", 2020) . The company’s primary goal is to enrich its customers’ personal lives and to make their businesses prosperous by bringing to the market useful and exciting communication services and building the shareholders’ value at the same time. 

AT&T Business Activities 

In June 2018, the company completed the acquisition process of Time Warner company at a value of $85 billion. The acquisition followed after a long period of lawsuits (Rosenbluth, 2006). The company, now an AT&T subsidiary, was rebranded to Warner Media. In December 2018, AT&T launched its 5G mobile network across 12 cities around America, positioning itself as the second major telecom company to provide this after Verizon.

In July 2019, the company announced the launch of a strategic partnership with IBM. The strategic alliance covers several years where AT&T brings on board the expertise of IBM in the field of computer engineering to improve its business solutions and related software applications that facilitate cloud computing. The company revealed it was launching HBO Max in May 2020, a network streaming services provider that will heat competition of streaming business in the world ("WarnerMedia Unveils New Streaming Service HBO Max," 2020) . Its aimed at competing with Disney Plus and Netflix through competitive pricing through leveraging of mass subscriptions.

5.0 Porter’s 5 Analysis 

Michel Porter created the Five Forces framework back in 1979. He made sue of the already existing tools in the market like SWOT analysis to develop a new way to understand its opportunities and threats, weaknesses, and strengths ("The Five Forces - Institute for Strategy and Competitiveness - Harvard Business School," 2020) . This section analyzes AT&T through Porter’s Five Forces model: 

The Buyer Power 

There is very high competition in the telecommunication business, which means that the customer has the buyer power. AT&T tries to minimize buyer power by attracting as many customers around the globe as possible to gain the most significant market share in the sector. The company is also enhancing its customer services and improving the quality of its services through advanced technology. 

The Supplier Power 

AT&T is a stable company and has, over the years, created relationships with suppliers from different parts of the world. These suppliers deliver a variety of products, including PDAs, Smartphones, amongst others. The leading AT&T suppliers include Blackberry, Samsung, Palm, Nokia, Motorola, and LG. Each of these suppliers provides the company with products with diverse sizes, colors, designs, technologies, which are return sold to customers with different needs. 

Threat of Substitute 

AT&T offers several diverse plans for its clients. Diversity is created to ensure that different customers with different needs are satisfied. The company products range from services and basic phones to complicated touchscreen devices and executive corporate plans. Nextel technologies are one possible threat for the AT&T products since it uses the popular walkie-talkie devices and is used in the construction sites. Another threat to AT&T is the new internet-based software for communication, especially in the wireless communication sector. As time moves on and the technology matures, it may be a viable option and more accessible for the users to use the portable laptops and the internet to free communication, which may easily substitute the wireless network services and the cell phones. A good example is the Skype software used globally to communicate at no extra cost, with the beneficial feature of a free image display of the caller. 

Additionally, it is relatively easy for companies to get a contract to create and control the switching costs when a client decides to switch from one Telecom Company to another. AT&T has come up with some fees to prevent losing customers to other networks and to reduce the threat of substitute services and products in the market. 

Threats of New Entrants 

The threat of new entrants to the market is relatively low in the wireless network sector. This threat is because technology is not easy to implement and requires massive resources. Companies that have successfully integrated and implemented the technology have done so out of mergers with other companies to increase capacity and to marshal resources together. Companies have to adjust their strategies to enter the market. As a result, the companies already in the market, like AT&T, feel threatened by new mergers to bring better technologies to the market. 

Competitor Rivalries 

The biggest competitor to AT&T includes Comcast, Verizon, China Mobile, and Vodafone . AT&T is a threat because they own the most significant share of customers in the entire United States. The company has also been in the market much longer as compared to other competitors. The additional advantage over its competitors is the roll-over minute program; the program permits the AT&T clients to use all their minutes in just a single billing cycle, which promotes them to the next. While the competitor as chunk boasts of the biggest customer base, AT&T boasts of the most significant revenue. Since AT&T took over Alltel, it has rebranded and rebuilt to emerge as the biggest telecom company in the history of the United States. 

AT&T SWOT Analysis 

SWOT analysis gives the overall picture of the external and internal environment of the company (Sergey & Timur, 2016). Here is the SWOT analysis of AT&T:

Strength 

AT&T has vast experience in communication and a strong network throughout the United States, which is a source of competitive edge. The wireless services strength the company provides has led to an efficient and effective customer market mix as compared to the competitors Verizon. AT&T has also successfully managed to minimize their market churn rate of the consumers by about 56% while the company competitors have witnessed their churn go up to more than 67%. Due to customer loyalty and brand stability, AT&T has managed to reach some significant equilibrium.

Weakness 

AT&T's past financial statements reveal that the company has, over the years, been dependent on borrowing to finance its current operations and also to fund the future strategic plans for growth. Given the low-interest rates economic era, the company capital costs are too high since lots of focus has been concentrated on innovation and buying of the wireless infrastructure, for instance, the 4GLTE technology. Even though AT&T strives to experience faster growth, one of the main challenges it encounters is capital. The company has been investing in technology to gain a competitive edge over its competitors and achieve growth. Every country has its environmental regulations, which have negatively impacted on AT&T's operations. Since the laws differ, the impact on the kind of strategies the company uses in these areas. Sometimes, these laws lead to fines imposition.

Opportunities 

One of the most significant opportunities for AT&T is the increasing use and awareness of cloud computing. For every company or individual to use cloud computing, or for every company to provide cloud computing services, they require to use internet bundles through wireless connections or other links. This shift in technology has drastically increased its consumer base and is likely to increase as more and more people go the route of cloud computing. AT&T has created several strategic mergers to leverage cloud computing. Cloud Computing has seen an increase in revenue for AT&T over the last few years.

Threats 

Telecommunication is transforming due to the economic environment and technology changes. AT&T has experienced risks related to these transformations since the changes directly impact on its performance. The most outstanding threat is the expensive and high cost of creating the structure and making the necessary changes to provide the new changes to the customers (Langlois, 1988). These changes also require lots of capital to maintain operations and offer distribution services in the market

Competitive Profile Matrix 

Here is the competitive profile matrix (CPM) for AT&T, Verizon, and Vodafone:

Table 1: Competitive Profile Matrix 

		AT&T		Verizon		Vodafone
Critical Success Factors	Weight	Weight	Rating	Weight	Rating	Weight	Rating
Global Market Expansion	0.07	0.24	3	0.12	2	0.12	4
Market Share	0.15	0.48	4	0.64	3	0.64	3
Loyalty by Clients	0.05	0.56	3	0.56	2	0.56	3
Financial Might	0.10	0.4	4	0.3	3	0.3	4
Quality Services	0.15	0.48	4	0.64	3	0.64	3
Customer Services	0.08	0.34	2	0.48	2	0.48	2
Pricing Competition	0.20	0.27	3	0.27	4	0.27	3
Management	0.20	0.33	3	0.33	3	0.32	3
	1.00	3.1		3.34		3.33

Source

Based on our CPM above, Verizon has the highest weight in comparison to AT&T and Vodafone. Interestingly, AT&T has the lowest total values of 3.1 compared to that of Verizon and Vodafone at 3.34 and 3.33, respectively. AT&T seems to be doing best in Global Expansion, customer loyalty, financial might, and pricing competition.

AT&T has relative strength in financial might, quality of services offered, and market share and weak in customer service (Jurevicius, 2020) . Verizon has its power in pricing its competitors and weak in global expansion strategies. In contrast, Vodafone has strength in worldwide expansion and financial might while has relative weakness in customer services.

8.0 AT&T Financial analysis 

Liquidity ratios 

Current ratio(times)

2019; 54761 / 68911 = 0.79 times

2018; 51427/ 64420 = 0.80 times

2017; 79146 / 81839 = 1.00 times

Leverage ratios 

Debt to total assets

2019; (151309 + 129515) /551669 = 0.51

2018; (166250 + 107310) /531864 = 0.51

2017; (125972 + 94729) / 444097 = 0.50

Debt to equity

2019; 151309 / 201934 = 0.75

2018; 166250 / 193884 = 0.86

2017; 125972 / 142007 = 0.89

Activity ratio 

Total asset turnover

2019; 181193 / 551669 = 0.33

2018; 170756 / 531864 = 0.32

2017; 160546 / 444097 = 0.36

Profitability ratios 

Net profit margin

2019; 14975 / 181193 = 0.08

2018; 19953 / 170756 = 0.12

2017; 29847 / 160546 = 0.19

Return on total assets (ROA)

2019; 14975 / 551669 = 0.03

2018; 19953 / 531864 = 0.04

2017; 29847 / 444097 = 0.07

Growth Ratios 

Earnings per share

2019; 13903 / 7621 = 1.82 per share

2018; 19370 / 7621 = 2.54 per share

2017; 29450 / 6495 = 4.53 per share

The two key competitors of AT&T in the US market are Verizon Media and Comcast Corporation. Their respective ratio analysis for the last three years is calculated below;

Competitors financial analysis 

Liquidity ratios 

Current ratio (times)

Verizon Communication Comcast Corporation 

2019; 37473/ 44868 = 0.83times 25392/ 30292 = 0.84 times

2018; 34636 / 37930 = 0.91 times 21848/ 27603 = 0.80 times

2017; 29913/ 33037 = 0.90 times 16343/ 21993 = 0.74 times

Leverage ratios 

Debt to total assets

2019; 100712 / 291727 = 0.35 97765 / 263414 = 0.37

2018; 105873 / 264829 = 3.95 107345 / 251684 = 0.43

2017; 113642 / 257143 = 0.44 59422 / 187462 = 0.32

Debt to equity

2019; 100712/ 62835 = 1.60 97765/ 83874 = 1.16

2018; 105873/ 54710 = 1.94 107345/ 72502 = 1.48

2017; 113642/ 44687 = 2.54 59422 / 69459 = 0.86

Activity ratio 

Total asset turnover ratio

2019; 131868 / 291727 = 0.45 108942 / 263414 = 0.41

2018; 130863 / 264829 = 0.49 94507 / 251684 = 0.38

2017; 126034 / 257143 = 0.49 85029 / 187462 = 0.45

Profitability ratios 

Net profit margin

2019; 19788 / 131868 = 0.15 13057 / 108942 = 0.12

2018; 16039 / 130863 = 0.12 11731 / 94507 = 0.12

2017; 30550 / 257143 = 0.12 22922 / 85029 = 0.27

Return on total assets (ROA)

2019; 19788 / 291727 = 0.07 13323 / 263414 = 0.05

2017;16039 / 264829 = 0.06 11862 / 251684 = 0.05

2018; 30550 / 257143 = 0.12 22922 / 187462 = 0.12

Growth ratios 

Earnings per share

2019; 19265 / 4291 = 4.49 per share 13057 / 9069 = 1.44 per share

2018; 15528 / 4242 = 3.66 per share 11731 / 9069 = 1.29 per share

2017; 30101 / 4242 = 7.10 per share 22735 / 9161 = 2.48 per share

Table 2: financial analysis 

A	B	C	D
Liquidity ratios indicate the ability of AT&T to meet its short obligations as they fall due. The leverage ratios indicate how the company finances its growth plan, and to what extent does the company use internal or external funds in purchasing its assets. The profitability ratio indicates whether the company managed to turn a profit in that period, and it’s a culmination of the management efforts to maximize revenues and lower operational expenses. Activity ratios reflect the level of efficiency in the company while the EPS impact on the attractiveness of the company’s stock to investors.	AT&T liquidity ratios have declined from 2017 to 2019 to indicate declining liquidity levels as the proportion of assets financed by debt capital increased marginally from in 2018. The levels of debt capital have decreased over the three years as the level of equity financing increased. Productivity levels of the assets show a diminishing trend in the efficiency of the company assets. Likewise, profitability ratios indicate declining profits, which have directly impacted the earning per share, which has dropped by more than 50 percent.	The current ratios for AT&T and Verizon show a declining trend, while the Comcast Corporation ratio demonstrates an improving trend. For the leverage ratios, all three companies have revealed an increasing uptake of debt finance and a corresponding increase in levels of equity. However, for the proportion of assets finance by debt, Comcast has a higher and a growing proportion of assets funded by debt than her rivals. Both AT&T and Verizon have a declining proportion of debt used to finance investments. AT&T competitors have fluctuating levels of efficiency, as shown by the asset turnover ratio, and the growing asset base is not contributing proportionately to revenue growth for the Verizon and Comcast. Still, with AT&T, there is a proportional growth in sales revenue with asset base expansion. All three industry players have reduced profitability levels and a rapid decline in EPS within the three years reviewed.	Stock price movement 2017 -2019 in $;  AT&T  2019: High 39.70  Low 28.30  2018: High: 39.29  Low: 26.80  2017: High: 43.03  Low: 32.55  Current market price 29.14  Verizon Communications  2019: High 62.22  Low 52.28  2018: High 61.58  Low 46.09  2017: High 54.83  Low 42.80  Current market price 60.32  Comcast Communications  2019: High 47.27  Low 33.42  2018: High 44.00  Low 30.43  2017: High 42.18  Low 34.12  Current market price 46.36

9.0 Multiple Calculation 

Table 3: P/E multiple comparisons 

	AT&T	Verizon Communications	Comcast Communications
EPS	1.82	4.49	1.44
Year-End Stock Price	37.25	59.45	44.21
Multiple (P/E)	20.47	13.24	30.70

Comcast Corporation and AT&T have the highest P/E ratio, which is an indication of the growth expectations placed by investors on the companies. A higher P/E ratio is a growth stock, and a presumption of growth by investors helps push its demand upwards, leading to a higher market price. A lower P/E shows a value stock that has to keep shareholders happy as its primary objective, who does not have many expectations on the company other than constant dividends. That is the case with Verizon Communications.

Case Questions 

Definition of the problem 

AT&T is one of the leading distributors and providers of wireless services and products in the entire United States. For the company to attain a competitive advantage as a result of the high competition in the industry, it requires using the SWOT and Porter’s five analysis effectively to analyses both the macro and micro environmental factors that impact the performance of the business. AT&T management needs to think of different strategies that will help it deal with the environmental laws that are present in other regions where it operates. Specifically, the rules that have led to court suits must be examined to ensure that they do not get the company off-guard in the future. People are rational and conscious of their environment. Breaching these laws gives the company a bad image amongst the locals, making it hard for the company to excel in these regions.

The number one priority is to create internal laws that ensure the employees, suppliers, and stakeholders stick to these policies that do not infringe on the government regulations and work towards bettering the customer needs (Robertson and Langlois, 2011). The company is also facing a debt problem, which the CEO said in the 2019 audited reports that they have drafted a strategy to have it retired in the next two years. The debt is consuming much-needed capital for investment, and the firm intends to have a favorable net debt to EBITDA ratio. The debt issue caused its credit rating downgrade by Moody to Baa in 2018.AT&T has faced a subscriber decline challenge in the last two years in its streaming company DirectTV and lost more than 400000 subscribers in the first three months of 2019, which marked the first subscriber drop since 2015.

Approaches to solving the problems 

Besides using the mergers and acquisitions for strategic purposes to gain entry into new markets, acquire new skills and technologies, the company needs to invest in Research and Development (R&D). New technologies and patents are the best way to gain a competitive edge against competitors. It takes years before a good patent is copied and implemented by the competitors. The company needs to consider innovation and technology acquisition as the best way forward for future growth. Merger, buy-outs, and strategic partnerships are ways to expand revenue generation from the traditional mobile telephony business into cloud computing and video streaming business.

Additional solutions to the problems 

To overcome dropping subscriber numbers from its streaming businesses, AT&T needs to leverage on the advertising channel Xandr to maximize on their strengths and reach out to more Americans and shore up the numbers. The streaming business faces stiff competition from big companies such as Netflix, and only an aggressive campaign and customer retention strategies such as free months offer will reverse the trend. The company has to prioritize the extra free cashflows from Time Warner and Direct TV in the next two years towards retiring the debt accumulated to 151billion for the long-term debt.

Evaluation of one of the solutions 

Strategic partnerships and acquisitions are strategies the company is pursuing to expand its business solutions and strengthen its foothold in the streaming business. The traditional TV base is eroding, and there is a paradigm shift to online TV, movies, and cloud-based business solutions. Instead of building new companies from scratch, which can take time, it’s better to tap into expertise and synergies of established businesses such as IBM. The approach saves the company resources and fastens the time taken to offer new product services. The long-term benefits are immense to the company in terms of fostering mutually beneficial partnerships and accomplish a smooth digital transformation of the business.

Solution implementation and evaluation of outcomes 

Studying the market environment gives very up-to-date feedbacks about the company products, what the customers want, and what they do not like. There is a need for AT&T to strategically expand its store locations to allow effective and efficient management of communication and for better market locating and positioning. The expansion means that the company has to create a web-based information management portal featuring virtual customer services to deal with the feedback given by the consumers and the transaction details.

References 

AT&T Company Profile and Facts. (2020). Retrieved 17 September 2020, from https://finance.yahoo.com/quote/T/profile 

AT&T Competitors. (2020). Retrieved 17 September 2020, from 

https://craft.co/at-t/competitors?competitors=at-t%2Ccomcast%2Cdeutsche-telekom%2Cfrontier-communications%2Ctelephone-and-data-systems%2Cvodafone%2Cverizon%2Cnippon-telegraph-and-telephone-corporation 

AT&T Mission Statement 2020 | AT&T Mission & Vision Analysis. (, 2020). Retrieved 17 September 2020, from https://mission-statement.com/att/ 

Hill, C. et al. (2008). Strategic Management: An Integrated Approach . 8. Boston, NY: Houghton

Jurevicius, O. (2020). What happens when you don't analyze your competitors?. Retrieved 17 September 2020, from https://strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.html 

Robertson P. L. and Langlois R. N., (2011). Innovation, Networks, and Vertical Integration. Economics and Management Working Paper No. 3, University College, University of New South Wales, Canberra, Australia.

Rosenbluth, T (2006). Industry Surveys, Telecommunications: Wireless. Standard & Poors. 1-26.

Langlois, R. N. (1988). Economic Change and the Boundaries of the Firm. Journal of Institutional and Theoretical Economics 144 (1988): 657

Sergey I Zubin, & Timur A. Tultaev. (, 2016). Models of the 5 Porters Competitive Forces Methodology Changes in Companies Strategy Development on Competitive Market. Statistika I Èkonomika, 2, 79–83.

The Five Forces - Institute For Strategy And Competitiveness - Harvard Business School. (, 2020). Retrieved 17 September 2020, from https://www.isc.hbs.edu/strategy/business-strategy/pages/the-five-forces.aspx 

WarnerMedia Unveils New Streaming Service HBO Max. (, 2020). Retrieved 17 September 2020, from https://about.att.com/story/2019/hbo_max.html