Activist investor Elliott Management conducted an exhaustive review of AT&T’s business management over the last decade and did not come away with a favorable conclusion. In an open letter to AT&T’s board of directors, Elliott, which owns a $3.2 billion stake in AT&T, trashed numerous aspects of AT&T’s business, including its attempted, but failed, purchase of T-Mobile and its acquisition of DirecTV. But of particular interest to FierceWireless readers, Elliott penned an entire section entitled “Poor Execution in Wireless.”
Elliott says over the last decade AT&T has failed to execute on strategic opportunities, and it compared AT&T unfavorably to Verizon.
“While Verizon moved as quickly as possible to implement 4G LTE, AT&T initially balked, essentially giving Verizon a head start,” states Elliott’s letter. “Verizon took advantage and executed well, quickly being the first to scale its LTE footprint and thereby earning a reputation for superior network quality, as well as $20 billion dollars of additional wireless revenue.”
The letter also claims AT&T sat back as “T-Mobile was disrupting the industry by eliminating contracts while offering family plans and unlimited packages.”
The primary consequence of these setbacks has been a consistent ceding of market share. The activist investor said, “In the last decade, T-Mobile has grown its share of the ‘Big 4’ wireless revenues by about 600 basis points, while AT&T’s share has shrunk about 400 basis points, making it the worst performer of the group.”
Elliott also gave AT&T management a scathing review in terms of its ability to recruit and retain talent. And it said the company suffers from a bureaucratic organization.
“Moreover, there are growing concerns about the depth of leadership even within AT&T’s core businesses,” stated Elliott. “These fears were very recently highlighted by the announced (and surprising) departure of the CEO of AT&T Communications.”
AT&T Communications CEO John Donovan said he is stepping down effective October 1 after close to 12 years with the telco. Donovan runs a collection of wireless, wireline and entertainment assets that account for about 80% of the entire company’s sales.
“Instead of conducting a thorough search for the most qualified executives available, AT&T decided to wait a week and then announce that the recently installed CEO of WarnerMedia – itself a massive and very different business that clearly requires a full-time manager – would now also be responsible for an additional $145 billion of revenue as the president and COO of the entire company,” said Elliott.
In response today, AT&T issued a statement, saying, “Our management team and board of directors maintain a regular and open dialogue with shareholders and will review Elliott Management’s perspectives in the context of the company’s business strategy. We look forward to engaging with Elliott. Indeed, many of the actions outlined are ones we are already executing today.”
And coming to AT&T’s defense, a research note from Wells Fargo analyst Jennifer Fritzsche said AT&T was already making many of Elliott’s suggestions (except for its management changes). “Recall, T has continued to focus on asset sales to get its leverage down to 2.5x and spoke about the potential for share repurchases,” wrote Fritzsche. She also pointed out that while AT&T has not undertaken a voluntary severance program similar to Verizon — which opened up severance to more than 11,000 employees — AT&T's total employee count did decrease by 15,420 (or 5.6%) since the second quarter of 2018.
All is not lost
After its brutal assessment, Elliott concludes that AT&T does have valuable assets and some things going in its favor, particularly a chance to lead in 5G given its spectrum holdings and recent network improvements driven by the FirstNet build.
“We believe that AT&T is best positioned to be the market leader in 5G," stated Elliott. "Accelerated by its FirstNet build, AT&T is differentiated with a strong spectrum positioning (both mmWave and mid-band), highly virtualized and software upgradable network, leading business solutions (both wireless and wireline) and premier IoT franchise.”
Elliott asked AT&T to begin a formal review process to begin “major portfolio actions.” The firm said AT&T has a chance to quickly move forward while its main competitors remain either spectrum-disadvantaged or distracted as they integrate major transactions.