Why AT&T Will Never Be Great Again


Younger readers may not believe this, but there was a time when AT&T (T) was so powerful that the government had to break it up into pieces.

Yes, the Department of Justice took AT&T's local operations and split it up into seven regional "Baby Bell" companies in 1984.

Now antitrust regulators are taking another look at the telco giant to determine if allowing it to acquire T-Mobile from Deutsche Telekom (DT) will once again make it too big to the detriment of consumers. Skeptics will argue that it's too late for that. There are already plenty of people that aren't happy with AT&T. Maybe all of those Verizon Wireless attack ads finally did the trick.

Ma Bell isn't crying "Uncle!" but its future doesn't look as promising as its storied past.

Phoning It In

AT&T's latest quarter reads like a dream. Earnings climbed to $0.61 a share from an adjusted $0.54 a share a year earlier. The tech bellwether has tacked on 2.1 million wireless subscribers, and it now tops 100 million wireless accounts.

However, every accolade comes with a cynical knock.

Average revenue per postpaid subscriber has gone up on a year-over-year basis for 11 consecutive quarters, but that feels out of touch and greedy. How dare AT&T milk more and more out of its customers.

AT&T checks in with its best free cash flow in two years? Fine. Now tell me why I can't get a signal at a Miami Dolphins game and why my calls drop like flies in New York City.

Sure, AT&T is growing slowly on the wireless front and not so slowly with its U-verse broadband television service. It can't escape the fact that folks are bowing out of traditional landline connections. The end result of all of the ups and downs is that AT&T's revenue of $31.5 billion was actually a slight decline from the $31.6 billion it rang up a year earlier. For all of the growth in wireless and data, the mighty AT&T suffered double-digit revenue declines in its voice, directory, and "other" revenue categories.

Hypocrisy Calls Collect

I'm still burning over AT&T's decision to scrap unlimited data plans for new smartphone customers during the summer of 2010. AT&T decided to move to tiered pricing plans, seemingly as a reaction to customer complaints on its overtaxed network.

Sweet response there, Ma Bell. Instead of improving the network you install tollbooths.

Companies execute pricing moves in their favor all of the time, so it's not entirely fair to blast AT&T over this. The carrier is no longer a telco monopoly. Consumers can vote with their feet if they're not satisfied. However, the reason I bring this up was the deceptive way that AT&T tried to portray the move.

The announcement's headline -- believe it or not -- was this:

AT&T Announces New Lower-Priced Wireless Data Plans To Make Mobile Internet More Affordable To More People

Who did AT&T think it was kidding? Leave it to an old school giant to try to sugarcoat a greedy price hike as a way to make to make wireless more accessible to the needy.

We now know that the headline was dipped in hypocrisy and deep fried. After all, that streak of milking more money out of its subscribers continues, right? More to the point, AT&T's wireless data revenue has climbed 18% over the past year, even though its wireless subscriptions have grown by a more pedestrian 2%.

The shrinking world of AT&T
A year ago, AT&T was the only wireless carrier offering Apple's (AAPL) iPhone. Consumers now have a choice, and that includes Sprint Nextel (S), which proudly sets itself apart from AT&T and market leader Verizon (VZ) by offering unlimited data plans to new customers.

How excited can investors get over the growth prospects of U-verse? AT&T is doing a good job winning new homes through aggressive pricing, but this is still an industry where "cord cutters" and folks that are tired of paying for packaged bundles of channels that they're not watching. Keep an eye on Google (GOOG) here, as it drapes pockets of Kansas City with lightning-speed Internet and possibly even a U-verse killing Web-served television service.

Analysts that typically provide glowing perspectives of companies feel that AT&T's revenue will grow by just 1.5% this year and decelerate to a mere 1.4% uptick next year.

Dividend-chasing investors will argue that AT&T's 6% yield is too tempting to pass up, but a payout is only as secure as a company's ability to continue paying it in the future. AT&T's areas of weakness will continue to decline, and its pockets of growth are susceptible to competitive forces and consumer-altering trends.

Even if regulators allow AT&T to overpay for the T-Mobile girl, this is a company whose future will be meandering at best.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Google and Apple. Motley Fool newsletter services have recommended buying shares of Apple and Google. Motley Fool newsletter services have recommended creating a bull call spread position in Apple.

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With a quarterly revenue of $.61 and a dividend of $.43 that's over 70% being paid out in dividends. With any decline in the economy, newer competitive technology, debt of $59 billion, goodwill of $73 billion dollars, the continuation of that 6% dividend begins to be questionable. The dividend actually is the only thing that is maintaining AT&T stock price. Now their going to take a charge of $4 billion next quarter that can possibly go even higher. I've had AT&T's Uverse for the last three years and while AT&T pushed Uverse as being competition for the cable companies, monthly rates have gone up almost 10% every year.

Current shareholder equity in AT&T is now listed at $113.9 billion. If you were to subtract the goodwill of $73.6 billion from the shareholder's equity you would have shareholder equity of $40.3 billion. With the current stock price of $29 per share, the company has a market valuationo of $172 billion. That means the stock is currently trading at over 4 times shareholders equity.

December 12 2011 at 8:26 PM Report abuse rate up rate down Reply

The government persues litigation on the drop of a hat for some companies like AT&T, but does absolutely nothing against Wall Street invesment firms and banks. The latter have done more economic damage to the country then AT&T ever has in it's history. Instead they let banks /investment firms grow huge with impunity and pick certain companies as scap-goats to show the public they are protecting us. Political agendas and lobbying is the name of the game.

December 01 2011 at 1:36 PM Report abuse +1 rate up rate down Reply

AT&T MANAGEMENT are the greediest bastards among a handful of of corporate elite. They worked into their positions by being a monopoly and have attempted to regain what they lost in the breakup. As one of the little people they tried to screw, I refused to buckle under their "you will pay, we have a contract and faulty euipment is your problem!" Ten years ago, they lost all my business and I never cease to tell others what a bunch of Aholes they are. For $60 they lost 10
years times $120 times 12 months each year. I never paid the $60 and have told collectors "when hell freezes!"

December 01 2011 at 12:53 PM Report abuse -1 rate up rate down Reply
Tom K

Rick Aristotle Munarriz

Your article heading was about saving on income taxes. All I recieved was about S.S. which was full of loopholes.

Tom Kraemer (Motley fool subscriber) for many years. tomkra@aol.com

December 01 2011 at 12:44 PM Report abuse -1 rate up rate down Reply

My personal story about AT&T is this...

#1 --- Try calling the toll-free 800 number and see how it gets you parked in space for 45 minutes to an hour or more?

#2 --- Try cancelling an account and see how long it takes you to do it?

#3 --- I've asked lawyers what could be done to change this? Answer? "GOOD LUCK!!!"

#4 --- Like the Post Office getting clobbered by UPS and FedX, so too will it be clobbered... Happy Hour!!!

#5 --- AT&T needs to be put on notice, no matter its gigantic size,,, provide the consumer with respectable
performance.... Forget the slick TV, newsprint Ads... Just provide good inexpensive service, period!

December 01 2011 at 11:23 AM Report abuse rate up rate down Reply

att is already to much again. it reminds me of bank of america the way it overcharges for its services.

December 01 2011 at 11:02 AM Report abuse +1 rate up rate down Reply

Hope Obama is like AT&T, headed for the dust bin.

December 01 2011 at 8:42 AM Report abuse -1 rate up rate down Reply

Attack ads from Verizon ... who were one of the "babies" from the original breakup. Trained well.

December 01 2011 at 7:47 AM Report abuse +1 rate up rate down Reply

Wonder how the author of this article feels when his story is so far behind the times that ATT has pulled its offer for T-Mobile 2 days ago and his article uses that merger as part of his reasoning. Oh well.... you snooze... you loose.

December 01 2011 at 7:41 AM Report abuse +3 rate up rate down Reply
1 reply to johnk01000's comment

They may have pulled the offer but it is just for more behind the scenes manipulation...the deal is not dead!

December 01 2011 at 4:23 PM Report abuse rate up rate down Reply