Elliott to AT&T: Be Like Verizon -- WSJ
September 11 2019 - 3:02AM
Dow Jones News
By Sarah Krouse
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (September 11, 2019).
An activist investor's attempt to force a strategy revamp at
AT&T Inc. spotlights the diverging paths the two largest U.S.
wireless carriers have taken in search of growth.
Elliott Management Corp.'s detailed criticism Monday of
decisions made by AT&T's leaders effectively praises rival
Verizon Communications Inc.'s focus on upgrading its wireless
network over becoming a media giant. While AT&T has spent
heavily on entertainment and advertising assets, Verizon has put
building a faster 5G network at the center of its strategy.
Investors have rewarded Verizon with a similar market valuation,
even though AT&T has nearly 30% more annual revenue.
Displacing Verizon is a "potential reset of incredible
importance," Elliott wrote to AT&T's board, arguing that the
Dallas-based company's wireless business isn't just losing market
share but is also becoming less profitable.
AT&T and Verizon have long been the two largest wireless
providers in the U.S. by subscribers, but each has taken a
different approach to generating new revenue in a wireless market.
Technology giants and startups made billions on the back of the
wireless connections that the carriers provided, leading each to
seek ways to capture more of that spending.
"AT&T to a certain extent diversified away from the wireless
business, despite the fact that the wireless business has been very
good over the last few years, whereas the pay-TV and the
traditional media business has been under more pressure than
expected," said John Hodulik, an analyst at UBS Group AG.
Many of the suggestions Elliott made are already being
implemented or are under discussion at AT&T, he said. Entering
this week, AT&T has posted a total shareholder return -- or
stock-price changes plus dividends -- of roughly 20% over the past
year, compared with 14% for Verizon.
AT&T spent $49 billion to buy satellite-TV provider DirecTV
and another $81 billion on Time Warner Inc., aiming to control
content as well as connectivity. But cord-cutting has sapped
customers from the pay-TV industry, prompting AT&T and others
to launch streaming services.
On Monday, AT&T defended its current strategy and "the
unique portfolio of valuable assets" it has assembled. "We look
forward to engaging with Elliott," AT&T said. "Indeed, many of
the actions outlined are ones we are already executing today."
Verizon spent $130 billion in 2014 to take full control of its
wireless business but avoided a blockbuster media deal. It paid
about $9 billion to buy AOL in 2015 and Yahoo two years later, but
struggled to generate revenue and took a hefty charge to write down
its internet business. Now, it focuses on teaming up with content
providers like YouTube TV.
Hans Vestberg, who became Verizon's chief executive last year,
restructured the company's business lines and has made wireless
connectivity and finding new applications for 5G technology top
priorities.
Verizon is also in the process of cutting $10 billion in costs,
a plan that has included a large voluntary severance program as
well as outsourcing efforts. A Verizon spokesman declined to
comment.
Elliott called on AT&T to follow suit and cut more costs
from its operations. "While revenue per employee was nearly
identical at both companies just over a decade ago ($400k), today
Verizon's revenue per employee ($900k) is nearly 30% higher than
AT&T's ($700k)," Elliott wrote.
Elliott told AT&T's leaders that the next generation of
wireless service presented an opportunity for the carrier to
reclaim wireless market leadership. AT&T should gain, Elliott
said, from its spectrum holdings as well as benefits associated
with being the provider of the federally backed FirstNet
communications system for emergency responders.
Corrections & Amplifications An earlier version of the chart
in this article incorrectly had the horizontal bar representing
AT&T's wireless revenue as a percentage of total revenue longer
than its label of 42%.
Write to Sarah Krouse at sarah.krouse@wsj.com
(END) Dow Jones Newswires
September 11, 2019 02:47 ET (06:47 GMT)
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