FTC forcing through rethink on data throttling

The Federal Trade Commission (FTC) has come to a settlement with AT&T over a 2014 lawsuit on data throttling in unlimited tariffs.

While few consumers will have knowledge of data throttling clauses in ‘unlimited’ tariffs, the practise is widespread. It is of course a nuance rather than being directly misleading, though this settlement might well create precedent to shift the approach to data throttling in the US.

“AT&T promised unlimited data – without qualification – and failed to deliver on that promise,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “While it seems obvious, it bears repeating that Internet providers must tell people about any restrictions on the speed or amount of data promised.”

The complaint was initially filed in 2014 suggesting AT&T was misleading millions of customers with the practise of data throttling. Although there might be an argument for throttling extremely heavy users on a basis of reasonable use, it does appear AT&T went too far. The FTC suggested AT&T was throttling speeds to such a degree some common applications become difficult or nearly impossible to use.

In the case quoted by the FTC, AT&T sold ‘unlimited’ plans to 3.5 million customers but then throttled speeds once 2 GB of data was consumed in the billing period. At the time, this would have been considered a hefty allowance, though many would have surpassed this quota.

The $60 million sum paid by AT&T to settle this complaint will partly be used to refund customers who signed up for the services in 2014. Those who are still AT&T customers will have the refund automatically applied to their account.

As telcos are now exposed to the threat of a FTC fine, there might well have to be a rethink as to how data throttling is applied to data tariffs.

Firstly, this settlement will not mean the end of data throttling, however the telcos will have to consider whether the current cut-off point would be deemed appropriate. It is perfectly reasonable to restrict the consumption of data in very extreme cases, though the FTC will have to agree to these quotas being reasonable.

Secondly, the telcos will have to make more of an effort to educate the customer on the purpose of data throttling as well as increase awareness as to when it will be introduced. As it stands, most of these unattractive elements of contracts are usually buried in the terms and conditions though this will have to change.

This is of course not the only example of a US telco finding themselves in hot water because of data throttling. During California wild-fires last year, Verizon throttled the data services of a fire department

Ultimately, many consumers will not be impacted, however with data consumption rapidly increasing through more data-intensive applications and a broader array of connected devices, more will be in the future. The US telcos will have to ensure the data throttling practices are evolving with the progress of connectivity, as well as being more transparent when customers sign-up to contracts.

AT&T delivers bullish 3-year outlook amidst a mixed Q3

US telecom and media giant AT&T has reported a steady Q3, with revenues slightly down coupled with improved operation. A bullish 3-year outlook to further de-leverage is welcome news to the capital market.

The company lost 1.2 million premium pay-TV subs, but the HBO business registered growth. The corporate level revenue of $44.588 billion is a 2.5% decline from a year ago (2% decline on constant currency). Operating income grew by 8.7% to reach $7.901 billion, up from $7.269 billion a year ago. EPS was dropped by 23% to $0.50.

When it comes down to business group level, the Communications group delivered a largely steady result. Wireless service revenues edged up, helped to a large extend by the increase in postpaid subscriber base (including 173,000 postpaid smartphone subs) and the upward move of postpaid ARPU ($55.89, up from $55.58 a year ago). The entertainment part of the Communications business was less steady. The company lost 1.16 million “Premium” pay-TV subs (DirecTV satellite and U-verse IPTV) and 195,000 OTT-TV (AT&T TV Now) customers. The total number of AT&T pay-TV subs stood at 21.56 million by the end of Q3, down from 25.15 million a year ago.

Numbers from WarnerMedia, the second largest business group of AT&T, epitomised the “mixed” nature of the results. The total group level income went down by 4.4% to $7.8 billion, but HBO reported an impressive 10.6% year-on-year increase in revenue to reach $1.8 billion, and the $714 million operating income represented a 13.7% growth.

The strong performance of HBO came at a time when AT&T is about to launch HBO Max later today. Priced at $14.99, the current HBO package is the most expensive offer among the major video streaming services (Netflix and Amazon at $12.99, Disney+ at $6.99, Apple TV+ at $4.99). It remains to be seen how AT&T will choose between maxing the user base by pricing HBO Max more aggressively and defending profitability by retaining it at the premium tier.

Guidelines to 2022

The company delayed its Q3 results reporting by a week to finalise its discussion with activist investor Elliott Management Corporation. Presumably as a result of that discussion, AT&T published a rather detailed 3-year financial guidance (to 2022). The key items include growing revenues by 1-2% CAGR, EBITDA target set at 35%, free cash flow to reach $30-32 billion, and no major M&A planned.

The items that made most headlines are related to debt reduction. Specifically, AT&T promised to “Pay off 100% of acquisition debt from Time Warner deal; net-debt-to-adjusted-EBITDA5 of 2.0x to 2.25x in 2022”. Its current net debt to adjusted EBITDA ratio is 2.5, down from 2.66 at the beginning of the year.

According to the analysis by the Washington Post, the Time Warner deal could have cost AT&T over $108 billion including the debt it assumed from Time Warner at the acquisition. AT&T would not be able to pay off its debts, which stood at $153 billion by the end of September (coming down from $166 billion at the end of 2018) with the income generated from its business operations. This means more non-critical assets will be divested. The company is on way to generate $14 billion through asset monetisation in 2019 and plans to recoup $5-10 billion of non-strategic asset sales in 2020.

“The strategic investments we’ve made over the last several years have given us the essential elements to meet growing demand for content and connectivity,” said Randall Stephenson, AT&T chairman and CEO. “Our 3-year plan delivers both substantial and consistent financial improvements over the next 3 years. We grow revenues, EBITDA and EPS every single year, and free cash flow is stable next year, but then grows in both of the next two years, as well. And all of this is inclusive of our investment in HBO Max.”

When it comes to what qualifies as strategic or non-strategic, Stephenson told investors “we have no sacred cows. We’re always open to making portfolio moves.” However, DirecTV, albeit being highlighted by Elliott as one of the failed acquisitions, is not viewed as a target to liquidate in the near future. The business “will be an important piece of our strategy over the next 3 years”, said Stephenson.

The guideline largely reflected what Elliott’s letter to AT&T has demanded. In addition to the defence of DirecTV, probably the only other exception AT&T has made in its guideline was Elliott’s call for management change – AT&T stated “CEO transition not expected in 2020”.

AT&T flogs some European holdings to raise cash

US TMT group AT&T is raising $1.1 billion from the sale of its majority state in Central European Media Enterprises.

CME operates across Bulgaria, the Czech Republic, Romania, Slovakia and Slovenia and seems to be mainly involved in TV, both advertising and subscription-based. AT&T got hold of a 60% share in CME thorough its acquisition of Time Warner and has apparently decided Eastern European telly is no longer part of its grand plan.

Paying off a bit of its vertiginous debt pile presumably is, though, so the $1.1 billion AT&T will trouser from this deal is not to be sniffed at, as well as the $575 million in CME debt it was guaranteeing. In corporate-speak reducing your debt pile is called ‘de-levering’.

“The sale is consistent with AT&T’s plans to monetize non-strategic assets as it continues to pay down debt,” said the brief announcement. “Given the company’s confidence in reaching a net debt-to-adjusted EBITDA ratio in the 2.5x range by the end of this year, shareholders should expect that share buybacks will be in the mix in the fourth quarter of 2019, along with continued de-levering.”

We have to assume CME is ‘non-strategic’ due to its location, rather than its areas of business, since it operates in precisely the areas AT&T paid so much for Time Warner to gain access to. It also seems fair to assume that this is part of a broader process of Time Warner pruning by AT&T and that other holdings outside of the US will also be made available for sale.

US operators collaborate in one more effort to make people care about RCS

AT&T, Sprint, T-Mobile and Verizon have created the Cross Carrier Messaging Initiative to push the Rich Communications Service standard on Android.

RCS is championed by the GSMA, which has been banging on about it for over a decade. It’s positioned as the heir apparent to SMS, offering all sorts of ‘rich communications’ such as images, group chat. That all would have been pretty handy when it was first proposed, but since then there have been countless OTT messaging apps launched, such as WhatsApp, which seem to provide at least everything RCS does. So it’s hard to see what the point of RCS is in this day and age.

The US operators clearly disagree, however, hence this announcement. It’s easy to see why operators, and therefore their lobby group, would want to promote a messaging standard that they have greater control over. But what is less obvious is the incentives smartphone users would have to switch to it. Presumably most would reflect on their current messaging app portfolio and conclude that if it ain’t broke, don’t fix it.

“People love text messaging for a reason,” said David Christopher, GM of AT&T Mobility. “Texting is trusted, reliable and readily available – which is why we’re using it to build the foundation of a simple, immersive messaging experience. This service will power new and innovative ways for customers to engage with each other and their favourite brands.”

“The CCMI will bring a consistent, engaging experience that makes it easy for consumers and businesses to interact in an environment they can trust,” said Michel Combes, CEO of Sprint. “As we have seen in Asia, messaging is poised to become the next significant digital platform. CCMI will make it easy for consumers to navigate their lives from a smartphone.”

“At the Un-carrier, customers drive everything we do, and that’s no different here,” said John Legere, CEO of T-Mobile. “Efforts like CCMI help move the entire industry forward so we can give customers more of what they want and roll out new messaging capabilities that work the same across providers and even across countries.”

“At Verizon, our customers depend on reliable text messaging to easily connect them to the people they care about most,” said Ronan Dunne, CEO of Verizon Consumer Group. “Yet, we can deliver even more working together as an industry. CCMI will create the foundation for an innovative digital platform that not only connects consumers with friends and family, but also offers a seamless experience for consumers to connect with businesses in a compelling and trusted environment.”

Here are the things the CCMI says RCS brings to the table:

  • Drive a robust business-to-consumer messaging ecosystem and accelerate the adoption of Rich Communications Services (RCS)
  • Enable an enhanced experience to privately send individual or group chats across carriers with high quality pictures and videos
  • Provide consumers with the ability to chat with their favourite brands, order a rideshare, pay bills or schedule appointments, and more
  • Create a single seamless, interoperable RCS experience across carriers, both in the U.S. and globally

Of these the B2B angle seems the most compelling. There is still a surprisingly vibrant business around automated application-to-person (A2P) messaging, which typically operators use to communicate with their customers. The switch to RCS would bring a lot more options to that business. And then there’s the fact that you don’t need to know whether someone has an OTT app installed in order to send that message, although it should be noted that Apple shows no sign of supporting it.

But there’s no getting around the fact that RCS is essentially a direct competitor to OTT messaging which, thanks to the inability of operators to act with any kind of urgency, now has a massive head start in the marketplace. Perhaps if more of them belatedly get their acts together as the US operators have they can start to build some momentum, but we’re not holding our breath.

Vodafone and AT&T are proving that partnerships mean prizes in IoT

The IoT world is nothing new in telecommunications, but it’s becoming clear that the players which can negotiate the largest geographical footprints will be in the strongest position to exploit it.

Although there will be plenty of opportunities for IoT potential to be realised in the domestic markets, the big prizes will be realised across international borders. Multi-nationals are the ones with the budgets to invest in this embryonic and largely unproven segment, but to work alongside these companies the telcos will have to prove they have the networks to support the ambition.

Unfortunately, many telcos are limited to their domestic markets. This will make the prospect of partnerships and collaboration all the more important moving forward when offering IoT services.

“Extending our collaboration with AT&T to offer NB-IoT roaming helps our customers to easily deploy their connected devices between the U.S. and Europe,” said Vinod Kumar, CEO of Vodafone Business. “We want to make technology adoption simpler for our customers to help them achieve their business outcomes and by pushing forward the standards and linking up our IoT network with AT&T’s, we’re doing just that.”

“For the IoT to live up to its promise, it must be global,” said Chris Penrose, Senior Vice President of Advanced Mobility and Enterprise Solutions for AT&T. “More and more of our enterprise customers are launching IoT applications across multiple countries. Working with Vodafone we can offer our customers simplified deployments to help scale their IoT plans across the U.S. and Europe.”

Vodafone is arguably in one of the strongest positions worldwide to capitalise on the IoT trends. In terms of the global presence, few can compete with the breadth of Vodafone assets, as you can see from the map below.

The global presence is not necessarily a unique selling point for Vodafone, as any company with ambitions to be a global enterprise services telco will have something similar. Each of the big players in the enterprise services market, including AT&T, will have partnerships in place to emulate this scale, however when these agreements were initially negotiated, we suspect IoT services were not included.

In owning assets in a notable number of markets, Vodafone has a head-start. It does not need to negotiate as many partnerships for global IoT services as its competitors, though it certainly does need to fill in some very notable holes. The US being one of them.

The US is a significant market for anyone involved in the telco world. Vendors will want to supply equipment to some of the largest single networks, while enterprise service telcos will want to tap into the bank accounts of the multi-nationals which fuel the worlds’ largest economy. In partnering with AT&T for NB-IoT as well as LTE-M and other elements, Vodafone has a physical presence in the country it can point to.

The same can be said the other direction also. Although it might be one of the largest telcos worldwide, owned assets at AT&T are limited to the US and Mexico. This is not good enough if you want to be in discussions with multi-national corporations, you need to be able to meet their global ambitions.

Alongside this agreement with Vodafone Business, AT&T has also recently announced partnerships with the three Canadian telcos to expand its presence into the uppermost half of North America.

Partnerships are not the most exciting part of the telecommunications industry, but in the world of IoT where bigger usually means better, they are critical. Those who can most effectively build their presence outside of the assets which are owned by the telco will look like the most attractive IoT enterprise service providers.

AT&T in talks to appease Elliott: sources

Reports have emerged to suggest the AT&T management team is attempting to reduce pressure from activist investor Elliott Management.

According to Reuters, AT&T has engaged the vulture fund to understand how demands can be met without causing too much disruption to the business or undermining the long-term ambitions of the business.

Elliott Management is pressing AT&T to cut costs, make changes in the management offices and scale back the wider ambitions of the business. One element to the call-to-action from Elliott Management has been to divest non-core assets.

Aside from saving their own jobs, the management team will want to appease the aggression of the vulture fund. With the acquisitions of both DirecTV and Time Warner, the ambition is to diversify revenues, capturing the excitement being generated in the content world. That said, should Elliott Management get its way the AT&T business would be much more commoditised focused almost exclusively on connectivity.

The AT&T business is an interesting one which has polarised opinion. It perhaps has been too cavalier with the cheque book, but few will dismiss the ambition to chase after new revenues. Every forward-looking telco recognises the threat of ignoring diversification and the slow trudge towards commoditisation, though this does not concern Elliott Management.

For Elliott Management, the objective is simple; increase dividend payments and raise share price. Once these two objectives have been met, the team will sell off its stake and collect the profits. This is a mid-term strategy, and it is effective for money men, but it does present a danger to the long-term positioning of AT&T as an influential player in the digital society.

Elliott Management can cause waves, though the ability of the management to control this disruption will give some sort of indication of what AT&T will look like in the future.

AT&T offloads Puerto Rico and the US Virgin Islands units to Liberty LATAM

Some might suggest this is a knee-jerk reaction to the intentions of an activist investor, though the vulture fund should not be able to claim credit for this one.

AT&T has announced it will sell its wireless and wireline operations in Puerto Rico and the US Virgin Islands to Liberty LATAM for $1.95 billion. The transaction is expected to close in six to nine months, depending on approvals from the FCC and the Department of Justice.

“I’m especially proud of our network and the recent network enhancements that have helped AT&T rank as the fastest network in Puerto Rico,” said Jose J. Davila, AT&T’s GM for the region. “AT&T also has the most coverage on the island, according to Mosaik.

“Our experienced and committed team members will continue to support these operations as we join Liberty Latin America. Liberty Latin America has expressed its commitment to provide high-quality communications services to the people of Puerto Rico and the U.S. Virgin Islands. And we’re confident that it is equally committed to supporting these communities.”

Although pressure is being applied to the AT&T management team by activist investor Elliott Management, this perhaps not a move which would have been seen as attractive. The vulture fund does often approve of asset divestment in the pursuit of increased dividends and a higher share price, but the intricacies of this deal does not add up.

In an open letter to AT&T investors, Elliott Management did call for divestment but only in pursuit of refocusing the business on core activities. In other words, Elliott Management wants AT&T to focus more acutely on connectivity products and services.

Looking at this deal with Liberty LATAM, AT&T is proposing the sale of core connectivity assets but retaining the service and responsibility of FirstNet and DirecTV assets in the region. What is being released and what is being retained does not make sense if this is the influence of Elliott Management. What is more likely is this transaction would have gone ahead irrelevant of outside influences.

“This transaction is a result of our ongoing strategic review of our balance sheet and assets to identify opportunities for monetization,” said AT&T CFO John Stevens.

“But doing so only made sense if we received a fair value from a buyer that is committed to taking this well-run business, with its skilled employees and loyal customer base, and help it thrive. Liberty Latin America has a strong reputation for quality of service, and we believe they have the experience to build on the success of these operations.”

As of June 2019, AT&T’s debt stood at $158 billion, largely thanks to expensive acquisitions in the pursuit of diversification. The team has said it plans to lower its debt by $20 billion over the course of the year. The team now claims to have completed or announced monetization efforts totalling more than $11 billion.

On the other side of the transaction, Liberty LATAM is continuing its quest to reprioritise the business. Following a number of divestments in the European region, the telco has been attempting to gather momentum in the LATAM markets. This is another deal which will improve the position of the firm.

“The combination of AT&T’s leading mobile and wired businesses with Liberty Puerto Rico’s leading high-speed broadband and TV business will create a strong and competitive integrated communications player,” said Balan Nair, CEO of Liberty Latin America.

“At Liberty Latin America, we are focused on investing in digital infrastructure, innovation and 5G networks and on delivering a friendly customer service experience. This transaction is evidence of that, and we are confident that this new combination will be good for our customers and our employees, including those joining us from AT&T.”

Looking at the Liberty LATAM business, the team is certainly not shying away from investments. Aside from this deal, the team also completed the acquisition of the remaining 12.5% of United Telecommunication Services, increasing the presence across several Caribbean islands. In August, the telco also announced aggressive expansion plans for broadband in Chile and was in discussion to acquire Millicom International earlier this year.

Elliott starts calling for AT&T CEOs head – report

Elliott Management, the activist investor which steamrolled into the AT&T business, has called for the replacement of CEO Randall Stephenson.

Stephenson, who has been running the telco since 2007, will hopefully have seen this move coming. The vulture fund has somewhat of an action-plan template when attempting to cause chaos, and a complete restructure of the management team is a tried and testing phase of the battleplan.

According to Fox News, Elliott Management is not only calling for the resignation of Stephenson, it is requesting it be made responsible for sourcing his replacement and demanding representatives on the Board of Directors.

After announcing it had snapped up a $3.2 billion stake in the telco, Elliott Management set to work. As with other companies the vulture fund has invested in, the objective is disruption, slimming back the focus of the business to realise value for the shareholder. This value will take the form of increased dividends and a bump in share price.

The first phase of the Elliott Management plan has already been set into play. Uncertainty has been placed in the mind of investors with the suggestion of a new strategy for AT&T. Elliott did the same at Telecom Italia when it bought its way into the debate. At AT&T, this is a divestment in the media business and a refocus on more traditional telco business activities.

The second and third phases of the disruptive battleplan are plain for everyone to see here. Elliott Management wants to appoint friendlies on the Board of Directors, and it wants to reform the executive team. Both of these phases of the plan will put the right people in the right place to act as internal champions of the Elliott Management approach to telecommunications.

The strategy being proposed is a very simple one, though it will fundamentally alter the direction of the AT&T business. Through the acquisition of both DirecTV and Time Warner, AT&T was looking like a digital services giant with connectivity at the route of the various different products. Elliott Management wants to get rid of these added value components.

Let’s not underestimate or underappreciate how much of a drastic change to the AT&T business this is.

How this saga will evolve remains to be seen. Perhaps the content businesses will be spun-off. One insider is suggesting a JV with a private equity partner and Dish. Some might assume this would be a complete divestment. Maybe a spin-off and an IPO is on the cards to recover funds and reduce AT&T debt?

There are a lot of options, but AT&T will fundamentally be a different business. It will be one which is focused on the commoditised business of connectivity. However, if Elliott Management want to succeed in their ambition, they will need some internal friendlies at the telco. For Stephenson and other executives, this might well mean a new job.

AT&T takes another step towards the global IOT dream

AT&T has signed a partnership agreement with Canadian telco Rogers, to extend LTE-M coverage for IoT customers of both companies, throughout Canada and the US.

Rogers IoT customers will now have the ability to roam on the AT&T LTE-M network, with the same privilege being offered the other direction. With AT&T relying heavily on IOT to drive new engagement with enterprise customers, this is another example of the US telco spreading its wings across the globe.

“More and more of our enterprise customers are launching IoT applications across international boundaries,” said Chris Penrose, President of Advanced Mobility and Enterprise Solutions at AT&T.

“Having access to the Rogers LTE-M network across Canada will help them simplify deployments and scale their North American IoT plans.”

The emerging IOT world is one which offers a huge amount of promise for the ambitious AT&T team. In a briefing at Mobile World Congress this year, AT&T told us the opportunity was not only from connectivity, but to move up the value-chain and create platforms and customisable software solutions for enterprise.

There are of course multiple elements to ensure this dream can be realised, however a network which reaches beyond the borders of the US is critical. The IOT business can survive in a single country, but if you want to work with the big boys you have to be able to offer a network which meets the demands of an international business.

With the Rogers partnership, the trio in Canada has been completed. AT&T has a network in Mexico and also a significant partnership in Europe. The European collaboration offers AT&T access to KPN’s LTE-M network in the Netherlands, Swisscom’s in Switzerland and Orange’s in France and Romania. The European operators also gain exposure on AT&T’s networks in the US and Mexico.

With these partnerships in place in Europe, AT&T can expect to cover a significant proportion of the continent, though there are still some significant holes. Orange plans to fill in some of the blank spots with LTE-M launches in Belgium, Slovakia, Spain and Poland, though there is still some work to do.

This is the challenge which AT&T faces in the IOT world. It might be one of the largest and most profitable telcos worldwide, but it is largely limited to the US. If you look at other operators, Orange or Vodafone for example, the physical presence around the world is much more notable. This will factor into the thinking of a few multi-national customers.

AT&T reportedly considering TV U-turn

A report is suggesting AT&T is mulling over the prospect of selling its DirecTV assets as pressure mounts on the management team.

With the Elliott Management vultures circling overhead and an investor lawsuit hitting the New York District Court, AT&T is reportedly considering its options. Wall Street Journal sources are suggesting a divestment could be on the cards, a humbling move for AT&T executives who are seeing their diversification strategy crumble before their very eyes.

Although the sale of DirecTV is still a slim possibility, some executives might believe this is the best way in which to save their jobs. To demonstrate the scale of this potential outcome, cast your mind back to May 2018, a critical point during the AT&T defence of its Time Warner acquisition.

While the Department of Justice was looking for means to block the acquisition, for a brief moment, a concession was offered to the team; divest DirecTV assets and we’ll OK the Time Warner deal. This was almost immediately shot down by CEO Randall Stephenson, the purpose of Time Warner was to bolster the DirecTV offering.

This is the conundrum which the executive team is facing. The long-term business plan is sound; a purchase of an excellent content creation business to marry the delivery platform could create a notable share of the entertainment segment. However, the short-term threats might well force the team into a re-think.

Last week, a coalition of investors filed a lawsuit, naming a series of AT&T executives as defendants, accusing the telco of misleading executives over the performance of DirecTV. As the success of the DirecTV acquisition was being used to justify the Time Warner acquisition, the investors seemingly feeling violated, believing the gains were exaggerated or at least the longevity of the gains.

Perhaps more worryingly however was the emergence of Elliott Management. This vulture fund specialises in seeking undervalued businesses and introducing radical changes to increase dividends and share price. More often that not, when Elliott Management gets its claws into a business, executives usually find themselves heading towards the exit and a major restructure of the strategy is put in place.

If the sources are to be believed, this might well be a move towards appeasing the criticism before the HR department starts drafting emails.

What is worth noting, is this might well turn into nothing. Rumours of this magnitude might well be true, but the idea of discussing a divestment and then actioning these ambitions are two very different points of consideration. One question which remains unanswered is who would buy the assets?

AT&T is not going to be selling the business for pennies on the pound, therefore the potential purchaser will have to have a considerable bank account. It is also less clear whether this is a complete divestment or just the satellite assets. If it is just the ‘traditional’ content business, with the streaming side attached, this looks much less attractive to a potential investor.

One option could be a sale to Dish, a rival satellite TV provider. A merger of the two entities has been quashed by competition authorities in the past, though as there is now much larger variety of content options for the consumer it might be a possibility. That said, considering Dish is working through the $5 billion acquisition of the Boost prepaid mobile brand, it might not have the appetite for another large transaction.

Although this is a move which many AT&T executives will struggle to stomach, perhaps survival instincts have kicked-in.

The acquisition of DirecTV and Time Warner was supposed to be a means of diversifying the business, chasing the ever-increasing dollars which are being spent on digital entertainment by consumers and digital advertising by corporates. This was supposed to be a move to future-proof the business and drive growth opportunities.

Without DirecTV, the entertainment unit looks quite hollow. The AT&T business will look much more like a traditional telco, one which is built around the decreasingly profitable and increasingly commoditised business of connectivity. Many companies are looking to leverage their relationship with customers with additional services, and for AT&T, this was supposed to be video.

What is worth noting, is the divestment looks unlikely at the moment. It might happen, but it might well be more sensible for a spin-off and partial divestment. This would recover funds, partially satisfying the vultures at Elliott Management, while also keeping some skin in the game. It would also allow for the appointment of a new management team, perhaps one which is more aligned with content as opposed to the current set-up which is primarily focused on telco.

However, the ability of Elliott Management to cause chaos in a business when it has outlined its intentions should not be underestimated. This is a firm which has a track-record in getting its own way and raising support from other investors. Above all else, the AT&T management team should be very concerned about their future at the telco.