Industry Voices—Raynovich: Elliott Management is right; AT&T is eating itself

Analyst Scott Raynovich believes Elliott Management is on to something in regards to AT&T's management and strategy. (Pixabay)

Nothing like a bunch of suits fighting in streets of New York. It's going to be fun watching the epic battle unfolding between hedge fund giant Elliott Management and massive conglomerate AT&T. Unfortunately for AT&T, its chronic ineptitude indicates it will probably lose this battle.

RELATED: Raynovich: AT&T DirecTV dump continues while debt is a concern

Elliott is onto something, which I've been talking about for a while. AT&T is eating itself. It spent $200 billion to assemble a hodgepodge of media and distribution assets — including Time Warner and DirecTV -- with no coherent strategy to integrate and execute. It was late the streaming party. Now that it has suddenly become enamored with streaming, it has decided to compete with itself, by selling multiple services -- such as HBO Max, DirecTV Now and ATT&T Now -- that compete with its pay satellite service DirecTV. Its conflicting, schizophrenic plans are failing. 

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All this, while it goes up against much better equipped Goliaths in the streaming content industry, such as Apple, Disney, and Netflix. To make matters worse, Apple just shook up the industry by announcing aggressive new over-the-top (OTT) streaming plans for as little as $4.99 a month. 

RELATED: Elliott trashes AT&T management and its execution in wireless

Elliott, which has done substantial research, hasn't been shy about seeing the strategy as a total failure, and the fund has specifically taken aim at AT&T's management, which it wants out.

They have a point.

"In recent periods, however, AT&T has embarked upon a very different sort of M&A strategy. Over a series of deals totaling nearly $200 billion, AT&T built a diversified conglomerate by pushing into multiple new markets," says the Elliott letter. "In each case, the push was as significant as possible. Beginning the decade as a pure-play telecom company with leading wireless and wireline franchises, AT&T has transformed itself into a sprawling collection of businesses battling well-funded competitors, in new markets, with different regulations, and saddled with the financial repercussions of its choices ..."

Elliott's plan is straightforward: Boot out the management, and bring in new management that can implement a successful execution plan to unlock the value of the content and distribution assets. Elliott has accumulated a $3.2 billion position in AT&T, and believes value will be unlocked with a management shakeup, yielding share-price gains of as much as 65%, according to a letter the fund wrote summarizing its position. 

As Elliott points out in its letter, AT&T has drastically under-performed major benchmarks such as the S&P 500 Index over the past decade, and its acquisition strategy hasn't shown much of a reward. The S&P 500 is up 193% since September of 2009 while AT&T is up only 42%. 

But first, there will be a battle. Recently, AT&T reorganized its management rolls to double-down on its streaming strategy, which has been comedic in its failure.

DirecTV expects to lose 1.1 million TV customers in the third quarter. It lost 778,000 subscribers in Q2 of this year. 

The company also lost 168,000 subscribers of DirecTV Now/AT&T TV in Q2 and its total number of video subscribers has dropped from 25.4 million in Q2 2018 to 22.9 million in Q2.  

Remember, it’s supposed to be growing streaming. But, streaming is shrinking along with pay TV. 

Oh, yeah, and its also being sued for artificially inflating numbers

It really shouldn't be any surprise. AT&T is a large, bureaucratic company with a boring and unimaginative executive management. In the past it has shown disdain for its customers, by providing poor customer service and cryptic pricing plans. I was recently reminded of how bad AT&T customer service can be when I found a DirecTV dish that was left in my yard (see photo).  

Source: Scott Raynovich

Unless things are changed fast, the course isn't likely to change. AT&T, with its massive war chest of money and content, will continue to lose the streaming battle to better competitors, with the DirectTV yoke around its neck and Elliott Management nipping at its heels. And, all of this comes as a big distraction to the phone company once known as Ma Bell that should really be paying more attention to this thing called 5G. 

R. Scott Raynovich is the founder and chief analyst of Futuriom. For two decades, he has been covering a wide range of technology as an editor, analyst and publisher. Most recently, he was VP of research at SDxCentral.com, which acquired his previous technology website, Rayno Report, in 2015. Prior to that, he was the editor in chief of Light Reading, where he worked for nine years. Raynovich has also served as investment editor at Red Herring, where he started the New York bureau and helped build the original Redherring.com website. He has won several industry awards, including an Editor & Publisher award for Best Business Blog, and his analysis has been featured by prominent media outlets including NPR, CNBC, The Wall Street Journal and the San Jose Mercury News. He can be reached at [email protected]; follow him @rayno.

Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by Fierce staff. They do not represent the opinions of Fierce.

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