AT&T’s Activist Fight Stirs Debate Over What Its Brand Stands For
(Bloomberg) -- In a letter last week, activist investor Elliott Management Corp. described AT&T Inc. as a company “without clear brand positioning” that was losing its focus on wireless. It might have a point.
Rivals have staked out consistent positions: Verizon Communications Inc. is known as the most reliable network, magenta-splashed T-Mobile US Inc. pitches a rebel image to young people, and its planned merger partner Sprint Corp. focuses on price and simplicity.
AT&T, meanwhile, has acquired DirecTV and Time Warner Inc. in recent years -- two deals that Elliott has criticized. Along the way, the company’s message has shifted and blurred, from “Mobilizing Your World” four years ago to the current “Just OK Is Not OK.”
“If you ask me what AT&T stands for, I just draw a blank,” said Michael Mahoney, senior managing director at Falcon Point Capital, which owns shares of AT&T. “It doesn’t grab me at all.”
Elliott is urging the Dallas-based telecom giant to shed some of its noncore assets, and some analysts agree that would help the sprawling company. Investors also seem sympathetic to the idea.
When Bloomberg reported in June that AT&T was open to merging DirecTV with Dish Network Corp. -- though talks weren’t underway -- shares of both companies jumped. The Wall Street Journal reported this week that AT&T is still exploring the notion, though executives have publicly downplayed the possibility. AT&T declined to comment.
AT&T shares gained nearly 7% in the days following Elliott’s release of its letter, then fell about 5% from Sept. 11 through Wednesday. The stock was up 1% to $37.12 at 9:51 a.m. in New York trading Thursday.
“Verizon has been focused on core competencies,” said Matt Wilson, associate director of equity research at Oppenheimer & Co. “AT&T, they are more of a conglomerate. And that’s probably hurt their wireless branding a little bit.”
AT&T counters that its communications with consumers have been clear and effective. “For two years running AT&T has been awarded the nation’s best network according to America’s biggest test,” the company said via email. “Our best-network marketing message couldn’t be more clear and we couldn’t be more pleased with the response.”
In prior years, AT&T tried to set itself apart by touting its many properties -- airing TV ads that invited consumers to watch a football game on their mobile phones through DirecTV, for instance. Lately, though, there’s less such coupling, as DirecTV continues to bleed customers.
In more recent months, AT&T has been touting its wireless network in the “Just OK” campaign, with humorous but non-phone-related commercials about a so-so surgeon, tattoo artist and babysitter.
The company is pouring more money into advertising. AT&T has spent $533 million on TV ads for its primary brand and Cricket Wireless so far this year, up from $327 million over the same period of 2018, according to tracker iSpot.tv. The jump in spending correlates with a decline in spending on TV ads for DirecTV, said Jason Damata, an analyst at advisory firm TV[R]EV.
“Our investment in wireless advertising shouldn’t be a surprise -- we want customers to know we have a differentiated experience,” AT&T said in the emailed statement.
The effort hasn’t yet paid off in customer retention, however. In the second quarter, all major carriers were luring most of their new subscribers from AT&T, according to a July report from Cowen Equity Research. In the first quarter, subscribers migrating from one carrier to another were a mishmash of Verizon’s, AT&T’s and T-Mobile’s users.
Fewer consumers are happy with AT&T, with only 64% pleased with the service in the second quarter, down from 69% in the first quarter, according to Cowen. That gives AT&T the lowest happiness rating of the Big Four, including struggling Sprint, where 66% of consumers are happy with their current provider, according to Cowen.
AT&T still ranked second in overall brand image, behind Verizon, but its brand score has eroded slightly from a year ago, Cowen found.
“They’ll have to put more attention into their individual services and brands,” said Ryan Patel, a senior fellow at the Drucker School of Management. “Any acquisitions take that messaging away, and they’ve been in the news for a lot of different things, and that confuses shareholders and consumers what the value proposition is.”
Not everyone quibbles with AT&T’s multiple points of focus. Bloomberg Intelligence analysts John Butler and Boyoung Kim see the company’s entertainment plans yielding fruit soon, they said in a note Tuesday.
“AT&T’s strategy to drive incremental growth with a new streaming service called HBO Max will begin to work next year, in our view, as AT&T shifts from integrating Time Warner to executing a plan to tap its 170 million customers to distribute WarnerMedia content,” the analysts said.
Going forward, wireless market shares could be shuffled as advanced 5G services debut. AT&T has been marketing an enhanced version of 4G as “5G Evolution,” even though that service isn’t actual 5G.
“They’ve probably been the most aggressive toward promoting and talking about 5G,” Oppenheimer’s Wilson said. “It’s all about getting the message out, and how much the customer believes in them.”
The company’s wireless business overall is still doing well, Wilson said. “It’s tough when your top competitor is focused on touting the best network,” he said, while at AT&T, “naturally management is going to be distracted with other lines of business.”
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