AT&T Is a Window Into Life Under Lockdown
(Bloomberg Opinion) -- AT&T Inc.’s latest quarterly results are providing a window into how the Covid-19 pandemic is affecting different slices of the economy, from consumers to businesses large and small, essential employees and those fortunate enough to be able to work from home. What they all share is a fear for their physiological and financial health, and the inability to predict what happens next — AT&T included.
“It’s been a chaotic few weeks for all of us,” Randall Stephenson, AT&T’s longtime CEO, said during the company’s post-earnings conference call Wednesday. “Bottom line: We have very little visibility into the broader economic situation.”
Before “low visibility” became business jargon, it was a flying term to describe when pilots literally couldn’t see what’s ahead from the cockpit window. That’s sure to be the recurring theme this earnings season, just as it captures the anxiety felt by heads of households around the country.
For AT&T — a wireless carrier, pay-TV provider, cable programmer and soon-to-be streaming giant — the virus indirectly reduced revenue by $600 million and earnings by 5 cents per share. AT&T has its own peculiarities and challenges relative to the rest of its industry: Stephenson bought the company’s way into the media world through costly, debt-laden acquisitions at a time when its core wireless network is proving to be the best business it has. But because those deals have also left AT&T with such a broad reach, it’s now almost a microcosm of the broader economy. Here’s what AT&T’s earnings report and executives revealed about its different business touch points:
The national stay-at-home orders have made all of us more reliant on internet networks than ever before, and we’re also watching much more video entertainment. That helped account for the 27,000 regular wireless customers AT&T added on a net basis during the first quarter. That said, the company also had to implement more flexible payment options and waive fees for late payments and overage charges, showing the fragility of some of its base. On that same note, AT&T said it didn’t count some 40,000 wireless customers in its metrics, even though it’s still currently providing service to them, because it considers them “disconnections.” With household budgets tightening, there’s also likely to be continued subscriber losses at DirecTV; as it is, one million customers fled AT&T’s pay-TV services during the latest period.
AT&T management said they are watching to see whether the arrival of stimulus checks will improve the company’s ability to collect payments in the coming months. Either way, the economic downturn will reduce the number of customers looking to upgrade to new, more expensive smartphones. And for those who do, AT&T stores are offering curbside pickup — just one way that physical-distancing efforts are changing consumer behavior and could have some lasting effects. “We’re prepared to adjust to whatever the consumer wants to do,” said John Stankey, AT&T’s president and chief operating officer. One thing the consumer may not want to do as often in the future is go to movie theaters, which brings us to the next area of impact:
In a comment that cuts deep for U.S. exhibitors, Stankey said AT&T is “rethinking our theatrical model.” Translation: More films could go straight to home viewing or premiere on HBO Max, the Netflix-like video-streaming service that launches May 27. It’s yet another sign that studios will seek to further shrink theatrical windows and become less dependent on box office ticket revenue. On the TV side, industries that typically spend lots of money on advertising — travel websites, automobiles, resorts — have cut back. It’s especially painful for networks that air sports, since most leagues have postponed or canceled events that are normally a magnet for advertisers. Total AT&T ad revenue was down 13% for the period to $1.5 billion. With productions shut down across Hollywood, some of HBO Max’s content may also be delayed, a problem that’s affecting rivals such as Walt Disney Co.’s Disney+ as well. The silver lining is that it requires fewer cash outlays for the time being.
Stephenson’s first remarks during the Q&A portion of Wednesday’s call were some of the most revealing. Asked about his perspective on the broader economy, he said: “The most disconcerting, troublesome area that we’re seeing is what’s happening down in small business. The small business trends are pretty significant in terms of employee displacements and business closures, and that’s the place that’s going to drive, probably in the next couple months, the unemployment more than any. Those are rather dramatic.” As such, small businesses are another customer base where AT&T has eased payment options and fees.
But while AT&T has also observed larger companies becoming more cautious about spending, their demand for bandwidth is rising as more staff works from home.
Half of AT&T’s employees are working from home; however, some of its network enhancements require employees to physically tinker with cellular sites, and that work is continuing. AT&T also said its spending plans for 5G and broadband fiber connections are still a top priority, even if the pandemic is creating some logistical hurdles, such as attaining permits from government officials who are sheltering at home, and making sure workers are safe on the job. “In our industry, it’s not just people writing checks,” said Stankey. “It’s people out doing things.”
The company cited new protocols around personal protection, equipment, social distancing and cleaning for its employees who still have to physically come to work. It also gave its workers on the front lines a 20% pay bump, and all employees receive four weeks of additional paid time off for Covid-19-related needs.
These are just some examples of the sweeping effect the pandemic is having on American business. AT&T, like others, is performing a balancing act in trying to keep workers safe, consumers connected and shareholders satisfied. The coronavirus is at least reminding executives that those needs shouldn’t be mutually exclusive.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.
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