What Does Market Signal About Need for Heavier AT&T Regulation?

Are tier-one telcos behemoths with power to stifle other competitors, or business-challenged entities barely able to cope with the magnitude of changes in their core businesses?

It is a question that goes to the heart of assessments about “what is to be done” about supplying and enhancing high speed access, mobile and other essential services.

The reason is simple: if tier-one telcos are dangerous potential monopolists, regulators have to be on guard against abuse of market power. But if tier-one telcos are fundamentally challenged, different policies are called for.

European regulators arguably have held both positions over the past couple of decades. Two decades ago, the emphasis was on restraining tier one service providers to enhance competition.

Today, the concern essentially is that there is too much competition in European markets, and that service providers are not able to justify investing enough to upgrade networks as regulators and others believe is necessary.

Perhaps ironically, that situation might be developing in the U.S. market as well, even if the largest U.S. service providers have been performing, financially, much better than many peers.

Consider that AT&T revenue has grown from about $43.9 billion in 2005 to $132.4 billion in  2014. Some might point out that represents compound annual growth of 13 percent.

Little of that growth came from organic growth, however. Also, earnings per share actually decreased from $1.42 to $1.19 over that period, at a  -1.94 percent compound annual rate.

And some might note that the stock price has grown from about $27 to about $33 since 2008, a gain of about $6 per share, or about 22 percent, in seven years.

The Standard and Poors 500 Index, by way of contrast, stood at about 1454. In 2014 the index had reached about 2000, a gain of 546 points or about 38 percent, in inflation-adjusted terms.

In non-inflation-adjusted terms, the SP 500 index is up about 70 percent since 2005, while AT&T is up about 38 percent. The Dow Jones Industrial Index and American Stock Exchange (AMEX) are up more than 62 percent over that same period.

The point is that AT&T has appreciated about half as much as the SP 500 index, and underperformed both the AMEX and Dow Industrial index.

That might suggest significant pressure in the business. Of course, opinions will differ. But looking only at equity price appreciation, one might argue AT&T has significantly underperformed.

Some would take that as a clear sign the market signals relative weakness. And that is why some of us would argue increasing regulatory burdens are unwarranted.