Was There Ever a Strategy That Could Have Saved AT&T, MCI or Sprint?

I realize it is a contrarian and extreme minority view, but perhaps no company I have followed for decades has had more notable “failed” growth strategies than AT&T, even when the broad strategy was undeniably correct. We might blame execution, but the big problem always seems to be the debt load required to implement the strategy.

In other words, AT&T was right about the strategy, perhaps ineffective at tactics, but in the end simply could not afford to implement the strategy without incurring debt loads so heavy the investments had to be unwound. 

As they say in sports, “a win is a win,” a loss is still ultimately a loss, as there are no “moral victories.” 

Most recently, AT&T has “shed” its ambitions in content ownership, linear video and video streaming by spinning out DirecTV and Warner Media. Keep in mind that AT&T shareholders still owned about 70 percent of each asset after the spinouts. 

That is universally described as a move by AT&T to get out of content and video and focus on its mobility and fixed network business. That is true in a large sense. Where I disagree is with the characterization of the strategy of getting into linear video, video streaming and content ownership as a “wrong strategy.”

AT&T made a similar huge move into the cable TV business two decades ago, as a way of getting into the local access business at a time when it was essentially only a provider of long distance telephone service, albeit a provider with a huge brand reputation. 

All that likewise was unwound as the debt burden became the issue, not the strategy. But the success of cable operators in seizing overwhelming and leading market share in the home broadband business, as well as healthy shares of the landline voice business and a rapidly-growing share of the mobile business, suggests that the strategy of building an advanced “communications” business on the cable platform was not wrongheaded. 

AT&T later became the largest linear video subscription provider when it acquired DirecTV. And AT&T essentially emulated the successful Comcast model in acquiring Warner Brothers for its content capabilities. Comcast now has distinct revenue streams as a content producer, content distributor and communications provider. 

AT&T was simply following that playback in amalgamating content, video distribution and local access network assets. 

All those initiatives were eventually reversed because the company could not bear the debt burden. One might argue that the strategy was wrong in all instances precisely because AT&T could not take on the debt to do so. Or, one might argue the strategy was correct, but execution wrong, as some lower-debt option had to be undertaken.

But it can be argued there simply was no “manageable debt” option. In fact, AT&T eventually failed outright as a stand-alone entity because it could not create some sustainable means of evolving from a long distance voice provider into something that looked more like Comcast. 

As it turned out, AT&T sold itself to SBC, so the whole company “failed,” living on only  because the brand name was adopted by SBC.

As with MCI, AT&T’s main competitor that also went out of business, being acquired by Verizon, or Sprint long distance, which was acquired first by T-Mobile and then essentially given away to Cogent, none of the three big long distance service providers managed to save themselves. 

Perhaps one might argue there was no strategy that would have worked. Perhaps all three were destined to be acquired as long distance voice ceased to be the industry revenue driver, and none of those firms had the capital to build or acquire their own local access facilities. 

I would agree that “no possible survival strategy” is an apt “in retrospect” assessment. I do not know what else they could have done other than harvest revenues for as long as possible before selling. 

That noted, the only conceivable survival strategy was that embraced by AT&T several times: acquire big stakes in existing businesses with sufficient cash flow to offer a hope of paying back borrowed money. 

Sure, it never worked. But I’ve never found other “strategies” for any of the firms that did not involve selling the companies or their asset bases, with one exception. Sprint eventually became a mobility company that also owned wide area network assets. But Sprint never found a way to break into leadership of mobile service provider market share. 

To reiterate, AT&T’s strategy was not conceptually flawed. It simply could not generate enough cash flow, fast enough, to handle the debt it took on to drive the strategy. One might well argue AT&T essentially had no strategy. And that is fair enough. But no public company executive can actually say in public that “the company is doomed and our only long term option is to sell the assets.”