The earnings growth of the wireless unit is expected to reach mid-teens partially attributed to the acquisition of Dobson Communications. By acquiring Dobson, AT&T expects to possibly gain 13 million customers in 17 states. (3)Also, a growing wireless subscriber base and wireless data revenues propelled by the exclusive iPhone contribute to earnings expectations. The Operating Income Before Depreciation and Amortization is projected to be in the low to mid 40% scope. Enterprise unit
The Enterprise unit is AT&T’s division that provides such services as IP Virtual Private Network, Voice over IP, Local and Long Distance Voice, Data and Managed Data Solutions, and Local Search among others. The unit saw a 3. 9% revenue decrease following the BellSouth merger but earnings recovered by third quarter and are now projected to continue to increase growth during 2008. AT&T has been investing in Ingenio, a pay per call solution provider, and expects to see high growth from its yellowpages. com service. (4)
Capital expenditure is expected to remain consistent in the mid teens. Wireless and wired networks are continually being upgraded in an effort to support the launch of U-verse. U-verse is projected to have a subscriber clientele of over 1 million customers by the end of 2008. U-verse is expected to launch in what was formerly the Bellsouth South East sector, using a controlled launch in Atlanta. The launch in the South East realm will bring to the U-verse populated states total to 22, to reach a clientele of 30 million units by the end of 2010.
AT&T is expecting to boost profits in its satellite service arena by partnering with DirecTV, the U. S. ’s largest satellite television provider. Once AT&T’s alliance with Dish Network ends on January 31, 2009, DirecTV will begin offering customers a dual-branded package of video, home phone, wireless phone and Internet service from Feb 1 2009. New customers will receive a discount on services for bundling other AT&T services. This partnership contributes to the merger collaborations expectations of reaching more than $7 billion by 2010. (4)
Strong Growth in Free Cash Flow
AT&T is confident that its ramping revenue growth combined with continuous cost improvements and share repurchases give it the ability to deliver sustained double-digit growth in adjusted earnings per share and strong growth in free cash flow in 2008 and on an ongoing basis. Share Repurchase The board also approved a new authorization for the repurchase of 400 million shares, which represents approximately 6. 6 percent of AT&T’s shares outstanding as of Dec. 7, 2007. This replaces AT&T’s current repurchase authorization, under which the company had repurchased more than $13 billion of its shares through Dec.
7, 2007. Based on current market conditions and the company’s outlook, AT&T expects to complete the repurchases available in the new authorization by the end of 2009. (5) Strategic Objectives 1. Build Largest Wireless Business in the US 2. Expand Enterprise Business 3. Expand Broadband Access 4. Build An All-Internet Protocol Infrastructure 5. Corporate Citizenship Build Largest Wireless Business in the US A little more than three years ago, Cingular Wireless, in which AT&T owned a majority stake, acquired AT&T Wireless.
That acquisition enabled Cingular Wireless to obtain nationwide coverage. AT&T in turn acquired BellSouth, which gave them complete ownership of Cingular Wireless. AT&T now operates the nation’s largest wireless digital voice and data network, with a customer base of more than 70 million subscribers. They have provided the industry’s largest improvement in customer loyalty and have become the industry leader in providing ingenious smart phones to techno savvy customers, including partnering with Apple on the exceptionally widely anticipated and received iPhone, available only in the US.
AT&T seeks to remain the industry leader in wireless subscribers. The company had strategically positioned itself as the leader in characterizing the future of wireless products and services. (2) Expand Enterprise Business The acquisition of the former AT&T Corp. gave AT&T Inc. a world-class set of assets to serve large U. S. and multinational companies. In the second half of 2007, the company witnessed enterprise service earnings resume growth a year ahead of schedule, and subsequently forecast growth in total enterprise revenues in 2008.
The company invested in new technologies and has performed well, and business customers have expressed positive feedback to the complete extent of services AT&T is able to provide. Customers have demanded more mobile communications, Internet-based applications and comprehensive global connectivity, giving AT&T the opportunity to continue growth in 2008 and years beyond. Expand Broadband Access Broadband is becoming the primary connection for linking consumers and businesses to entertainment and information.
AT&T is the industry leader with more than 14 million broadband subscribers, it has the most expansive Wi-Fi network in the US, and it is making high speed Internet access mobile. By the end of 2008, more than 7,000 Starbucks locations in the U. S. will feature Wi-Fi service provided by AT&T. The usage of broadband internet access is increasing. Demand is on the rise for higher speeds to be able to utilize such applications as video. There is substantial growth potential ahead as AT&T makes broadband access a smooth transition across wired and mobile devices.
(6) Build an All-Internet Protocol Infrastructure Internet protocol is the future of a world driven by connectivity. AT&T is building the fastest Internet backbone in the U. S. , and is the only major U. S. communications company using a pure, 100 percent IP video network. The next-generation AT&T U-verse service — which delivers interactive TV, broadband and voice — increased during 2007 to more than 231,000 TV customers. AT&T has projected to end 2008 with more than 1 million U-verse TV customers and expand its network deployment to 30 million customer locations by the end of 2010.
Corporate Citizenship AT&T’s vision of connecting people also shapes its role as a corporate citizen. AT&T believes that investing in employees is the first step in being a responsible corporate citizen. The company works with unions such as the Communications Workers of America and International Brotherhood of Electrical Workers to create and preserve jobs that pay well and have good benefits and ample opportunities for training and advancement. (2) AT&T also works hard to strengthen communities.
The company is committed to placing a more detailed effort on supporting education and workforce readiness. AT&T believes that the surprisingly high dropout rates of high school students in America are detrimental to economic vitality. AT&T expresses a strong desire to contribute to programs focusing on education in order to exhibit the commitment to being a responsible corporate citizen. Corporate Strategies 1. Marketing 2. Research and Development 3. Human Resources 4. Supply Chain 5. Financial
Marketing AT&T wanted to remake its image from monotonous dependability to one of a vibrant, fresh, hip persona, and launched a marketing campaign that combined virtual reality with social networking. The company’s marketing strategy includes traditional television commercials, billboards and print ads; however, it also includes an online AT&T Souvenir Store that invites customers to make up their own worlds. AT&T is the exclusive service provider for the wildly popular iPhone, created by Apple.
The iPhone has helped AT&T appeal to more youthful clientele, but the company has to be careful with balancing the new image for the consumer market and continuing to appeal to corporate and government customers. Noticeable marketing changes include changing the AT&T logo from all capital letters to lower case letters, and switching the color from the tried and true blue, to vibrant orange. AT&T also offered an interactive web based marketing plan that allowed customers to enter the cities they frequented most, and merge the names into one word.
Research and Development (ATT Labs) AT&T has three major areas of research. They are Information and Software Systems, Internet and Network Systems, and IP and Voice Services. The research is conducted at AT&T Labs. Research consists of some of the world’s best scientists and engineers utilizing their expertise in science and technologies that are of critical importance to AT&T including advanced data networking, network management, wireless systems, software, information mining and management, and speech technology.
AT&T Labs is experienced in creating and refining technologies and services that scale to meet changing communications needs. Since the company manages its own vast network, the knowledge has given it an incomparable understanding of network management. This is an example of a positive effect learning curve. The technologies developed in the company’s research labs help AT&T monitor, anticipate, and act before network events can impact users. Research and Development experts have developed technologies and techniques that have made the AT&T network one of the fastest, most reliable, and scalable networks today.
They have made pioneering advances in technologies such as voice recognition, text-to-speech, network management, wireless systems, security, network architecture, software systems and tools, and information mining, management and visualization. ( (7)The Research and Development scientists’ technical expertise and knowledge of network design and optimization is a core competence and gives the company an unparalleled ability to create ingenious new network services and enhance AT&T’s own operations. Human Resources In 2002, AT&T signed a seven year contract with Aon Human Resources Outsourcing.
By outsourcing its Human Resources department, the company has been able to deliver excellent service levels, satisfied customers and reduced costs. The collaboration of AT&T and Aon Consulting combines the talents of AT&T’s human resources and payroll organizations with Aon Consulting’s core competencies in employee benefits, compensation, employment and other services. For two years, Aon Consulting has provided AT&T with end-to-end human resources administrative, transaction and payroll services, including the oversight of existing benefit plan service providers.
The partnership allows AT&T to efficiently manage these functions, leverage Aon Consulting’s leading-edge systems and technology to expand e-enabled services and functionality for AT&T employees and achieve a significant cost savings. (8) Supply Chain AT&T has realized that big wins are established on small gains and has standards of measurement so seemingly precise that they measure the time it takes for contracts to get from procurement to a centralized quality auditor for review. AT&T is able to obtain all of relevant information it needs in just nine standards.
The vision of the company’s supply chain department is to maximize AT&T’s supply chain performance, increase customer revenue, reduce the total cost of ownership, reduce cycle time, and meet the needs of AT&T’s business partner organizations. (9) The vision is exhibited by four priorities that operate the procurement organization: business partnership, financial management, operational excellence, and innovative teams. Within these four priorities are nine standards of measurement. Those nine standards of measurement are: 1. Business Partner Satisfaction 2. Contract Savings 3.
Budget Attainment 4. Contract Document Quality 5. Manage Contract Expiration 6. Contract Under Negotiation 7. Contract to Auditor 8. Supplier Quality 9. Supplier Diversity . The procurement organization reviews its standards monthly to ensure they are corresponding with its vision. Then, each year, when it goes through its business planning process, it determines if any of the standards need to be updated or refined. (9) Financial The company recorded revenues of $118,928 million during the fiscal year ended December 2007, an increase of 88. 6% over 2006. AT&T primarily operates in the US.
AT&T generates revenues through four business divisions: wire line (58% of the total revenues during fiscal year 2007), wireless (35. 5%), advertising and publishing (4. 8%) and other (1. 7%). Revenue by Division During the fiscal year 2007, the wire line division recorded revenues of $69,565 million, an increase of 21% over 2006. The segment’s revenue growth was augmented by growth in data and voice services revenues which grew by 31. 4% and 23. 5% over 2006. (10) The wireless division recorded revenues of $42,574 million in fiscal year 2007, an increase of 13. 4% over 2006.
The performance of this division improved because of high growth in data related services revenue. Wireless division’s sub segments of services and equipment grew at 14. 5% and 6. 9% in 2007 over the previous year. (10) The services revenues were mainly driven by data services, which grew at 63. 3% over 2006. The advertising and publishing division recorded revenues of $5,771 million in fiscal year 2007, an increase of 58. 8% over 2006. This segment’s revenue increased due to the addition of BellSouth’s operating results. (10) The other division recorded revenues of $1,982 million in fiscal year 2007, an increase of 16.
5% over 2006. The segment’s performance improved due to addition of BellSouth’s other operations and increased operating revenue at Sterling. (10) AT&T’s Board of Directors raised the quarterly dividend 12. 7 percent, the largest annual increase in the company’s history from $0. 355 a share to $0. 40 a share on a quarterly basis and from $1. 42 to $1. 60 a share on an annualized basis. This increase recognizes the company’s strong growth and positive outlook and follows a 6. 8 percent dividend increase approved by AT&T’s board in December 2006, marking the company’s 24th consecutive year with an annual dividend increase.
Competitive Strategy AT&T’s competitive strategy fits the broad differential category by offering an abundance of products and services to all types of customers. Customers are able to bundle services and receive wire line local and long distance telephone service, wireless telephone service, high speed DSL internet access, advance TV service in one package or they may pick and choose the individual services that fits their needs. AT&T’s broad customer base includes the average personal consumer, the small business entity, and large multi-national business corporations.
Competitive Analysis 1. New Entrants 2. Substitutes 3. Rivalry Within the Industry 4. Suppliers 5. Customers New Entrants Deregulation of the market in recent years allowed more incumbents to enter the market. It has also created an opportunity for new companies to enter the market that at one time was virtually non-existent. Increasing numbers of existing companies and start-up companies are attempting to enter this market. Switching costs tend to be minimal and is not considered a high barrier to entry. Entry is largely on a regional basis.
Established companies, such as AT&T and Verizon, enjoy high levels of brand recognition and customer loyalty. However, new companies can compete, as customers are more likely to be influenced by price and specifications. In some areas there still exists an effective monopoly by individual established companies, making market entry difficult to achieve. Strong market growth in recent years offers an attractive prospect to potential new entrants. Overall, there is a moderate likelihood of new entrants to this market. (11) Substitute An alternative to integrated telecommunications services exists in the form of the wireless market.
Wireless alternatives are growing rapidly, with a rise in mobile phone usage, which in some cases replaces fixed-line usage entirely. However, many businesses are likely to maintain an integrated telecommunications service, and the growth of bundled packages is helping to keep the market strong. The exclusive iPhone currently requires service only by AT&T. Other Wireless service carriers have had to substitute phones similar to the iPhone to satisfy their customers. Such substitutions include but are not limited to: Prada by LG, Omnia by Samsung, and the N95 by Nokia.
Conclusively, the threat from substitutes is moderate. Rivalry The integrated telecommunications services industry is undergoing reconstruction in the form of consolidation. As a result, costs are decreasing and revenues are increasing, giving way to higher profit margins. However, the rapid growth of the wireless market, inviting digitalization and 3G technology, and the increasing demand for online Voice over Internet Protocol offerings present a surmounting obstacle to existing companies if they are unable to adapt to the changing market.
Many companies operating in this market have a strong market presence, brand recognition, and existing customer relationships, all of which contribute to intensifying competition. Overall, there is a moderate degree of rivalry in this market. (11) Suppliers The diversity of suppliers is an indispensable part of AT&T’s business. The company has received multiple honors for its commitment to diversity and inclusion. In 2006 and 2007, AT&T was at the top of diversitybusiness. com’s list of the Top Organizations for Multicultural Business Opportunities.
The list is based on the quality of business opportunities that a company routinely grants to companies that are owned by minorities, women, and disabled veterans. AT&T’s supplier diversity leadership has helped launch several best practices for supply chain inclusion. In 1989, the company was one of the first to implement a formalized second-tier program, which has been effective in broadening the spectrum of opportunities for diverse suppliers within telecommunications and other industries.
(12) AT&T is a member of the Billion Dollar Roundtable, a supplier diversity group of corporations that spend in excess of $1 billion per year with diverse companies. There are only thirteen companies that qualify to be in the Billion Dollar Roundtable. Supplier diversity is a crucial element of AT&T’s business strategy and a substantial rudiment of the company’s plan to deliver the best products and services to its customers. In 2007, AT&T spent $5 billion with diverse suppliers, representing 12. 5 percent of the company’s procurement base. (12) Customers AT&T is a global telecommunications company with a diverse customer base.
The company values individual perspectives and bridges cultural gaps with its multicultural outreach efforts. AT&T wants to make sure all customers feel valued and that their concerns are important to the company. By understanding the regions served, AT&T is in a better position to meet the needs of its customers regardless of the location. AT&T believes it is vital to provide customer assistance and to conduct business in the preferred language of its customers. The company has more than 1,700 representatives working in 22 AT&T Call Centers that provide assistance to more than 1.
5 million customers in languages other than English. (13) Key Success Factors 1. Technology 2. Distribution 3. Marketing 4. Skills and Capabilities Technology Technology developed in AT&T Labs is a big Key Success Factor. The technologies allow AT&T to reach individual customers as well as business and government clients. They also allow AT&T to expand beyond being just a telephone company and into other services as well. Distribution AT&T offers a variety of distribution channels to allow mobile content developers a host of different ways to bring their applications to AT&T wireless customers.
Developers can distribute downloadable content such as ringtones, games, wallpapers, and other applications that customers generally embrace. Marketing As we learned from the AC Gilbert case, as times change, companies have to be flexible enough to change as well. AT&T changed its marketing strategy from one of stoic dependability to one of a younger feel, capturing a new generation of customers. By presenting itself as a more intuitive company, AT&T has attracted younger customers who will hopefully develop a brand loyalty, while steel appealing to more established customers that retain their brand loyalty.
Skills and Capabilities Another key success factor for AT&T is the ability to provide quality customer service. By understanding multicultural connections and emphasizing diversity, AT&T is able to make the customer a priority. AT&T has global network infrastructure and capabilities, which gives the company the ability to deliver services and solutions to businesses and multinational companies in both new and established markets worldwide. The group has a market leading assortment of Virtual Private Network (VPN) services. External Analysis A. Opportunities
I. Acquisitions II. The Shell Deal III. Expanding U-verse fiber network IV. Investments in global networks for business services Acquisitions AT&T made certain acquisitions in 2007. The company acquired Dobson Communications Corporation, a provider of rural and suburban wireless communications services under the Cellular One brand, in November 2007. In the past, both companies have allowed its customers to roam on each other’s networks. The acquisition has improved AT&T’s coverage in suburban areas. When AT&T acquired Dobson, it added approximately 1.
7 million subscribers of Dobson to the AT&T subscriber base and provided them more services offered by AT&T. Also in November 2007, the company acquired Ingenio, a provider of Pay Per Call technology. Ingenio’s pay per call technology allowed companies to keep a record of the business it received as a result of a uniquely published telephone number, such as 1-866-MY-VOTE1. AT&T plans to combine pay per call technology with its directory service and local search advertising sectors. Combining of the pay per call gives the company the technology to take advantage of opportunities in the growing performance based advertising.
(11) The Shell Deal AT&T was selected by Royal Dutch Shell to be its global communications service provider. According to the deal, the company entered into a five year $1. 6 billion agreement with Shell for managing and maintaining Shell’s worldwide communications network while also managing the company’s global mobility needs. According to a report produced by Datamonitor, this deal is the largest commercial agreement ever signed by AT&T. Under the agreement, AT&T is required to provide managed network services to Shell and its subsidiary companies in more than 100 countries.
Other services to be provided under the contract include wide area and local area networks, voice services, managed security solutions and mobility services. The most important part of the contract is that AT&T will manage approximately 600 separate third party local service contracts with more than 300 vendors around the world for Shell. The fact that AT&T was awarded this contract is evidence of AT&T’s position as a major global telecommunication services provider. Expanding U-verse fiber network AT&T is expanding its U-Verse network across the US.
In early 2007, the company proposed to use Gigabit Passive Optical Network technology for its internet protocol networks. This technology allows AT&T to deliver 75 Mbps per home, which is three times faster than the 25 Mbps of the Fiber-to-the-Neighborhood technology that AT&T had been using. AT&T has chosen Ericsson and Alcatel-Lucent as vendors for providing equipment needed to expedite G-PON networks in its service areas. In 2007, the company’s U-verse network venture passed through roughly 8 million homes in various cities in the US. It plans to extend U-Verse network coverage to about 30 million houses by 2010.
In 2008, the company has also announced a further investment of about $1. 3 billion in the Illinois region. “In terms of the U-verse subscribers, the company is targeting about a million customers by end of 2008 from 231,000 towards end of 2007. In addition to extending the network, AT&T has also added interactive features like U-bar, YELLOWPAGES. COM TV, and AT&T Yahoo! Games in 2007. Continued expansion of the network provides the company with wide customer reach and competitive advantage. ” (11) Investments in global networks for business services
In March 2008, AT&T announced that it planned to invest about $1 billion in expanding its global network and services for global businesses. Under the investment plans, the company considers building subsea cable capacity to China, India, Australia, Middle East, and Caribbean. AT&T is also planning to extend data center hosting capacity by mid 2009 throughout its 38 global data centers and establishing MPLS routers in the US, Europe, and Asia, and the expansion of access to AT&T’s global network with additional MPLS based IP network access nodes in the Americas, Europe, the Middle East, India, Japan, and Asia.
Expansion of global network capabilities and business services portfolio provides the company with capabilities to capitalize the growing business customer requirements. (11) B. Threats I. Industry Consolidation II. Saturation in Wireless Markets III. Government Regulations Industry Consolidation Telecom consolidation is creating large rivals with the capability to take away market share from AT&T. The merger of third and fifth largest US wireless carriers, Sprint and Nextel respectively, has created a challenging competitor in the wireless business.
Verizon acquired MCI and created a global communications and information technology provider serving business and government customers. While consolidation in the service provider segment increases competition, consolidation in the telecom equipment segment creates large suppliers with considerable bargaining power. Consolidation of telecom companies negatively affects the financial performance of the industry. Saturation in Wireless Markets In 2006, about 80% of the US population had wireless phones and that penetration level reached approximately 87% in 2007.
The saturation of the US wireless market will adversely affect the top line growth of telecom companies. Because of increasing competition, the possibility of increasing prices to increase revenue has been rejected. Most telecom companies are relying on expanding their customer base to grow their wireless revenues. Competitive pricing in the wireless segment is so high that most telecom companies have reported a decline in average revenue per user year after year. As the number of wireless subscribers in the US reaches a saturation point, telecom companies will not be able to grow by adding subscribers, thereby reducing wireless revenues.
As a result of promotional campaigns introduced to entice new customers, AT&T’s wireless average revenue per user has declined in recent years. If this decline in the average revenue per user continues, it would strain the financial position of the company. Government Regulations According to a report produced by Datamonitor, the wire line subsidiaries of AT&T are subject to stringent federal and state regulation, while many of its competitors are not. Additionally, the subsidiaries and affiliates of AT&T operating outside the US are also subject to the jurisdiction of national regulatory authorities in the market where service is provided.
The wireless subsidiaries of AT&T are regulated to varying degrees by the Federal Communication Commission and some state and local agencies. If the FCC were to impose new regulations or changes to existing regulations, it could negatively impact the financial performance of the AT&T. In addition, the development of new technologies such as IP-based services could create conflicting regulation between the FCC and various state and local authorities. Such conflicts of interest could result in litigation that could be detrimental to the company’s brand image. Internal Analysis A.
Strengths I. Strong brand image II. Leading market position III. Healthy financial position Strong Brand Image AT&T is a well-established brand in the telecommunications markets. Even though SBC Communications acquired the old AT&T Corporation in 2005, it chose to operate under the AT&T name instead of retaining its own name. All subsequent acquisitions of the AT&T Corporation implemented retaining the AT&T name. This action signifies the strength of the AT&T brand. In January 2007, AT&T launched a new multi-media campaign to support the transition of the Cingular brand to AT&T.
Also, in September 2007, AT&T launched new advertising and online campaigns to infuse new themes with its brand. As competition in the enterprise and consumer telecommunication markets increases, a strong brand image gives AT&T a competitive edge and enables the company expand its enterprise customer base. (10) Leading Market Position AT&T has a strong market position in business services and wireless business. In 2006, 34% of the wire line market in the US was provided service by AT&T. The company is one of the leading providers of Internet protocol-based communications services to businesses.
AT&T is also one of the leading providers of wireless services in the US. The conglomerate is the largest provider of mobile wireless voice and data communications services in the US in terms of customer base. As of December 2007, the wireless segment of AT&T served approximately 70. 1 million customers in the US. The wireless market customer base of Sprint and Verizon was about 54 million and 67 million respectively, which is reasonably lower than AT&T. In broadband services, AT&T has a dominant position with about 14. 2 million subscribers in 2007.
Having a leading market position often provides the cash flow to devote to new technologies, which further fortifies its market position. Healthy Financial Position AT&T is relishing a healthy financial position. The company’s total revenues improved from $40,498 million in fiscal 2003 to $118,928 million in 2007. The revenue growth of 88. 6% in fiscal year 2007 can be attr