ANALYSIS

Curing AT&T’s Sickness–Telecom 3Q Earnings Preview (Part 3)

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By Jim Patterson

October greetings from Lake Norman where we are enjoying an almost perfect fall. Pictured is Monday evening’s peaceful Lake picture from our dock. The view never gets old.

This week’s Brief is devoted to diagnosing AT&T’s sickness. We have highlighted their lost market value frequently this year (see latest chart below), and the company’s underperformance is evident. We will chronicle their recent strategic moves, and attempt to diagnose the “cocktail” required to heal the patient.

The week that was

The Fab 5 had a bit of a bounce back this week, adding more than US$277 billion (a little over one Verizon) in market capitalization. There were broad gains across each stock, with notable strength in Amazon (+US$82 billion wk/wk), Microsoft (+US$74 billion) and Apple (+US$69 billion). Next Tuesday, Apple will be holding an event where we should see the new 5G-equipped iPhones (more on what to expect from CNET here). We’ll cover that analysis in next week’s Brief.

The Telco Top 5 continued to hover around breakeven as a group, with increased pressure on AT&T (-US$3 billion) and Comcast (-US$2 billion). As we note below, Comcast’s recovery from April lows has been remarkable (US$49 billion recovered since April 1). As a group, the Telco Top 5 have recovered over US$162 billion since the April 1 low.

Former Microsoft CEO Steve Ballmer went on CNBC this week to comment on the House Committee’s report on Antitrust activities of Amazon, Apple, Google, and Facebook (a little over 3 minutes of that interview is here). Ballmer, who seems politically neutral, started the interview with the statement “When I read this report, it blew my hair back – that’s how crazy [the report was].” Ballmer went on to say that there continues to be a need for some government regulation of technology, and that these large firms should engage with regulators now.

In addition to Ballmer’s comments, WIRED columnist Steven Levy penned one of the most insightful columns on the report Friday. While lengthy, Levy describes the underlying issue as being much larger than tech:

“The questionable behavior the committee exposes in the thousands of pages of evidence here is less about the uniqueness of tech platforms than it is about how our system allows companies from any industry to conduct themselves. The huge, anticompetitive acquisitions listed in the report—like Facebook’s purchases of Instagram and WhatsApp—are much in the spirit of mergers we’ve seen in industries like banking, media, and airlines. If regulators look the other way when supermarket chains favor their house brands on display, why be surprised when Google pushes its services on search pages, and Amazon sends us its Basics line when we bark a request to Alexa? When a game company is disadvantaged by paying 30 percent of its revenue to Apple—while Apple’s competing product pays nothing—it sounds like the routine conflict of cable networks who favor content they own over those of companies who don’t have exclusive access to consumers. The report even takes the tech companies to task for using some of their fortunes to hire lobbyists to curry influence. Like, um, every other big industry in America? And, hey, Congress, whose fault is that?

In other words, Big Tech is doing business the American way. Exposing the sins of Amazon, Apple, Facebook, and Google is like pulling a curtain from a mirror.”

This is not the last we will hear from tech media on the Report. But the House Subcommittee’s position, that structural separation of market leaders is the best way to control anti-trust behavior, is definitely aggressive (and, as analysts suggested this week, tone deaf to the rapid changes that redefine markets and competition each month). This is not the last commentary we have heard from the tech community on this matter, and both Steven and Steve make some salient counterpoints to the report.

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