Why is AT&T struggling?
The company has faced some problems in the recent past because of enhanced competition, certain wrong strategic initiatives, and organizational dynamic adaptation. Here's a closer look at some of the reasons why AT&T finds itself losing customers and facing revenue declines.
Increased Competition
Mobile telecommunications has been one of the most competitive industries in the world in the past decade. Verizon and T-Mobile have risen to the occasion by offering cutthroat offers, deals, and enhanced networks. This put pressure on AT&T Internet which used to have a near monopoly along with Verizon. T-Mobile has been one of the fastest-growing telecommunication companies within the last few years, gaining millions of subscribers – many of which switched from AT&T.
It has also brought new competition with the advent of 5G networks. Cable companies such as Comcast and Charter have ventured into the wireless market as MVNOs, which leverage Verizon’s unbeaten 5G network. For many households, their bundled packages of wireless, TV, and internet are quite popular. AT&T for example has been very slow in the deployment of 5G which has affected them against this new form of competition.
Failure of DirectTV Acquisition
2015 saw AT&T purchase DirectTV at $49 billion with the intent to become an integrated content and distribution network. To my mind, however, this deal has been rather a failure. Huge numbers of AT&T’s premium TV customers have defected as the cord-cutting trend gains momentum across the broad pay TV market.
The combination between the satellite video provider and AT&T’s communications such as wireless, phone, and internet never produced the expected synergies. Now AT&T is looking to sell DirectTV after it had incurred significant losses in the business. The failed acquisition also left AT&T burdened with a high amount of debt which has limited their capital expenditure and innovation in the past few years.
Adapting to Cord-Cutting
The whole pay-TV market is threatened by cord-cutting as more and more consumers switch to cheaper SVoD services offered by Netflix, Hulu, and Amazon Prime Video. This is mainly caused by the younger demographics in particular. And while AT&T has more than 15 million DirectTV and its U-verse cable TV replacement service, the company is losing more than one million of these premium TV customers every year.
Even though AT&T has ventured into its streaming platforms like AT&T TV and HBO Max, the growth is not enough to compensate for the traditional TV services’ meltdown. And their streaming options, in general, are more expensive and have fewer options than their competitors. With streaming wars well and truly upon us, AT&T has been rather slow in adopting the new trend despite facing intensified competition from other businesses that are keen on embracing the future of video.
Failure to Innovate
While most telecommunication giants such as T-Mobile, and Verizon and new entrants such as Cable MVNOs are coming up with unique strategies in wireless and video markets, AT&T is seemingly lagging - more preoccupied with cost-cutting and its shrinking operations than in charting forward-looking growth strategies. The $49 billion that was invested in the failing DirectTV acquisition meant that AT&T had little cash to invest in the modernization of its services and its networks at the time this was happening.
Now the company is in a reactive mode at a time when quicker and more flexible competitors have gained the initiative. In contrast to its competitors, AT&T lacks a clear strategy to move millions of customers from first-generation services as consumer habits and technological advancements change. Unless AT&T starts innovating again, it will continue losing its customers who seek services that suit the streaming paradigm.
The Road Ahead
AT&T must know that it has challenges to address. New management has been hired, more expenses have been slashed, the company has been streamlined and some efforts have been made to divest itself of unrelated businesses such as DirectTV. It is also refocusing on Wireless and Fiber Broadband as core growth platforms in the future direction.
However, whether these measures serve to allow AT&T to recover from strengthened rivals in an even more competitive environment is still debatable. The company has several strengths in areas like scale and brand image that could help drive a revival if leveraged properly. However, the time is counting for AT&T to demonstrate that it still has the potential to succeed in the current wireless and entertainment industry.
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