In my heyday as telecom analyst for S&P, my go-to companies were AT&T
With Ebbers potentially looking at serious jail time and Michael Armstrong, AT&T's ex-CEO, now a cable-inspired memory, the telecom services industry appears to be in an extended period of transition. Companies such as SBC Communications
I'm always amazed when companies come out with a press release that basically restates a strategy they announced five years ago. Either Ma Bell designed the slowest transition of all time out of its declining consumer business, or it just thinks that people have a short attention span. I don't know how many conference calls I listened to where AT&T avowed to leverage its growing corporate segment and de-emphasize the anemic consumer unit. The company may not spend another dime on "acquiring new customers" in its consumer segment, but the fact remains that 27% of its revenues still come from this declining unit. Despite this, though, AT&T again today said that the company plans to go after the business market and new technologies, leaving the consumer market behind.
So, is there any good news from AT&T? The firm still has one of the most identifiable brand names in the world, but it is not fully utilizing this competitive advantage. It reported second-quarter earnings today that doubled the consensus estimate ($0.14 vs. $0.07 a share), yet shares dropped more than 2% in early trading. Net income was down 80% from last year, and revenues dropped 13%, which included a 13% decline in revenues for its business segment. Ma Bell explained that margin improvement was fueled by "favorable access settlements," and expects margins in the second half to "be eroded by continuing pricing pressures."
Even Alexander Graham Bell knew that his invention would evolve over time. While AT&T has made the transition from rotary phones to touch-tone models, its business model has been gathering layers of dust for years. The company should take some of that cash it expects to save on the consumer pullback, combine it with its extensive cash flow, and go out and find the next big thing in communications. After all, that's what we should expect from an industry leader.
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Fool contributor Phil Wohl spent more than 12 years on Wall Street and now concentrates his writing on more fictional characters. He has no stake in any firm mentioned above.