Please ensure Javascript is enabled for purposes of website accessibility

AT&T Pays a Price for Profit

By Dave Mock - Updated Apr 5, 2017 at 8:04PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

On the road to leaner, meaner business.

Getting in shape for the holidays is no longer just personal vanity -- with an economy growing uglier by the day, it's gone corporate in a big way. Bellwether telecom AT&T (NYSE:T) is doing its part by shedding 12,000 jobs -- 4% of its workforce -- throughout next year to weather the recession. While the move to slash jobs is unsurprising, it's a little more unnerving with the revelation this morning that employers cut a whopping 533,000 jobs in November.

And AT&T certainly has company. Sprint Nextel (NYSE:S) is offering buyout packages to some of its workers as it continues to bleed wireless customers, and even Google (NASDAQ:GOOG) is right-sizing its workforce. But unlike Sprint, AT&T's wireless business is still growing, with a 14% increase in its customer base last quarter, helped a lot by the Apple (NASDAQ:AAPL) iPhone. The cuts are being done more to address a "changing business mix" where investments in its landline segment will be cut back as wired lines in service dropped 11% in the last quarter.

AT&T is seeing a larger trend of customers getting rid of landlines in favor of going all wireless. And this is actually being incentivized by the carriers -- their offer of unlimited wireless plans and no long distance charges leaves little reason for customers to justify the extra expense of the traditional landline. It's also tough to go back to using a boring, tethered phone when you've got a cool device like an iPhone or Research In Motion's (NASDAQ:RIMM) Blackberry Storm to handle all your communication and connectivity needs.

The other motivation behind the layoffs is consolidation. AT&T has been going through a major transformation over the past few years as wireless has become a key growth factor. It has integrated SBC and BellSouth, and most recently announced the purchase of Centennial Communications and Wayport. Verizon Wireless -- a joint venture between Verizon Communications (NYSE:VZ) and Vodafone -- is playing the consolidation game too with its purchase of Alltel wireless.

The layoffs will cost the company about $600 million in the fourth quarter, but in the long-term, the cuts, combined with its plans to reduce capital spending, will help AT&T maintain its cash efficiency. I view the move as positive since AT&T has a good track record on consolidation, unlike others in the business such as telecommunications equipment maker Nortel (NYSE:NT) that still can't seem to organize the company for profitable operations.

More Foolishness:

The Motley Fool Stock Advisor service looks for companies with strong management poised to beat the market over the long haul. To see all the stocks that have helped Tom and David Gardner beat the market by 25 points on average, take a free 30-day trial.

Fool contributor Dave Mock thinks tree tinsel is more effort than it's worth. He owns no shares of companies mentioned here. Sprint Nextel is an Inside Value selection. Google is a Rule Breakers pick. Apple is a Stock Advisor recommendation The Fool's disclosure policy won't shake the wrapped presents.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

AT&T Inc. Stock Quote
AT&T Inc.
T
$18.01 (-0.50%) $0.09
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$119.70 (2.63%) $3.07
Apple Inc. Stock Quote
Apple Inc.
AAPL
$169.24 (2.62%) $4.32
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$44.84 (0.36%) $0.16
Sprint Corporation Stock Quote
Sprint Corporation
S
BlackBerry Stock Quote
BlackBerry
BB
$6.93 (5.16%) $0.34

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
373%
 
S&P 500 Returns
122%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/10/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.