Porter’s Five Forces Analysis of AT&T
|Industry||Wireless Telecommunications Services|
|Headquarters||Dallas, Texas, USA|
|Revenues||USD 120.7 billion (CY22)|
|Profit||USD -7.06 billion (CY22)|
|Competitors||Verizon, T-mobile, Sprint|
AT&T is an American telecom giant and world’s largest telecom sector company by revenues. The company operates cellular networks across the US and ranks top in customer satisfaction. AT&T has a long history of acquisitions and divestures. In fact, the famous Warner Bros is also one of the sell offs of AT&T.
The company added around 2.9 million subscribers in CY22 which is the fifth consecutive year with more than a million addition to subscriber lists. AT&T reported net revenues of USD 120.70 billion in CY22, down 10% YoY from USD 134 billion in CY21 as the company let go of US Video operations which was offset by improvement in Mobility business segment. The company also reported a Loss of USD 7.06 billion on account of non-cash impairments, higher bad debts provisions, high wireless equipment costs and 3G network shutdown related expenses. AT&T ranks 13th on Fortune 500 list.
Today we are going over Porter’s Five Forces of AT&T
AT&T Rivalry among Existing Competitors
- Business Segmentation(Reportable Segments Communication and Latin America) and Revenue Analysis FY 2022 and FY 2021 :
The company has currently two important revenue segments one is Communicationswith a revenues generation of US$ 117.06 billionwhich 97% of the total Operating Revenues in FY 2022.While the same segment generated US$ 114.7 billion in FY 2021.
The second segment is Latin Americawith a revenues generation of US$ 3.14 billion which contributed 3% of the total Operating Revenues in FY 2021.While the same segment generated US$ 2.74 billion in FY 2021.
- TheCommunication provides Mobility(serves at national level for wireless services and equipment provision), Business Wireline(serves to business customers for Ethernet-based fiber services and related equipment) andConsumer Wireline (serves to residential customers for broadband services)
- The Latin America operates Mexico via wireless services and equipment segment.
- Business Segmentation Services and Equipment:The Company generated US$ 97.83 billion from Services which is 81% of the total revenues and US$ 22.91 from Equipment Operations which is 19% of the total revenues in FY 2022.
While the company generated US$ 111.56 billion which is 83% of the total revenues and US$22.47 from Equipment Operations which is 17% of the total revenues in FY 2021.
- Aggressive Competition
Although AT&T held a monopoly in the business in the first half of 20th century but the recent business dynamics has changed a lot. New players like T-mobile, Sprint and Verizon have completely concentrated the industry eating away AT&T’s market shares. The players came in with attractive offers and discounts to attract the already cost sensitive users in world with growing internet needs.
Verizon is another American telecom giant which has rivaled AT&T in recent years. The company maintains the largest network is America and has around 120 active subscribers to date. Additionally, the company has also ventured in to selling electronics. The company reported revenues of USD 136.84 billion in CY22, 2.4% YoY compared to USD 133.61 billion in CY21.
AT&T Threat of New Entrants
- High investment in setting up Network Towers
The telecommunications is a highly expensive business with the initial investment to set up network towers, install servers and create an ecosystem that can then be used by millions of users. Also, maintaining such network is also extremely expensive.
These companies continuously spend capital expenditures on expanding their network reach so they can get best coverage in wider areas to cater to a broader market which makes the business extremely competitive for new comers to enter.
According to Mathrews and Samritha, AT&T is investing in investing heavily in fiber optics to boost its broadband track and video services as the company has added 280k fiber customers in 4QCY22.
- High Regulatory Environment
AT&T has international operations (like Mexico) which makes them liable for not just US regulations but also many local laws where the company’s operations resides. The company faces a lot of risk of penalties from regulatory authorities due to sensitive nature of business and growing awareness on privacy from activists.
The company also has to comply with supranational regulatory authorities along with compliance of federal and state regulations because of intensive wired business which sets AT&T a little different from competition.
AT&T Bargaining Power of Suppliers
- Heavy reliance on Tower builders and Heavy Capital Investment Including Vendor Financing
AT&T suppliers are companies that help increase the network reach by manufacturing of towers in various remote areas and in city areas. The main raw materials is copper and steel for wires and technical staff is required. AT&T has partnered with Ericson and Alcatel-Lucent for cost benefits regular support. These partners also provide regular maintenance and technical support to AT&T.
The AT&T budgeted US$ 24 million to spend in it’s capital investment in FY 2022 and FY 2023 from it’s cash flows. Only in Q1 of FY 2022 the company spend US$ 6 billion in it’s capital investment including US$ 1.6 billion Vendor Financing.
- Supply Chain disturbances amid Russia Ukraine conflict
There were immense supply chain disruptions in the wake of Russia-Ukraine conflict with increase in energy prices and shortage of silicon chips led to the explosion of prices for technological products. However, demand largely remained inelastic despite cost push inflationary pressures as people adjusted to post Covid-19 era by changing cost patterns.
Also, after the pandemic a lot of work places has switched to fully or partly remote which increases the reliance on telecom players as everybody uses their local cellular devices for not just voice or email communication but also conducting meetings and sharing presentations.
- Supplier Policies, Certifications, Code of Conducts – Market Leadership and Industry Trends Setter
AT&T follows and adopt requirements of TL 9000 metrics which is a global guideline and best practices measures on the telecommunication industry by TIA QuEST Forum.AT&T is also a member of TIA QuEst Forum.AT&T always work with Certified Suppliers. For Diversity inclusion AT&T do diversity vetting for Minority, Woman, Veteran and Lesbian etc owned businesses.
AT&T spent US$ 230 for diversity inclusion in last 54 years.
AT&T Bargaining Power of Buyers
- Continuous Offers and Discounts
Telecom consumers are somewhat like Fast Moving consumers which are highly sensitive to costs and quality of service. Since the product is minutes of phone calls, number of messages and GBs and speed of internet which are intangible (not physical), consumers are easy to switch. Another reason is users have to spend this money monthly rather than just once, which compels them to seek better bargains from rival telecom providers. According to Lumley, with stronger 5G speeds and increasing volumes AT&T is off to a great start for this year.
- Liberty to increase Costs
AT&T being so largely popular competes on both cost and quality. The company has the ability to pass on impact of cost push inflation to users in the shape of increased prices for its services. However, there is intense competition from rival telecom providers to provide the same quantity of data (in terms of minutes, or GBs) in lesser costs. This perfect competition nature of business somewhat reduces the ability for large price hikes.
- IncreaseClient Base Trend
AT&T has a vast and diversified subscriber base for mobility across the US. According to Statista, the company has around 201.79 million users in Year 2021 and this count has grown twice since 2007 when the company has 70.05 million subscribers, with the increase in reliance towards faster internet speeds (5G technology). This helps the company keeps bargaining power of users low.
The company experienced a customer growth of 10.5 % in 2021.The subscriber base of 182.56 in 2020 increased to 201.79 in 2021. The company experienced the same customer growth of 10% in 2020.The subscriber base of 165.89 in 2019 increased to 182.56 in 2020.
AT&T Threat of Substitute Products or Services
- Very less substitution cost for users
Users have to purchase a cellular card once and pay monthly for their usage of internet data, number and length of calls and messages. This makes the consumers extremely sticky for prices and forces even giant players like AT&T, Verizon and Sprint to compete for lowest costs to keep their market shares.
- Packaged Sales
Telecom brands pair up with cellphone manufacturers like Apple, Samsung and others to sell cellphones from their stores with cellular cards. This service is provided to clients even on installment to facilitate deferred payments and boost sales. Telecom companies earn a certain percentage of revenue as a bonus while increasing volumes.
- Annual Financial Statements, Quarterly and Annual Results (CY22), Company website [online], Available at: ATT
- Forbes, (2023), ATT [online], Available at: Forbes
- Fortune, (2023), ATT [Online], Available at: Fortune
- The Wall Street Journal, Topic: T [online], Available at: Wall Street Journal
- Petroc Taylor, (2023), Number of AT&T wireless subscribers from 2007 to 2021 [Online], Available at: Statista
- Eva Mathews and Samrhitha A, (2023), AT&T adds more wireless subscribers than expected; shares rise [Online], Available at: Reuters
- Julie Song, (2023),2023, Wireless Trends: 5G Moves Indoors, Private Wireless Proliferates, Converged Networking Grows [Online], Available at: Forbes
- Milana Vinn, (2023), AT&T seeks to shed cybersecurity division –sources [Online], Available at: Reuters
- Rich Duprey, (2023), Here’s Why AT&T Needs to Be on Your Radar Right Now [Online], Available at: The Motley Fool
- Sarah Hansen, (2019), The World’s Largest Telecom Companies 2019: AT&T, Verizon Hold On To Top Spots Amid 5G Buzz [Online], Available at: Forbes
- Statista (January 18,2023) Number of AT& T wireless subscribers from 2007 and 2021 (in millions).Available at Statista
- AT&T Quarter 1 Earning
- AT&T Lays Out Growth Strategy for Company Following Pending Close of WarnerMedia Transaction. Available at AT&T
- AT&T ,Supplier News & Announcements
- AT&T, Supplier Diversity
- AT&T, Diversity, Equity and Inclusion