Porter's Five Forces Analysis Archives

Porter’s Five Forces Analysis of AT&T Key Facts Name AT&T Industry Wireless Telecommunications Services Founded 1876 Headquarters Dallas, Texas, USA CEOs John Stankey Revenues USD 120.7 billion (CY22) Profit USD -7.06 billion (CY22) Competitors Verizon, T-mobile, Sprint Company Overview 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. Porter’s Five Forces Analysis Porter’s Five Forces Analysis is used to determine the company’s competitive position reference to it’s Industry for better strategizing the companies’ operations for higher profits and less competition, defined by Professor Micheal E. Porter in 1979,at Harvard Business School. AT&T Rivalry among Existing Competitors 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 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 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. 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. 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. Large client base 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 and this count has grown twice since 2007 with the increase in reliance towards faster internet speeds (5G technology). This helps the company keeps bargaining power of users low. 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. References 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