AT&T (US)

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AT&T is one of America's two dominant telecoms giants, the #1 by revenues, but still stuck in second place by retail mobile customers. In its current form, AT&T re-combines several of the previously separate businesses which were formed from the break-up of the old Bell telephone system in the early 1980s. The key development was the acquisition in 2005 of "old" AT&T by regional operator SBC, and the subsequent purchase of the latter's wireless partner BellSouth. The merged group adopted the storied AT&T name, as well as an updated version of its old corporate logo. It was a welcome reinvention of a once-mighty brand which had up until that point suffered a dramatic decline in its fortunes. Mirroring the fixed line business, SBC and Bell South's Cingular wireless service in turn reinvented itself as a new version of the old AT&T Wireless company which it had swallowed a year earlier. In 2011, in an attempt to leapfrog main rival Verizon, AT&T announced plans to acquire smaller competitor T-Mobile USA for $39bn to create a mammoth business with 130m wireless customers. However, the Justice Department and FCC issued legal challenges to that deal on competition grounds, forcing the group to abandon its plan at the end of the year. AT&T did, however, manage to acquire much smaller Leap Wireless in 2013 for $1.2bn. In 2014, the group set about boosting its fledgling TV service with the acquisition of satellite broadcaster DirecTV for $49bn. That deal was finally completed in summer 2015. Just over a year later, AT&T was back on the acquisition trail, with agreement to acquire media giant Time Warner for $85bn. The US government launched an ill-conceived lawsuit to block the deal, but the judge found in the companies' favour and the merger went ahead as planned in summer 2018.

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Adbrands Weekly Update 9th Aug 2018: As had been anticipated over the past couple of weeks, the US Department of Justice filed a formal appeal against Judge Richard Leon's decision to approve the takeover of Time Warner by AT&T, despite the fact that the merger has already completed. The government claims Judge Leon "ignored fundamental principles of economics and common sense" in his ruling. It had originally argued that AT&T would force rival pay-TV services to pay more for its its cable channels by threatening to withhold them. Judge Leon said there was no sense in that argument given the threat facing all traditional cable providers from Netflix, Facebook and Amazon. The government is expected to argue that the threat from technology companies such as these should be disregarded in this particular case.

Adbrands Weekly Update 19th Jul 2018: Ads of the Week "Surprise". BBDO New York's latest campaign for AT&T neatly skewers multiple movie genres and clichés, all to support the company's broad entertainment offering. A second spot blends cliffhanger action thrills with movie musicals, but this one tackles two other genres. We'll let you enjoy the transition for yourselves without giving the game away. Surprise indeed!

Adbrands Weekly Update 19th Jul 2018: The US Justice Department said it will after all mount an appeal against the recent court approval of AT&T's acquisition of Time Warner, despite warnings from that judge that such a move was unlikely to be successful, and the fact that the merger has already completed. "We think the likelihood of this thing being reversed or overturned is really remote," AT&T CEO Randall Stephenson told CNBC. "The merger is closed. We own Time Warner." Nevertheless, as a condition of early completion, AT&T was ordered to keep the newly acquired assets in a separate legal entity, now WarnerMedia. The government's refusal to quit will add further delay and uncertainty to AT&T's ongoing plans, as well as significant costs. "The clock on legal fees has been running," said Stephenson, "and it's been running on both sides. So it will be a costly process at the end of the day."

Adbrands Weekly Update 28th Jun 2018: As had been expected, AT&T confirmed its acquisition of adtech platform AppNexus. That company claims a client base of around 34,000 publishers and 177,000 brands who use its marketplace to connect ads with ad placements and audiences to see them. It also offers a range of tools to measure engagement and optimise performance. No price was disclosed but it was rumoured to be in the region of $1.6bn. AT&T is cashing out AppNexus's large collection of corporate investors, who include WPP, News Corp, Fidelity, Microsoft and Deutsche Telekom. The deal will allow AT&T to better monetise its significantly expanded digital content platforms, creating what has been described as a "triopoly" alongside Google and Facebook.

Adbrands Weekly Update 21st Jun 2018: AT&T moved quickly to complete its long-delayed acquisition of Time Warner, just one day after the merger was approved by court. Soon afterwards, the company confirmed WarnerMedia as the new name for what is now the AT&T media division. "Why WarnerMedia?" asked the division's newly appointed CEO John Stankey in an all-staff memo. "The short answer is that it tested very well externally as a naming convention that holds the valuable HBO, Turner and Warner Bros brands. In addition, we felt that maintaining an element of the proud, established and successful Time Warner is a testament and sign of respect for both its history and for you, as architects of that legacy." Stankey replaces Time Warner CEO Jeff Bewkes, who is retiring from the business. Richard Plepler and Kevin Tsujihara, divisional heads respectively of HBO and Warner Bros, remain in situ but John Martin, who had headed the Turner cable division, is leaving the group. His three sub-heads - Turner president David Levy, Turner International president Gerhard Zeiler and CNN president Jeff Zucker - will report directly to Stankey.

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Background

Free for all users | see full profile for current activities: Alexander Graham Bell made the world's first telephone call in 1876, telling his assistant, "Mr Watson, come here. I want you." In fact, Bell was not the only inventor experimenting with this new technology, but he was faster than the competition, beating rival developer Elisha Gray to the patent office by a matter of hours. However he had used up all his investment funding in the process, so his backers tried to sell the patents to Western Union. The telegraph company turned them down, convinced that this new invention would never take off. As a result, Bell set up his own business to manufacture the invention and quickly found a huge market. Western Union belatedly bought up Elisha Gray's designs. Bell successfully sued, forcing Western Union to lease all its equipment from Bell. The American Bell Telephone Company held a complete monopoly on telephone communications in the US for 20 years, and a virtual monopoly for almost another century. Because of its market dominance, Bell's chief executive Theodore Newton Vail was also able in 1882 to take control of the country's leading electrical manufacturer Western Electric, which became the exclusive supplier of telephone systems and networks.

When American Bell's original patents expired in 1895, the market was suddenly flooded with rival operations, most of them providing local services. The Bell company initially struggled to fight off these competitors, but soon realised that the bigger profit lay in national communications. As a result, it set out to develop this market while retaining regional subsidiaries, which were grouped together as the Bell System. But the costs were astronomical and service was poor. In 1907, bankers JP Morgan acquired majority control of the company. Theodore Vail had left the company several years earlier, but was reinstated by JP Morgan as CEO. He changed the name of the business to The American Telephone & Telegraph Company, after the subsidiary unit which had managed the development of the long-distance network. Vail went on to buy former rival Western Union two years later, reinforcing AT&T's complete dominance of the US market.

Building on the international demand for distance communications the new AT&T was quick to establish a foothold in other countries. AT&T's Western Electric subsidiary also set up international offices to sell these to local operators, and quickly became the world's biggest manufacturer of telephone systems. By the start of World War I in 1914, International Western Electric was operating as far afield as Australia, Argentina, Japan and Russia. The following year, AT&T engineers transmitted the first transatlantic telephone call. Back home, however, the company was facing increasing pressure from regulators keen to dismantle the monopolies enjoyed by the likes of AT&T and American Tobacco. Bowing to pressure, AT&T sold off Western Union in 1913 and agreed not to acquire any other regional US companies in return for sole control of long-distance calls. But the group continued to grow rapidly, and the pressure from antitrust regulators remained intense. In another attempt to appease them, Western Electric's international operations were spun off in 1925 to form International Telephone & Telegraph (ITT).

The company's sheer size continued to bring it into conflict with antitrust regulators, and there were a series of bruising encounters with the US government in the 1940s and 1950s. After several years of argument, AT&T was forced in 1956 to restrict Western Electric to the production of telephones rather than the huge range of other household appliances into which it had diversified. In 1968, this monopoly too was taken away, and the company was forced to open its call network to rivals the following year. But this didn't stop the company's domination of US telecommunications.

In 1974, a new lawsuit from fledgling rival MCI and the federal government finally led to the dismantling of the increasingly vast business. After ten years of legal argument, the $150bn of assets owned by "Ma Bell" were split up between seven regional companies, the so-called Baby Bells. Two of these were Southwestern Bell, later SBC, and Bell South. AT&T was left with long-distance communications and Western Electric phone systems, as well as the seeds of a computer development business. Its research division, Bell Laboratories, was already a pioneer in this new technology having invented the Unix programming language in 1969. In a bid to expand its market position, the newly slimmed-down AT&T jumped into the computer market, acquiring computer manufacturer NCR in 1991 for $7.5bn. That strategy proved a failure, but the purchase of pioneering cellphone company McCaw Cellular in 1994 was to be more fruitful. Renamed AT&T Wireless, it established itself as the country's leading cellular service.

Following deregulation of the telecoms market in 1996, AT&T's core telecoms business came under intense pressure from a new army of competitors. The group had diversified too widely to focus on this new challenge, so attempted to slim down, selling NCR, and spinning out its technology and development divisions as Lucent Technologies. But by 1998 AT&T's share of the consumer market had fallen sharply, from 80% in 1992 to 60%, with further competition promised from cable and internet companies.

The task of newly appointed CEO Michael Armstrong was to remove AT&T's dependence on the regional Baby Bells who connected to its national backbone, and instead make a direct connection with consumer and business users. He made a series of deals designed to boost the company's strength in the boom areas of cable, international communications and the internet. The first deal was the acquisition of US cable giant Tele-Communications Inc (TCI), merging the two companies' cable and internet businesses. The result was the creation of several new divisions: cable operator AT&T Broadband & Internet Services, cable broadcaster Liberty Media Group, and also Excite@Home, a combination of high speed internet company At Home with leading web portal Excite. Soon afterwards, the group replaced MCI as the partner of UK operator BT to create Concert, a global business communications network.

In 1999, the group completed a string of huge deals. It acquired IBM's global IT network for $5bn; trumped rival Comcast to acquire cable company MediaOne for $58bn, in the process overtaking Time Warner as the biggest US cable operator; and also bolstered its wireless division with a series of purchases including Vanguard Cellular and American Cellular. The group also agreed to acquire local phone companies in Brazil and Chile, and combined them as AT&T Latin America. As part of its international partnership with BT, AT&T acquired small stakes in Japan Telecom and Canadian mobile operator Rogers Cantel.

However, Armstrong's rapacious deal-making didn't stop the erosion of AT&T's share in its core long-distance telephone business. A vicious and damaging price war erupted in 2000, eating away at AT&T's revenues faster than had been expected. More seriously, the numerous acquisitions had created a mountain of debt which peaked at around $64bn. During 2000, the financial markets turned against the company, pushing down its share price relentlessly. In order to unlock the value of its constituent parts, AT&T issued an IPO of AT&T Wireless in what was then the biggest float in US history, valued at $11bn. Despite the success of that sell-off, the group was forced to concede that fierce competition in the long-distance sector would affect full-year revenues and profits. As a result Armstrong announced plans to spin off the wireless division altogether, and break up the remaining business into three separate companies, each of which could also be separately floated.

In 2001 the group sold all but a small stake in AT&T Wireless, offloaded its shares in Japan Telecom (to Vodafone) for about $1.35bn, and split off Liberty Media as an independent company. Damaged by the collapse in the internet economy, Excite@Home filed for bankruptcy protection and was later dissolved, but the group pushed forward with its plans to float off its broadband division in a similar exercise to AT&T Wireless. A spanner was thrown into the works when cable rival Comcast made a $54bn all-stock offer for the business prior to its official spin-off. With telecoms stock prices plummeting, it soon became apparent that a trade sale might be the best route to follow, and AT&T solicited bids from the other players in the market. In the end, the Comcast offer was the best on the table. The deal was completed at the end of 2002.

It was also increasingly obvious that something needed to be down about the Concert joint venture with BT. More or less ignored by its joint owners while they focused on more pressing domestic issues, Concert had begun to rack up dramatic losses, peaking at almost $800m for 2001. Talks to strengthen the business by adding in additional services stalled, and the two partners eventually wound the business down, taking back the parts of their international business networks they had originally committed to the venture. (The cost to AT&T was a write off of around $500m). In early 2003 AT&T announced further job cuts, equivalent to around 5% of worldwide staffing. Its extensive but loss-making operations in Latin America filed for bankruptcy protection in 2003 and the assets were sold in 2004 to Telmex.

Back home, AT&T's revenues and market share had been steadily eroded by what were once smaller competitors, such as Verizon and SBC, each of whom had outgrown their local markets. [See here for SBC history]. The group attempted to respond by moving aggressively into local telecoms, introducing services in eight US states in 2001 and 2002. But by the end of 2004, AT&T had slipped into third place by total revenues. As a result the group began to look increasingly like an acquisition target. Discussions were held with several companies, and a deal was almost agreed with BellSouth in 2003 before the smaller company pulled out. In 2004, the group said it would stop offering long-distance and local phone services to new residential customers. In early 2005 it was reported that merger talks had opened with SBC, and soon afterwards the two companies agreed a deal whereby AT&T would be acquired for around $16bn in SBC stock. The merger was completed in November 2005, at which point SBC adopted the AT&T corporate name. In March 2006, the group announced plans to get bigger still, acquiring its partner in Cingular, Bell South, for around $67bn. That deal completed at the end of 2006. The explosive growth of SBC up to that point had been overseen by Ed Whitacre, who became the merged group's new CEO. He eventually stepped down in June 2007, and spent the next few years rebuilding another ailing corporate giant, General Motors. See full profile for current activities


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