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Jennifer  is Managing Director at Greenhill & Company.  She focuses on the North American Communications Services & Infrastructure spaces.   Prior to this role, Jennifer was as Managing Director and Senior Equity Analyst at Wells Fargo Securities for 25 years where she focused on the Telecommunication Services, Cable, Data Center and Tower sectors.  During her tenure at Wells Fargo, Jennifer received numerous awards including top rankings from Institutional Investor in the Communications Infrastructure space for each of the last four years (2017 – 2020).

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May 24, 2021


AT&T:  When you are in a hole, stop digging

I took a break from this column last week as I think I was a bit of deer in headlights as I digested the big AT&T news.  It almost was personal to me as I vividly remember when AT&T’s CFO announced during a conference at my prior firm that its Time Warner deal was being reviewed by the DoJ.  After he exited the stage that day, there were literally 100+ arbitrage investors that surrounded him (think of a rugby scrum…that is what it looked like!).  Then after that day a hard painful approximately seven months followed until the deal finally closed in 2018.  So my shock and awe when I saw the WSJ story hit that AT&T was reversing course was real. 

But now a week out, I have what I think AT&T also does….strategic clarity.  I understand for AT&T investors, employees, and probably several layers of management, that this is a painful time.  But there is an expression:  “When you are in a hole…stop digging.”  John Stankey put down the shovel. 

Of course, much can be said and written about how AT&T could not compete with Netflix’s content budget, DTV was a mess, and that their trouble all started when they did not get T-Mobile deal done in 2011…but that is all rear view mirror stuff.  What happened last Monday was significant because AT&T (some would say finally) is going back to its roots and is now focused on  its pipes.  These (broadband and wireless) pipes were getting rusty.  But now they have the capital to put toward  scraping this rust off.    With a sole focus on fiber expansion (30 million homes by 2025) and 5G and smaller dividend shackles, this could get really interesting.

One thing to me that was noteworthy in listening to all the talking heads on this deal was the discussion about Comcast.  There was a lot of “Can Brian Roberts let this happen?” talk-about.  I mention this because I think most are missing a very obvious point.  If you are Roberts, you may not only be sore because you missed a media asset.  But you may have to have a heart-to-heart conversation with your Board that your broadband competition will  be getting a lot more fierce, and this broadband business is the heart of Comcast’s core profitability.   This is also true for Charter.  

Altice can be separated from the conversation given its front-footed approach to fiber.  For Comcast specifically,  NBC and amusement parks are nice and all, but the broadband pipe contributes to  the majority of  its free cash flow.   With Monday’s announcement, AT&T said it plans to grow its fiber connected homes to almost 50 percent of their footprint and will be building out more homes / year than it has in the last 10.   Where AT&T has fiber, it succeeds (check their earnings supplemental if you doubt this).   What AT&T did Monday was simplify.  It used to be a company full of spinning plates – 5G, HBO, legacy Turner, Broadband, Enterprise, etc.  Going forward it won’t be anymore and that is a very good thing.  But others may be…..  

In my first six weeks at my new job I have learned much from the international team here.   One of these learnings I did not appreciate as a domestic-only focused analyst in my prior life was that the Europe telecom operators who woke up to fiber gained share from cable.    The same trend is happening in Canada (Bell Canada gaining share from Rogers, etc).    The breadcrumbs for the telecom fiber-love were there before AT&T’s big announcement.  Look at what Frontier, Windstream, Consolidated, etc have all been saying and doing.  It was almost hiding in plain sight, but AT&T’s move is shining the light directly on it.   If one steps back and thinks about this, AT&T’s move may be  a much bigger issue for some of the cable players than a good media asset passing them by.  

Mr. Stankey may have put down that shovel in the deep hole he found himself in with the announcement last week.  But what many are missing are the implications for the other digging tool (to trench a lot more fiber) he is just picked up.  That may be an critical shot across the bow that no one seems to be talking about, but I am sure the cable powers that be  are most certainly thinking much about!