- Published: 16 May 2016 16 May 2016
"Executives estimate that eventually AT&T could get by with one-third fewer workers," and, "senior executives say shrinking the work force by 30 percent is not out of the question." Quentin Hardy buried those quotes in a New York Times article. 30% of AT&T's 280,000 employees is over 80,000. My guess is that 50,000-60,000 is more likely, but I believe even 50,000 would be the largest cutback since Elisha Gray and Alexander Graham Bell invented the telephone. I hope this story will prove inaccurate but the sources are solid. In addition, moves like this may be necessary for AT&T to increase profits.
Randall and his team have often seen trends before the rest of us. They are now cutting back to prop up earnings for a few years and get the stock price up. The analytic question is why and how. I have some of that below but I'd welcome opinions.
This is one of the biggest telecom stories of the decade and no one picked it up. When I mentioned it in an article, I got a disbelieving email from a senior executive at AT&T. The New York Times could have made a mistake, but Hardy is a veteran reporter who had more than one source.
CEO Randall Stephenson in the same article preached the importance for AT&T workers to "Learn new skills or find your career choices are very limited."
There is a need to retool yourself, and you should not expect to stop,” he said. People who do not spend five to 10 hours a week in online learning, he added, “will obsolete themselves with the technology.” Hardy noted that AT&T only pays for some of the courses and expects everyone to study on their own time. That would make a 40 hour work week 45-50 hours.
Stephenson is hopeful retirements will cover much of this; AT&T has a veteran workforce. Some people will land on their feet, even as the industry contracts. Anyone in this industry knows that some AT&T employees will see the rest of their lives ruined, I remember a respected senior engineer at Nortel who wasn't able to find a job in the industry after two years.
I'm actually working on an article, "AT&T may be the best-managed phone company in the world." The top dozen at AT&T work well together with mutual respect in a way that is rare. Those who know my reporting on AT&T policy, pricing and network investment will be surprised at my opinion. I've also seen just how effective they are at making money for shareholders.
Why? How? Telecom is a no growth business for the last 5-10 years and apparently AT&T has decided that won't change. Almost all of us want to deny this but sales worldwide are weak. AT&T is counting on plausible technology improvements. With competition, at least some of that will go to the customer and sales will be flat.
I have to double-check the figures but I believe AT&T's sales growth for the last ten years - including the iPhone introduction - is 2% . Adjusted for inflation, growth may be negative. Most European carriers are similar. The stock market expects growth in sales and earnings and everyone, T included, has promised growth that rarely happened.
The underlying trend is that telecom sales will be flat to down for the foreseeable future. Increasing profits will only be possible through cutting costs in any competitive market. Thinking about AT&T's decision to cut, I came to the conclusion that AT&T in the last few years has accepted that growth will be slow. Cutting heads is the only way they see for profits to go up.
Wireless is less expensive to deliver than wireline. Regulators can usually be tamed; AT&T intends to reduce expenses by ending universal service. Technologies like SDN and automated web support reduce costs and the need for labor.
Some places competition is feeble and the law of supply and demand doesn't work. But even with weak competition, prices are likely to go down.
T's apparent decision for massive cuts contrasts with the European approach to branch out into other businesses or countries. The problem is that few other businesses match the profitability of local telecom. British Telecom and Deutsche Telekom have both lost ?$1oB is "services," generally computer systems and programming. There have been successes; ask my friends at Telco 2.0. But I've often seen failures in expansion.
Stephenson seemed headed that way when he went to India with an open checkbook. He wanted to buy into the fastest growing telco market in the world. After a series of meetings, he decided the prices were too high. India is the most competitive market in the world. Numerous foreign investors have lost fortunes. He made the right decision.
The only significant purchases were in Mexico and DirecTV. In Mexico, he believes the government is serious and will do something about Carlos Slim's monopoly. Randall thinks that is a massive opportunity bought on the cheap. Given the efficiencies of simply expanding the AT&T network south, he'll probably be right. DirecTV at $65B was a tough one. AT&T thinks the synergies in TV make it worthwhile. The DirecTV buildings with coax throughout look to be very efficient to upgrade to high speed data, perhaps 750 down and 750 up. Sckipio, Adtran, and Calix are announcing G.fast over coax aimed at that opportunity.
A company the size of AT&T surely was offered hundreds of opportunities to buy other companies. They didn't find any other good matches likely to match the returns of the phone business. They tried to expand in the phone business by buying T-Mobile; the regulator wisely said no.
With no way to grow, the only way to increase profits is cutting costs. That seems a reasonable explanation to me.
How? AT&T has taken the lead in software defined networks, which promise eliminate the need for so many employees. They are further along in ending universal service than any other telco in the world. They've built one of the best broadband management systems to reduce the number of support calls.
They even (slightly) reduced their army of lobbyists. They sometimes have more lobbyists than a state has legislators. For decades, state regulators knew that if they went along with the telco while in office, the telco would take care of them afterward. It was a good investment, especially for the state regulators who wouldn't take a more direct payoff. Like Verizon and most other American companies, they've adopted almost a "user be damned" attitude to customers who need much support. They've concluded it was cheaper to lose 5-10% of customers than to solve the problems. The cutbacks in support have already been massive.
I expect to hear many more ways T will make people redundant,