AT&T’s Misdirected Outrage

Posted by · January 26, 2012 4:53 pm

English: Randall L. Stephenson at the 2008 Wor...

Thursday morning, AT&T CEO Randall Stephenson took to the company’s fourth-quarter earnings call to report AT&T’s first quarterly loss in three years. Even though it was able to rake in an impressive $32.5 billion in revenue—exceeding analyst expectations by half a billion dollars—the popular telecom was forced to report a devastating loss of $6.68 billion for the quarter.

Much of that loss, if not all of it, can be attributed to two factors.

First, despite losing its exclusive right to sell the Apple iPhone in the United States, AT&T sales of the popular smartphone still accounted for 80 percent of the smartphones that the company activated for the quarter, up 10 percent from a year ago. While this might not seem like a problem on its face, the hard truth is that each iPhone sold comes at a significant cost to AT&T due to the hundreds of dollars it spends subsidizing each iPhone it sells. In other words, while more iPhone sales may equal more customers and residual income from service charges, the initial investment made each time one of those popular smartphones is sold gets pricey fast.

The second cost to AT&T comes after its failed $39 billion bid to acquire T-Mobile last year. After engaging in a fruitless ten-month legal battle with the FCC and the Department of Justice, AT&T walked away from the merger, costing the company at least $4 billion, as well as $1 billion in spectrum that it agreed to surrender to T-Mobile if the deal failed.

Using the earnings call as an opportunity to express his frustration, Stephenson lashed out at the FCC for “picking winners and losers” instead of “letting these markets work.”

“Growth cannot continue without more spectrum being cleared and brought to market,” the AT&T CEO continued. “And despite all the speeches from the FCC, we’re all still waiting.”

Stephenson is of course referring to a long-promised auction of new wireless spectrum licenses that the FCC is yet to fulfill. As such, the AT&T CEO seems determined to blame his current plight on the supposed ill-will of the Federal Communications Commission. Never mind the fact that the FCC went on to approve the telecom’s application to purchase $2 billion worth of spectrum from Qualcomm Inc. that same month.

Instead, Stephenson concluded his tirade by suggesting that it is “abundantly clear” that the FCC simply isn’t willing to do what’s necessary “to help bridge their delays in freeing up new spectrum.” This, however, is where the CEO begins to steer too far off base to ignore any further.

Don’t Blame The FCC. Blame Congress.

Despite the skepticism that often leads people to believe that the FCC—and regulatory agencies, in general—have unchecked amounts of power with regard to the industries they’re commissioned to regulate, that assumption is simply untrue. Despite being mentioned in the heat of last year’s battle and again by the FCC Chairman Julius Genachowski at CES 2012 in Las Vegas, it seems to be lost on FCC critics that the auction of additional spectrum is dependent on Congress.

Instead of spending $20.2 million lobbying lawmakers to approve a deal that would have left consumers with fewer choices and higher prices as it did, perhaps AT&T should have invested a fraction of that price lobbying Congress to pass the necessary legislation to approve an FCC auction. Rather than monopolize the time and resources of the DOJ and FCC for the better part of a year—a waste of innumerable public resources—maybe AT&T should have applied pressure on Capitol Hill that would have resulted in a more competitive market that ultimately brings greater choice and access to consumers.

At the same time, however, GigaOm’s Kevin Fitchard rightly points out that, despite such considerable public expenditures, at least the process demonstrated the strength of the regulatory and legal checks that protect the U.S. wireless market from becoming a duopoly—a lose-lose equation for consumers.

What’s Wrong With The Spectrum You’ve Got?

The other claim by the AT&T CEO that must be addressed is his implication that the country is already in a spectrum crisis. Yet meanwhile, in addition to the spectrum that AT&T did get FCC approval to purchase in December, the fact remains that none of the advanced wireless service (AWS) licenses AT&T won at auction back in 2006 have yet been put to use.

Though it may be imperative that an auction of available spectrum be approved sooner than later to avoid a future spectrum crisis, it seems a bit hypocritical for the AT&T to express such frustration when his company isn’t even utilizing all of the spectrum it has at its disposal.

Despite Stephenson’s determination to shift blame away from himself and his organization, at the end of the day, it seems that the majority of AT&T’s current troubles are self-inflicted.

If AT&T spent more time utilizing the resources at its fingertips, used its influence in Washington to increase competition rather than crush it, and maybe even matched its dedication to keeping up with Verizon’s coverage with a similar dedication to customer service, it might be a different story. However, it’s difficult to pity the No. 2 telecom in country when it clearly isn’t putting its current resources to their best use.

Enhanced by Zemanta
  • Eric

    Matt,

    There’s no question that AT&T never acquires anything for the good of its customers (or anyone else) except AT&T. That shouldn’t be surprising; it is, after all, a company beholden to its stockholders.

    But a cursory glance at AT&T’s history will show you that AT&T acquired the wireless spectrum solely for the purpose of making sure no one else could get their hands on it. AT&T spent most of its history as a monopoly. Monopolies control prices by controlling the supply of products and services, taking supply and demand curves to their highest possible points — that at which people will choose to do without.

    In AT&T’s case, it became a monopoly by buying up all the lines — so it could charge as much as possible for every call made. Now, it wants to control as much of the wireless spectrum as it can — so the price of wireless calls, including those made through other companies that will be forced to use AT&T’s systems to get to AT&T customers, can similarly go up.

    But no one has ever said “if you buy it you have to use it”. AT&T won’t use it to make its customers lives better; it will use it only when it can maximize the return on the investment.