Through its subsidiaries, affiliates, and operating companies, holding company AT&T is the industry-leading provider of wireline voice communications services in the US. Customers in 22 states use AT&T-branded telephone, Internet, and VoIP services; it also sells digital TV under the U-verse brand. Key markets include California, Illinois, and Texas. The company's corporate, government, and public sector clients use its conferencing, managed network, and wholesale communications services. Subsidiary AT&T Mobility is the second-largest US mobile carrier by both sales and subscriptions (after Verizon Wireless). It provides mobile voice and data services to more than 100 million subscribers.
Since the purchase of Cingular Wireless and the establishment of AT&T Mobility in 2007, AT&T has pushed its mobile services through increased advertising and marketing efforts that tout the benefits of the mobile Internet. A key component of this was an exclusive agreement with Apple to carry the iPhone in the US from the time of its debut in the summer of 2007 until early 2011 when top rival Verizon also began to offer the device. AT&T reaped significant rewards from this partnership, which helped drive the growth and profits of its wireless business.
While the company's sales rose in 2011, AT&T's profits dropped off considerably after an increase of nearly 40% in 2010. (Before 2011, the company's profit margin hadn't fallen into the single digits in more than a decade.) Higher operating expenses in most areas of the business contributed to declining income, as did the loss of its status as the only game in town for the iPhone. Many Apple enthusiasts turned to other carriers for their fix in 2011, resulting in fewer new subscribers for AT&T. In contrast, the company added a record-setting 9 million mobile customers the previous year.
Additionally, the overall slowdown of the saturated US wireless market is placing more pressure on AT&T and its competitors to push basic cell phone users down the upgrade path to pricier mobile data plans and more powerful phones to sustain growth.
AT&T has been using acquisitions to build its mobile data capabilities and expand its service area and subscriber numbers. A key component of this growth strategy had been the plan to buy smaller rival T-Mobile USA from Deutsche Telekom in a transaction valued at nearly $40 billion in cash and stock. The deal fell apart amid strong government opposition in 2012. AT&T had to pay Deutsche Telekom a break-up fee valued at about $6 billion, including $3 billion in cash, along with wireless spectrum licenses and a national roaming agreement worth another $3 billion.
A less dramatic effort to increase the capacity of its network involved the purchase of wireless spectrum licenses from QUALCOMM. In late 2011 AT&T paid about $1.93 billion to QUALCOMM to secure additional capacity necessary to enable the expansion of its 4G network. The spectrum rights cover about 70 million people in the key markets of Boston, Los Angeles, New York, Philadelphia, and San Francisco, in addition to other areas nationwide. QUALCOMM had used the spectrum for its FLO TV service before it was taken offline early that year.
In 2012 AT&T moved to pick up more spectrum by agreeing to buy NextWave Wireless in a deal valued at up to $600 million, with most of that going toward outstanding debt. The spectrum will include the Wireless Communication Services (WCS) band, which AT&T hopes to enable for mobile Internet use and help support growing data usage needs.
While AT&T's wireline business is only slightly smaller than its wireless arm in terms of sales, it has not contributed to the company's growth in the way that the mobile segment has in recent years. AT&T has 18 million consumer wireline voice users, 15 million business accounts, and 2 million wholesale accounts; these numbers reflect an ongoing downward trend. Its landline data services are comprised of switched and dedicated network transport, dial-up and broadband Internet access, network integration, data equipment sales, and converged video communications.
AT&T's efforts to bolster its wireline business include a $4.4 billion initiative to build a fiber-optic network, using fiber-to-the-home (FTTH) or fiber-to-the-premises (FTTP) technology, which will enable the company to offer IP-based video, broadband Internet, and VoIP services over a single line. Known as U-verse, the service is used by nearly 4 million high-definition TV subscribers, and is intended to increase the appeal of AT&T's bundled communications and video packages over major cable network operators that also offer communications services.
In 2012 AT&T agreed to sell a majority stake in its advertising and interactive business units to Cerberus Capital Management, retaining a 47% share for itself in the re-named YP Holdings LLC. The more than $3 billion dollar business -- which includes print telephone directories, YP.com, an advertising network, and a mobile app -- will garner AT&T $750 million in cash along with its minority stake, as well as a $200 million note. – less