att inc. strategy analysis

AT&T Inc. Strategy AnalysisKYLE HUGHES AND MAIREAD COOGAN DECEMBER 7, 2016

Industry AnalysisPORTER’S FIVE FORCES ANALYSISPESTEL ANALYSIS

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Porter’s Five Forces

THREAT OF NEW ENTRANTS                - HIGH• High capital costs • High market competition 

SUBSTITUTE PRODUCTS - HIGH• Customer's short-term

contracts• Price wars between large

wireless phone service providers, mainly Apple's smartphones and Sprint's pay-as-you-go plans.

BATGAINING POWER OF SUPPLIERS - LOW• Customers continue to be

price sensitive in selecting offerings, especially in the wireless area, and access to video and broadcast services.

• Expect continued pressure on pricing during 2016 in response to intense competition.

BARGAINING POWER OF BUYERS - HIGH• Consumers continue to

demand instant connectivity and yet AT&T faces a regulatory environment that appears increasingly unfriendly to investment in broadband services.

                            COMPETITION•Competition continues to increase for communications and digital entertainment services. Technological advances have expanded the types and uses of services and products available.

•Major competitors include: Verizon Wireless, Sprint, T-Mobile/Metro PCS, and many regional providers of cellular, PCS and other wireless communications services and resellers of those services. 

“The goal of competitive strategy for a business unit in an industry is to find a position in the industry where the

company can best defend itself against these competitive forces or

can influence them in its favour.”Micheal Porter

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P.E.S.T.E.L Analysis

Economic• 2015 operating revenues increased 10.8% / $14,354 (in millions).• Company Caution: Incurred major transition costs with the 2015 development in Mexico. • Stock Prices: $38.61 (12/2/16)

Social• “We expect that all our major customer categories will continue to increase their use of Internet-based broadband/data services. We expect continuing declines in traditional telephone service revenues.”

Environmental

• Trends toward sustainability• Reducing carbon footprint worldwide• Alternative energy sources available-

costly• Government regulation on greenhouse

gas emissions• EPA Smartway program (transportation

emissions management)-AT&T is a participant

Legal• Regulatory burdens that are no longer appropriate in a competitive telecommunications market • 2015 FCC’s released order – significantly expanded the FCC’s existing authority to regulate the provision of fixed and mobile broadband Internet access services. AT&T and other providers challenged the FCC’s decision before the U>S> Court of Appeals for the D.C. Circuit. Look up decision – supposed to be announced early 2016

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Political• AT&T subsidiaries operating within the U.S. are subject to federal and state regulations. AT&T subsidiaries operating outside the U.S. are subject to national and supranational regulations in the markets where service is provided. • Telecommunications Act of 1996 

Technological• Communications industry continues to

move toward Internet-based technologies that are capable of blending traditional wireline and wireless services.

Capability AnalysisVALUE CHAIN ANALYSISVRIO ANALYSIS

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                                            Value ChainAccess-Development to Rural/Underserved Areas

Company Energy Use

Compensation & Benefits

Customer Privacy

Prim

ary

Activ

ities

Supp

ort

Activ

ities

AT&T Network  Employees Supply Chain Communities Customers

Education

Greenhouse Gas EmissionsNetwork Reliability

Network/Data Security

Product Design: Energy Efficiency

Product Recycling/Reuse

Social/Environmental Innovation

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V.R.I.O

Core Competencies Valuable Rare Costly to Imitate Organized to Capture Value

Customer Service × ×High Quality

Voice/Data Service × × ×Combination of Services  × × ×

Brand Recognition × × × ×

Competitive Advantage High Quality Voice and Data Service

◦ 4G LTG Speeds◦ HD Voice◦ VoIP

Combination of Services◦ Wireless, TV, Internet, E-Mail, Home Phone, Digital Life and Bundles

Value Proposition AT&T's Size

◦ November 3, 2016 - AT&T was the largest US telecommunications (or telecom) player. Verizon was the second-largest player, and T-Mobile was the third-largest player by market capitalization. Sprint’s market capitalization was lower than T-Mobile’s.

AT&T's Valuation Multiples◦ AT&T was trading at a forward PE (price-to-earnings) multiple of ~12.24x, higher than Verizon’s ~11.71x.

AT&T’s forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) metric was ~6.28x, higher than Sprint’s and T-Mobile’s ~5.09x and ~6.06x, respectively.

◦ November 3, 2016 - AT&T’s dividend yield was ~5.4% higher than Verizon’s ~4.9% dividend yield.

Corporate Strategy Assessment CORPORATE ADVANTAGE VERTICAL INTEGRATION

Corporate Advantage

AT&T's Global Network Reliability increases global communications networks and has revolutionized the way the world lives, works and plays.

Customers in 29 markets can download an HD movie in 36 seconds, a TV episode in 3 seconds and 25 songs in 1 second.

High-speed mobile internet network covers nearly 380 million people and businesses across the U.S. and Mexico.

Advanced services delivered to nearly 3.5 million businesses on 6 continents.

Vertical Integration Proposition: AT&T Secure Voice Platform protecting customers telephone information and identity by offering a private secure defense platform and eliminating robocalls and identity theft.

◦ Similar to AT&T's NetBond for businesses In-house Product Design and Supply which would allow for easier coordination and communication about product sales targets and  customer needs, while increasing energy efficiency.

Current:

AT&T is protecting data on mobile devices by offering the Skycure Mobile Threat Defense Platform.

AT&T outsources to equipment suppliers for the majority of products.

Recommendations Stay Safe

◦ Vertically integrate security platform for individual and family plan customers.

Go Global◦ Continue to expand U-Verse high-speed broadband and video offerings.◦ Continue hot-spot merging with companies.

Unify◦ Develop IP-based services that allow customers to unite their home or business wireline services with their wireless

service.◦ Focus on blending traditional wireline and wireless services.◦ Vertically integrate product design and supply.

Fight for Growth ◦ Mature telecommunications space via increased spectrum, capacity, and data services.

QUESTIONS?

THANK YOU

Kyle Hughes

khughes5@tulane.edu

Mairead Coogan

mcoogan@tulane.edu