Telecom giant AT&T has landed into fresh trouble, this time with activist investor Elliott Management Corp. which believes that the company has to go the extra step to reduce its costs.
Paul Singer’s estimates are rubbing off
According to Elliot, which is operated by billionaire Paul Singer, the company could cut more than $5 billion in annual costs. They estimate that as much as $10 billion or more could be saved on costs if the company focuses on reducing expenses in the marketing, human resources, and finance sectors. It should also close some facilities and stores.
However, the telecom company is already involved in cutting costs for several years now and doesn’t want to follow Elliott’s dramatic ideas. However, due to the investor’s comments, the Communications Workers of America, an AT&T union that represents over 100,000 of its employees feared deeper cuts. It quickly issued a statement, downplaying Elliott’s plans and calling them “outdated.”
No clear consensus amongst analysts
Some analysts believe that the company is already doing enough to cut the fat. Guggenheim Securities’ telecom analyst Michael McCormack said, “AT&T management is already pretty far down the path.” However, senior managing director of Falcon Point Capital Michael Mahoney thinks a little differently. His company is invested in AT&T, and he says that Verizon is a far leaner business.
It is also important to highlight that Verizon has a far better financial performance compared to AT&T. Mahoney believes that they have to cut $6 billion in costs to stop trailing behind Verizon in gross margins. He said that Elliott’s solution “doesn’t seem crazy” to him.
For AT&T, the acquisition of Time Warner has proven to be a turning point. Last year, it spent $85 billion on its fancy acquisition, making it more of a media company than a telecom business. At the same time, it has also become one of the most debt-ridden companies in the country which signals distress for the coming days. The Wall Street Journal reported that CEO Randall Stephenson could leave the company next year.
Not all is well at Verizon too. Just like AT&T, it also tried to get into the media business but followed a leaner strategy. It used AOL and Yahoo, both old and troubled dot-com era brads, to create an online ad empire that has so far failed to achieve any good results. The company is focusing more on its phone service since.