Magazine article Variety

Greater Than the Sum of Its Parts?

Magazine article Variety

Greater Than the Sum of Its Parts?

Article excerpt

at&T has posted substantial revenue growth for the last couple of years, which might give the impression that its Time Warner acquisition is coming from a position of strength. In fact, AT&T has been shrinking, and the big mergers are intended to rectify that situation.

AT&T has made several significant acquisitions in the past three years, including DirecTV and two wireless operators, Nextel and Iusacell, in Mexico. These transactions buoyed AT&T's revenue growth - 5% in the third quarter this year, and more than 20% for each of the prior three quarters.

However, if you strip out the acquisitions' revenue contributions over the preceding year, AT&T's underlying organic growth disappears, falling into single-digit losses.

The reason is simple: Most of the businesses AT&T is in today are stagnant or declining. The segment that serves business customers has declined for seven consecutive quarters, as legacy services are replaced by newer ones at lower prices. AT&T's mobile business model is going through a transition, which is depressing revenue. The wireless industry as a whole has been challenged due to a saturated U.S. marketplace.

The DirecTV and Mexican wireless assets were attempts to solve these problems. As AT&T saw increasingly challenging conditions in its domestic TV and wireless businesses, these acquisitions represented a way to tap into growth elsewhere, and boost existing areas. AT&T hopes that DirecTV, in particular, will be a stimulus to not only video subscriptions but the wireless offerings with which they're bundled. …

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