AT&T’s $6 billion cost-cutting plan could be just the beginning, analysts say

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AT&T’s cost-cutting measures revealed earlier this week may just be the tip of the iceberg as an increasing number of forces pressure the company to accelerate transformation, analysts say.

The Dallas-based telecom giant will cut 3,400 clerical and technician jobs over the next several weeks and close 250 company-branded and Cricket Wireless stores affecting an additional 1,300 retail jobs, according to the Communication Workers of America union that represents about 100,000 AT&T employees.

The technician layoffs and retail jobs are all CWA-represented positions, according to the union.

AT&T executives described the company’s plan to pare down stores and cleave $6 billion from its operations in meetings this week with investors. The company won’t have “as many stores as we did before COVID,” AT&T Communications CEO Jeff McElfresh told investors Tuesday. Two days later, CFO John Stephens reiterated AT&T’s commitment to reduce spending.

“This is just the start,” Recon Analytics founder and telecom analyst Roger Entner said on Twitter about the retail store closures.

The telecom industry is shifting rapidly in 2020. Wireline revenue is at heightened risk as a prolonged pandemic could cause more small and midsized businesses to fail, according to research by Bloomberg Intelligence analysts.

Roughly 15% of the company’s wireline revenues come from small businesses, according to CEO Randall Stephenson, who told investors earlier this year that the coronavirus impact on small businesses was among his biggest concerns.

T-Mobile’s $26 billion merger with Sprint further shakes up the competitive landscape. But the merged company also is downsizing its workforce, laying off hundreds of employees this week, according to TechCrunch.

AT&T also acquiesced, in part, with demands from aggressive activist investor Elliott Management, the New York hedge fund that bought a minority stake in the company in late 2019 and pushed it to drive the stock price above $60 through cost cuts and divestment. AT&T’s recent stock price peak came in 1999 and 2000, when shares sold for around $58.

“You have a change in the competitive environment, you have a change in the financial world with Elliott, and you have a change in the overall environment due to COVID,” Entner told The Dallas Morning News. “All of that accelerates the move to cost cutting and making the operations faster and more efficient.”

AT&T was already cutting roughly 4,500 jobs on average each quarter the last two years leading up to the pandemic, according to the company’s quarterly reports.

A company spokesman declined to comment on whether AT&T expects to close even more brick-and-mortar locations or cut more jobs this year. AT&T closed most of its 2,200 company-owned stores in mid-March to protect customers and employees from the spread of COVID-19.

The CWA is anticipating more job cuts through 2020, said union spokeswoman Beth Allen.

“However, we are calling on AT&T to reverse this trend, and to play a positive role in the economic recovery by committing to building next generation networks to every community in the United States,” Allen said.

The economic fallout from coronavirus gives companies reasonable cover to cut costs or sell off assets with less consequence, said Eric Schiffer, CEO of Los Angeles-based private equity firm Patriarch Organization.

He has warned of the repercussions of widespread debt buildup as U.S. companies go toe-to-toe with an economy reshaped by the virus. AT&T’s acquisitions of DirecTV and Time Warner made it one of Wall Street’s most indebted companies. It ended 2019 with $150 billion in debt.

“The optics with COVID allow you to make moves that serve the pressures you have with severe debt without the same type of negative PR implications in the normal world,” he said.

CWA is carefully tracking AT&T’s steady reduction in jobs. Citing the company’s quarterly financial reports, the union said employment has dropped in the past two years from 273,210 to 244,490.

“AT&T executives have made it clear through their public statements that they are using the COVID-19 pandemic as an excuse to add to their already devastating job cuts,” according to the union.

And with more Americans than ever either physically distant or working from home in the U.S., the pandemic has put a spotlight on the importance of communications giants like AT&T.

“This crisis shows how much more important communications is, and it allows the company to accelerate and reshape its operations at a much faster pace,” Entner said.


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