Struggling AT&T plans at least $10 billion in cost cuts, more layoffs

AT&T is planning at least $10 billion worth of cost cuts, AT&T President and COO John Stankey told investors yesterday. Stankey also discussed the future of DirecTV satellite service, saying it won't be the primary TV option AT&T pitches to most customers going forward. For the company-wide cuts, AT&T management "has looked at effectively 10 broad initiatives that we believe can generate double digits of billions over a 3-year planning cycle," Stankey said at a Morgan Stanley conference, according to a transcript posted by AT&T. One of the first of those 10 initiatives will include job cuts, which Stankey called "headcount rationalization." Stankey noted that AT&T has already been cutting jobs but said the company plans "additional work" in that area:

In the near term, things that fall in that short-term bucket, I already talked to you about some of them, some of the headcount-rationalization work we're doing on overhead, some of the benefit restructuring that we've done that we've already communicated out that get us a good way to some of our objectives this year. We have some additional work we can do in that area. We have some short-term opportunities on how we deal with third-party costs, supplier costs that we'll be pushing on. We have some near-term opportunities in our call-center structure that we're working on.

Longer-term cost cutting would start paying off after about two years, Stankey said. That will include "IT rationalization and architecture rationalization, turning down applications, movement to the cloud, getting cost efficiencies in our very, very broad infrastructure, some of that facilitated by portfolio rationalization." AT&T is also looking at ways to reduce electricity costs and a "billing and credit collections rationalization," Stankey said.

AT&T slashed network spending

As we previously reported, AT&T slashed capital expenditures by more than $1.6 billion in 2019 and projects a capital-investment cut of more than $3 billion in 2020. AT&T also reduced its employee count from 268,220 to 247,800 in 2019, despite promising to use a tax cut to create new jobs. AT&T reported $181.2 billion in revenue and net income of $13.9 billion in full-year 2019. AT&T is trying to reduce its massive debt load, which stood at $163.1 billion total and $151.3 billion in long-term debt at the end of 2019.

Future of DirecTV satellite

AT&T's TV business has been cratering, losing more than 4 million subscribers across its satellite, wireline, and linear streaming-TV services in 2019 alone. As AT&T shifts toward online-only services like AT&T TV, it is de-emphasizing the satellite service despite spending $48.5 billion to buy DirecTV in 2015. Stankey said yesterday that the future of TV is in software, not satellites, and that DirecTV will primarily be relevant in places without fast broadband:

Our software products are our lead products. Our products, our video product, bundled with broadband, is where we are most focused in what is our lead in the market today. We will continue to offer satellite and DirecTV where it has a rightful place in the market, places where cable broadband is not prevalent, oftentimes more rural or less dense suburban areas. We'll continue to offer it for customers on a stand-alone basis, who find its superior content offering to be something that they wish to have. But in terms of our marketing muscle and our momentum in the market, it will be about software-driven pay-TV packages.

AT&T purchased DirecTV because "we like the DirecTV customer base, thought it was attractive," Stankey said. But "shortly after that [acquisition], we made it clear that we would be developing a software platform that would ultimately not only take our satellite base and offer them a more updated product, but be the replacement for the U-verse [wireline TV service]," he said. In addition to AT&T TV, which combines the convenience of online streaming with the contracts, hidden fees, and huge price increases of cable, AT&T is hoping the forthcoming HBO Max service will help put its video business on the right track.