Sportswriters like to talk about having personal Mount Rushmores. The four best basketball players ever, the best baseball players to suit up for the Pittsburgh Pirates, etc. Here in Georgia, I keep a personal Stone Mountain of bad business leaders, people who have destroyed value through bad decisions, such as Randall Stephenson of AT&T (NYSE:T) and AT&T stock.
Over the last decade, Jeff Immelt of General Electric (NYSE:GE) is my Jefferson Davis. But right behind him ride Virginia Rometty of International Business Machines (NYSE:IBM) and Stephenson.
Rometty missed the cloud, preferring to pay out dividends and buy back stock rather than invest the $1 billion/quarter in cash flow, and up, needed to match companies that became cloud czars, like Facebook (NASDAQ:FB). Stephenson did much the same thing but compounded it by buying one-way entertainment assets in DirecTv and (worse) Time Warner.
Today Facebook is worth more than twice IBM and AT&T, put together.
What to Sell
The time has come for Reconstruction.
First, consider spinning-out DirecTv, perhaps alongside DISH Network (NASDAQ:DISH) and, who knows, maybe Comcast’s (NASDAQ:CMCSA) Sky. The launch of low-earth orbit satellite networks by SpaceX and Blue Origin means there should no longer be antitrust worries. The pitch would be a clear field in the U.S. and Europe but would also a set up to serve Asia and create vast markets in Africa and South America.
The entertainment assets will be harder to dump, but there are potential buyers. Apple (NASDAQ:AAPL) would be a natural home for the production businesses and the film library at TCM. Amazon (NASDAQ:AMZN) CEO Jeff Bezos has plenty of cash to attach CNN to his Washington Post. If he’s not interested, The New York Times (NYSE:NYT) might be.
AT&T had $153 billion in debt at the end of September. These sales won’t come close to clearing it. But they would make AT&T a pure play in internet services, wired and wireless. That could do wonders for the stock price.
What to Buy
Next, shop for a data center REIT, a connection to the cloud internet you can expand into something useful. At $69 billion, Equinix (NASDAQ:EQIX) is probably out of reach. But companies like CyrusOne (NASDAQ:CONE), worth $9 billion, CoreSite Realty (NYSE:COR), worth $5 billion, and QTS (NYSE:QTS), also worth $5 billion, are affordable.
Add cloud to AT&T’s existing network of international lines and you have the start of something. Then start adding applications which can use the cloud. Fastly (NASDAQ:FSLY), with a market cap of $7.6 billion, comes to mind. Cloudflare (NASDAQ:NET) is worth $16 billion. The point is to build out a suite of tools that make you essential for any company that doesn’t want to depend on the cloud czars.
Get enough cloud and technology into the tool chest and you might even do a merger of equals with IBM, which is worth $102 billion. A collection of fast-growing tech companies, all tied to the cloud, that’s worth buying, in a way a bunch of tired old TV networks is not. So is a wireless operator with a pure tech focus in the age of 5G and the machine internet.
The Bottom Line for AT&T Stock
AT&T does have a compelling value proposition, thanks to its dividend. What it doesn’t have is a compelling business proposition. It’s only of interest to momentum traders looking for a bottom or income investors who want to squeeze the monopoly for as long as they can. I think the time has come for AT&T to undergo Reconstruction. Dump the past, embrace the future. Build a company that can take full advantage of the cloud and 5G.
Or keep pumping out that dividend until the well runs dry.
At the time of publication, Dana Blankenhorn had long positions in AAPL and AMZN.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn.