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11 September 2019

Activist investors and new management: is AT&T’s transformation at risk?

Over the past few years, AT&T has undertaken one of the most ambitious attempts at transformation seen at any major operator.

It is, in parallel, seeking to up-end its cost assumptions and supply chains in order to phase in an entirely new structure, in its network and its organization. It has also been leveraging its inhouse developments to drive open platforms, in a bid to get wide operator support behind a multivendor, cloud-based network that could support new cost models and service agility. And it has not just focused on its fiber and 5G evolutions, but acquired companies to extend its business laterally, notably DirecTV and Time Warner; and formed strategic partnerships to support its cloud strategies.

Now it is set for further internal upheaval. Activist investor Elliott Management has taken a stake worth $3.2bn in AT&T, with the public blessing of president Donald Trump, and is now pushing for significant restructuring and cost-cutting, and even break-up to unlock shareholder value.

Also, there has been a significant reshuffle of senior management in the core Communications business unit, sparked by the retirement of John Donovan, outgoing head of AT&T Communications, and the architect of many of the telco’s most ambitious programs, including its Domain 2.0 initiative to introduce a new supply chain centered on software-defined networking (SDN).

Do these two changes signify a new approach at AT&T, and will that put at risk some of the hoped-for gains from its disaggregated, software-driven network program? Short term cost benefits will certainly still be chased aggressively, including the introduction of greater competition among its partners from tower operators to network vendors. But some of the dreams of the cloud-native, converged next generation network have longer term, or less well-quantified gains in sight, and these may not be sufficiently solid to satisfy an activist investor, if Elliott can exert sufficient influence on other shareholders to change the mood at AT&T.

Some of AT&T’s efforts to drive new platforms and processes into the 5G industry are likely to be superseded by more modern, operator-neutral standards. Open Network Automation Protocol (ONAP), a management and automation technology largely based on AT&T code, is already looking old-fashioned and cumbersome to deploy compared to emerging approaches based on containers.

But others look set to have a lasting impact on architectures and the normal state of play with vendors, especially Open RAN (ORAN), another AT&T-initiated open source project now hosted by the Linux Foundation. The ORAN Alliance is driving quickly towards an open interfaces which will be essential enablers of the disaggregated, multivendor virtualized RAN, the most challenging aspect of network virtualization, but the one with the biggest potential impact on costs and agility.

More broadly, AT&T – together with other operators like Telefonica and China Mobile – have helped change the conversation and give MNOs the confidence that a new architecture, supply chain and cost base is achievable in 5G, and indeed essential, if a strong business case is to be made. It is to be hoped that the quest for internal efficiencies and shareholder value will not slow the progress of these initiatives, or limit AT&T’s own ability to benefit from the trends it has helped to set in motion.