AT&T Business Model

AT&T is among the leading telecom businesses based in the United States. Over the last few years, the company has enjoyed impressive growth in revenue and customer base. As market dynamics and consumer demographics have changed the company has also made some strategic investments that are bearing fruit and the company has experienced growth in its customer base. While the United States is the main market of the company, it has also extended its presence into other market regions. The company offers a large range of services including telecommunications and media.  It has divided its business operations into four major reportable business segments of which communications is the largest segment. In 2019, according to AT&T’s annual report, the net operating revenue of the company grew to $181.2 billion in 2019 from $170.8 billion in 2018. The number of subscribers of wireless services provided by AT&T grew to 165.9 million from 151.9 million in 2018. 

AT&T business model

AT&T Reportable business Segments. 

AT&T has divided its business into four reportable segments that include communications, Warner Media, Latin America, and Xandr.  The communications segment is the largest reportable business segment of AT&T followed by Warner Media. The communications segment is further divided into three sub-segments. In 2019, the communications segment accounted for 77% of the total revenue of AT&T. However, in 2018, the communications segment accounted for 84% of the net revenue of the company. The communications segment provides its services to individual consumers and businesses located in the United States as well as businesses located outside the US globally. The company offers a large number of bundled product offerings in the communications segment across various service categories that utilize shared assets.  

This segment is divided into three sub-segments that include mobility, entertainment group, and business wireline.

 The mobility segment is the largest subsegment of communications. It provides nationwide wireless services and equipment. It experienced a small growth of 0.8% in 2019 compared to the previous year. The net operating revenue of the company from the mobility segment was $71.06 billion in 2019 compared to $70.5 billion in 2018. The mobility segment generated $55.3 billion from services in 2019 and $15.73 billion from equipment.

 The number of total mobility subscribers of AT&T in 2019 reached 165.9 million from 151.9 million in 2018. Out of the total mobility subscribers, 75.2 million were postpaid subscribers and 17.8 million were prepaid subscribers.

YearAT&T Mobility subscribers
2017139,986
2018151,921
2019165,889
AT&T Mobility Subscribers 2017-2019.

While the number of postpaid subscribers had decreased by around 1.1% in 2019 compared to the previous year, that of prepaid subscribers grew by 5.8% in 2019 compared to 2018.  

The Entertainment group is the second-largest sub-segment in the communications segment that provides video, including over-the-top (OTT) services, broadband and voice communications services to residential customers. This segment also sells advertising on DIRECTV and U-verse distribution platforms. In 2019, the entertainment group segment generated  $45.13 billion compared to $46.5 billion in 2018. This sub-segment experienced a decline of around 2.9% in the operating revenue of the company. 

The third and the smallest segment in the communications segment is Business Wireline. In 2019, this sub-segment generated $26.2 billion compared to $26.74 billion in 2018. It experienced a decline of 2.1% in 2019 compared to the previous year.   

The second-largest business segment of AT&T is Warner Media. In 2019, this segment accounted for around 18% of the net operating revenues of the company compared to 11% in 2018. This segment of AT&T develops, produces and distributes feature films, television, gaming, and other types of content through both physical and digital formats. This segment is also divided into three sub-segments. These subsegments are Turner, Home Box Office and Warner Bros. Turner mainly operates multichannel basic television networks and digital properties. It also sells advertisements on its networks and digital properties.

 In the US, Home Box Office mainly includes premium pay Television and OTT, and streaming services. Internationally, the services of HBO include premium pay, basic tier television, OTT, and streaming services as well as content licensing and home entertainment. The Warner Bros segment includes the production distribution and licensing of television programming and feature films as well as the distribution of home entertainment products and the production and distribution of games. The Latin America segment is the third-largest segment of AT&T which accounted for 4% of the company’s net operating revenue in both 2018 and 2019. It provides wireless and entertainment services outside the United States. This segment is further divided into two business units. These two business units are Mexico and Vrio. Mexico provides wireless services and equipment to customers in Mexico whereas the Vrio unit provides video services mainly to the residential customers through satellite technology in Latin America and the Caribbean. 

Xandr is the smallest business segment of AT&T which accounted for only one percent of its net operating revenues in both 2018 and 2019. It provides targeted advertising services across video and digital platforms using data insights. 

5G Services by AT&T.

AT&T is also a leader in the 5G space. Moreover, since the trade wars with China have grown bitter since the spread of Coronavirus, the US government is focusing on developing 5G technology infrastructure in the United States with the help of US-based and European companies. Huawei will not be a part of 5G infrastructure in the US as per a White House press release in February 2020. AT&T is one of the three largest companies in the United States apart from Dell and Microsoft involved in the development of 5G in the country. These three are the leading players in 5G in the United States and the leading European players include Nokia and Ericsson. 

Currently, AT&T’s standards-based 5G+ network service is live in parts of 35 cities in the United States. In this area, AT&T has also partnered with Google for the delivery of its 5G services. Google Cloud and AT&T announced a partnership in March 2020 that is going to enable enterprises to take advantage of Google Cloud’s technologies and capabilities through AT&T’s network connectivity including 5G. Together the two companies plan to deliver a portfolio of 5G edge computing solutions that will bring together AT&T’s network, Google Cloud’s leading technologies, and edge computing enabling enterprises to address real business challenges.

Since 2007, data traffic on AT&T’s mobile network has grown by more than 470,000%. The largest driver of this growth was video traffic which grew by more than 75% in 2019. In 2019, it made up more than half of the data traffic of AT&T. Based on the company’s estimates, video traffic is going to constitute more than 75% of its data traffic by 2022.  The main factors that will drive video traffic in the future include the growing adoption of Ultra High Definition 4K video, autonomous vehicles, drones, mobile gaming, virtual reality, and augmented reality. AT&T invested more than $130 billion in the US between 2014 and 2018 including capital investments and acquisitions of spectrum and wireless operations. The wireless network of AT&T now covers more than 99% of Americans. The fiber network of the company is among the nation’s largest and connects more IoT devices than any other internet provider in the entire North American region. More than 3 million businesses in the United States rely on TA&T’s network including large and small businesses.

Challenges before AT&T:

The telecom industry has seen a lot of change in recent years driven by changing market conditions and demographic changes. However, while these changes have brought opportunities, there are also several challenges before AT&T despite its strong competitive advantage in the industry. 5G technology is also expected to bring a fresh wave of opportunities and coronavirus has brought both opportunities and challenges for telecom players including AT&T. Competition has kept growing in the telecom industry as well as media entertainment and digital services. Apart from the traditional sources, non traditional sources of competition have also emerged. Moreover, the focus on customer experience is higher than ever to avoid losing customers to competitors.  This may also end up increasing the operating expenses of the company. In order to cater to  the evolving market conditions and customer tastes and preferences better, the company has been undergoing a transformation over the past few years. The company has altered its business model a lot to suit the new needs. However, industry regulation continues to remain a major challenge before the company.

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.