I have not written about AT&T, Inc. (NYSE: T) for a long time…since October 30. 2019.

I was not very enthusiastic about the company at that time.

I wrote at that time,

AT&T is still trying to position itself as a media play, selling satellite TV service to millions of people owning a large chunk of Hollywood, with plans for a forthcoming streaming service.”

The transformation necessary to compete in the 21st century is still not there. The current theater is nothing more than another example of decision makers kicking the can further down the road.”

On October 30, 2019, AT&T stock closed at $38.20.

AT&T stock got hit by the pandemic and economic recession events taking place in March and its stock price dropped to the $30.00, give or take a dollar or two. On the morning of September 2, 2020, the stock was trading around $29.65, roughly where it had been since the middle of March, while the stock market as a whole continues to hit new, historical highs.

AT&T Is Still A “Legacy” Firm

AT&T, Inc., unfortunately, still remains a “legacy” firm, an organization trying to find itself in a world that is evolving into something new, something I have called the “new” Modern Corporation.

AT&T is not alone in this quest. I have recently written about other strugglers to become ‘”modern,” for example, see my review of IBM and my review on NBCUniversal.

It seems as if the current conditions have impacted AT&T management and have taken any real energy away from what they had been trying to do.

Right now, management seems to be considering selling some of its assets, assets that were once seen as “a part of the future.”

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But, there seems to be little enthusiasm in terns if what the organization is doing. This is not to be unexpected from a management that has been around for a while, tried to make some relevant changes, but has seen its stock price just fester.

This state of affairs was what the all the fuss with Elliott Management, a hedge fund, was about.

The “New” Modern Corporation

The “new” Modern Corporation has some basic characteristics that “legacy” companies must achieve if they are going to be competitive in this modern era.

The “new” Modern Corporation builds its foundation upon intellectual capital, not physical capital, and, as a result, is able to scale up its operations with either zero or close-to-zero marginal cost. Consequently, these new organizations are able to generate lots and lots of cash and are able to function with very little debt, if any.

Furthermore, given all the cash flow, these companies must develop the ability to financial engineer their organizations to maximize the returns they get on all the money flowing around inside them.

AT&T management has not really seemed to be up to the task of building such an organization, although it has feebly tried to do so in different areas. But, to me, these have always seemed half-hearted moves, moves that were not really understood by the senior management.

Where AT&T Is Now

Right now, AT&T is exploring a potential sale of it digital advertising operations. Management had wanted, according to Drew FitzGerald and Patience Haggin in the Wall Street Journal, “to become a force on Madison Avenue….”

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The company had set up a separate division called Xandr to build up its ad operations. In 2018, the company acquired AppNexus, for $1.6 billion, to provide it with the resources to really move into the ad space, and even compete with the “biggies” in the area like Alphabet, Google’s owner.

AppNexus was one of the largest online ad exchanges and so the acquisition was aimed at giving credibility to AT&T’s Xandr operations. Hence, the deal should have formed the basis for AT&T success.

Wrong. The division was not able to scale up, as desired, and, as a result, the cash flow generation did not take place. AT&T management apparently was counting on this burst to help it change the nature of the conglomerate and provide the wherewithal to begin reducing the massive amount of debt that had been build up n recent years to finance its many large acquisitions.

The “New” Environment Did Not Appear

It seems as if the AT&T management just did not have what it took to move from a “legacy” organization into the mind-frame for the “new” Modern Corporation.

As one returns to the Elliott Management confrontation, one sees all these concern rising to the surface.

It seems that AT&T management is proving to the world what Elliott Management was worried about. The company was just not prepared to move on into the modern world.

Now, there are even more rumors about parts of AT&T that are going to be put up for sale. Mr. FitzGerald and Ms. Haggin write that “The Wall Street Journal reported on Friday that AT&T is discussing selling most of its shrinking DirecTV satellite business with private equity firms.”

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And other parts are also considered to be “on the block.” The reason for this is the huge debt load that AT&T now carries. Debt concerns are becoming more and more of a topic as the current economic recession carries on and as bankruptcies begin to mount up. Any organization with debt amounts that are considered to be too large are going too cause investors to raise the “solvency” question.

Right now, AT&T does not seem to me to have a very bright near term future. Changes needed to be made…earlier. Now, any changes made are going to be very problematic.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Via SeekingAlpha.com