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AT&T starts $6B cost-cutting program

AT&T's management said the company had begun a cost-cutting program that the operator hopes will trim $6 billion from its budget by 2023.

"We're not backing off our cost and efficiency transformation initiatives that remain largely under our control," AT&T COO John Stankey said Wednesday during the operator's quarterly conference call with analysts. "If anything, we see this as an opportunity to approach all our businesses differently."

Stankey explained the previously announced effort would stretch across "ten broad areas of opportunity," though he did not specifically list out all ten areas.

However, he said the first two efforts – now underway – would cut a combined $1 billion in recurring costs from the operator's bottom line.

Stankey explained that the first area would focus on AT&T's retail and third-party distribution operation. "To address our distribution strategy, we'll be adjusting locations, location size, owned versus agency mix, point-of-sale support systems and compensation structures," he said.

The second area involves cuts to AT&T's field operations. Stankey said the operator would encourage customers to install their own equipment and would shift customers to its fiber network. He also said the operator would use artificial intelligence (AI) and other capabilities to reduce initial "truck rolls" (technician visits to customer locations) and to eliminate the need for a second visit.

"These efficiencies will enhance our ability to continue to invest in our key growth initiatives," including HBO Max and 5G, Stankey said of AT&T's cost-cutting program.

AT&T CEO Randall Stephenson first disclosed in October 2019 the operator's plan to cut costs, though at the time he didn't provide a financial target or timeline. He said AT&T hired former Clearwire and Vodafone executive Bill Morrow as its new "special adviser and managing director of process service and cost optimization," reporting to Stankey, Stephenson and AT&T's corporate development and finance committees.

In subsequent comments, AT&T executives have offered a few insights into exactly what the cost-cutting program will entail:

  • Stankey – the executive in line to take over leadership from Stephenson – said late last year that the cost-cutting effort would include a "rationalization" of the operator's wireline footprint with an eye toward "product rationalization" and "geographic and footprint rationalization."
  • The effort may include layoffs. Stankey didn't specifically mention that word, but instead said the operator would enact a "headcount rationalization," a term that could include layoffs as well as reductions by not hiring replacements for workers who retire or leave. That program, he said, would reduce the operator's labor expenses by 4%, or roughly $1.5 billion, by the end of 2020. He added that the reduction would target employees in AT&T's call centers, management structures and distribution strategy. AT&T employed roughly 252,000 people at the end of September.
  • AT&T will look to "IT rationalization," Stankey said, which includes eliminating unneeded applications and moving applications to the cloud.
  • The operator will work on reducing its energy usage across its offices and network operations.
  • Stankey said AT&T will do "some work around billing and credit collections rationalization," but didn't elaborate.

AT&T, of course, is keen to smooth out its entire operation following the close of its massive Time Warner merger, especially in light of its need to reduce the enormous debt load it incurred via the transaction. The financial upheaval caused by the spread of COVID-19 is likely exacerbating the company's desire to reduce expenses.

However, the cost-cutting effort is just one element of AT&T's strategy. Another is to sell off unwanted assets – for example the operator sold 1,000 cell towers for $680 million.

AT&T isn't the only major telco looking to reduce costs. Verizon announced a $10 billion, four-year cost-cutting plan in 2017, and in 2018 the operator said it would offer 44,000 of its management employees a buyout deal under that program.

Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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