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Fritzsche's Forum

The Beat of History’s ‘Rhyming Rhythm’ May Be Getting Louder

August 3, 2022 | There has been a lot of talk about AT&T's and Verizon’s Q2 earnings.  While there have been a slew of earnings since then, I think it is worth peeling back the onion a bit here and framing what we heard in the context of past cyclical patterns. On its call, AT&T’s C-Suite seemed to have a bit of a Doctor Doomsday tone – higher DSOs, higher bad debt, slightly longer collection times from some segments of their customer base.  While I don’t think it was purposeful, the choice of language used by CEO John Stankey set off many an alarm bell from my former analyst competitors.  In somewhat damage control mode following these comments, CFO Pascal Desroches noted the following:

“…..one other point as it relates to the overall credit quality of our customer base, while we did see an uptick in bad debt, overall, there’s nothing at all concerning. It’s up slightly from pre-pandemic levels. So, our call out here was really just to caution investors given the broader macro trends that are happening. So, we’re not in any way alarmed by this.”

For those of us who have “history” on our side (aka are old!), I am not sure we bought the “we’re not in any way alarmed by this” part of that statement as we remember seeing this movie before. 

The date was January 8th, 2008 (remember that “fun” year?!).  I was listening to AT&T’s then CEO – Randall Stephenson – speak at the Citibank conference.  The Citi conference in many ways was always one of the most news-making TMT conferences because it was the first of the new year and CEOs’ views about the upcoming year were the main focus. It was at that conference when Randall said the following: “We’re experiencing softness on the consumer side of the house from the economy.” 

BOOM!  After he said it AT&T’s stock immediately reacted – and not in a good way. In fact, during the Q&A period following his presentation I remember an investor in the audience said to him, “You realize that your stock is down 7% based on your comments about the consumer?!”  The tall Oklahoman Stephenson’s response was slow, steady and unflappable: “Hey, I am just telling you what we are seeing….”  I remember it vividly even though it was over 14 years ago. 

Of course we all know how the remaining months of 2008 after that cold January day played out……

I am not an economist and there can be a healthy debate by people much smarter than me about if consumer and business balance sheets are different than they were 14 years ago and what type of recession we could be headed in, but the main point is this: AT&T called it out first.  If they saw it first in 2008, they are probably more in the front row seat today. Remember 2008’s talking point was: ‘the last bill people won’t pay is the cable bill'.  In 2022, there is NO debate that the word ‘cable’ is now firmly replaced with ‘wireless’ in this talking point.  Wireless is people’s lifeline. It is in many ways, the ‘remote control’ of one’s life (different discussion is if this is necessarily good!).

Because of this, AT&T – perhaps more than any other company – has a tremendous forward looking view on consumer (and enterprise) spending patterns. As much as the after calls with analysts tried to diffuse concerns about these tea leaf comments made on the Q2’22 earnings call, the genie is out of the bottle. 

One must wonder if the quote that the great Craig Moffett (always the best analyst for sensational “money quotes”) wrote in January 2008 (following that memorable webcast with Randall) may again be recycled in some future notes:

“Up to now, the telcos have put on a very brave face and have suggested that they haven’t really seen any signs of economic weakness. That’s really reinforced the idea that telcos are the ideal defenses….Today’s comment …. is the first crack in that armor and suggests that maybe the old view that telcos are immune to the economy just doesn’t hold true anymore.”

The other quote that comes to mind is the one my college History professor had on the white board the first day of class.  It read:

“History does not repeat itself….but it does rhyme”

Mark Twain

My guess is AT&T appreciates this more than most, given what it has been through these past few years and the fact that Stankey himself lived through this period as Randall’s right hand man / main lieutenant.  Fair to say with confidence, this team is doing all they can (within their control) to put an end to that “rhyming rhythm.”    

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