Why AT&T, Comcast Growth Strategies Will Work: Jeff Kagan

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As COVID-19 continues to spread, it is impacting so many industries including entertainment. This is the industry that both AT&T and Comcast have chosen for their next wave of growth. Disney announced it is pulling back, for a while anyway. So, let’s explore the growth strategies for both AT&T and Comcast.

Today, AT&T and Comcast are competing head to head, but it wasn’t always that way. AT&T came from the telephone side and Comcast from the cable TV side.

They never competed before, but now they both offer the same kinds of services. More than their telephone, wireless and cable TV competitors. So, now they are competing, head to head.

This is a fundamental shift in thinking for investors.

Comcast Xfinity acquired NBC Universal several years ago.

AT&T first acquired DirecTV then more recently Time Warner, changing its name to WarnerMedia. AT&T now owns Warner Brothers Studios, CNN, HBO and more.

These are two powerful giants both blending old and new technologies to create a competitive new powerhouse.

Sure, it will take time for both to pull all the pieces together to show growth in their separate areas, and also to create new areas by combining it all.

Despite the time required, I think this is a brilliant strategy for growth. Then coronavirus came upon us and we are now dealing with a new reality.

AT&T and Comcast well positioned for growth going forward

That being said, we will get back to normal before long and when we do, these two companies are well positioned for growth going forward.

The CEO of every company must constantly conduct a balancing act.

Every company needs to keep investors or owners happy and on board.

At the same time, they also need to recast their future so they can continue to grow.

Sometimes short-term and long-term goals are on the same page. Sometimes they cause friction. Yet, this is the reality every CEO must manage.

As an example, think back a dozen years when the iPhone and Android phones hit the market, and the wireless data services entered the scene. It took several years for wireless CEOs to make changes to bring the marketplace along with them. It worked and wireless data and smartphones have seen enormous growth.

Now it’s happening again.

Long-term vs. short-term investment and growth strategy

Certain investors who are asking for both AT&T and Comcast to break up their companies are only concerned with the short-term performance. This may help short-term investors but will do nothing for the long-term growth of the companies.

The CEOs of AT&T and Comcast need to keep both goals in mind. They can’t move toward one if it will harm the other.

This is where investors need to better understand the value in blending the old with the new. The mistake is thinking you can simply spin off slow growing technologies and separate them from faster growing sectors.

Don’t cut off your nose to spite your face

That kind of thinking is a mistake. It’s like cutting off your nose to spite your face. This is where investors need to better understand the company from the long-term perspective.

There is incredible value in blending these old and new technologies and that value will continue to manifest for quite a while.

A company can stand on several different legs. Some will grow faster than others, but all are very important to keeping the company successful.

Eventually we will come to a time when things change, and companies can cut loose the older or slower performing technologies if that won’t impact their core business.

That time, however, is not now.

What is the AT&T and Comcast growth strategy?

The power in what AT&T and Comcast have done is they have acquired all the different sectors of the news and entertainment industries and are blending them with the wireless and pay TV offerings.

These two companies have created a new kind of company.

That means even though the traditional pay TV or cable TV technology may not be growing at the same rate, they are still important pieces of the bundle. They are still key to reaching the customer with faster growing services.

Consider this a loss leader like when retailers reduce the price on an item or even take a loss, to get you into the store, then make profit on other items you buy as well. Banks will gladly give away checking accounts for free in order to capture your high margin loan and mortgage business.

AT&T, Comcast investors need to understand sticky bundles

Understand that the slower growing parts of the business may not be obviously attractive to investors, but they are an integral part of the bigger bundle of services to keep the company growing.

Don’t focus on one part of a Picasso painting. Instead, pull the camera back and look at the entire work of art. That’s what I am saying here.

This is how companies lock customers in for the long-term. If you gut the company’s ability to provide one or more of these services, you take away the ability for the company to create a sticky bundle to hang onto the customer.

Sticky bundles are key to long-term growth

Sticky bundles are exactly what competitors need today. They slow the loss of traditional customers and they carry new technology.

The sticky bundle is a perfect solution. It helps a company hang onto their customer base while the industry is transforming.

If you eliminate parts of the business, you lose the ability to hang onto the customer with the sticky bundle.

Consider AT&T TV or Comcast Xfinity services. These can deliver not only pay TV and cable TV to customers, but also deliver HBO Max and Peacock, which are two of the new streaming services just launched.

Sure, customers like to watch on all their devices like their tablets and smartphones, but they also like to watch on their TV sets.

That creates an incredibly sticky bundle of services which is good for the companies and for their investors in both the short-term and the long-term.

True, at some point in the future, the value of traditional pay TV or cable TV services may shrink enough that the companies could consider spinning them off, but that time is not today.

Today, there is still incredible value in these slower performing assets.

So, investors should be patient and let both AT&T and Comcast develop their new business model. Then, years down the road, we can revisit the question of spinning off certain lower performing assets when the time is right.

Jeff Kagan is an Equities.com columnist. Kagan is an Industry Analyst, Thought Leader, Key Opinion Leader, KOL, and Influencer focused on Wireless, Telecom, Pay TV, Cloud, AI, IoT, Tele Health, Healthcare, Automotive and Self-Driving cars. Email him at [email protected]. His web site is www.jeffKAGAN.com. Follow him on Twitter @jeffkagan and LinkedIn www.linkedin.com/in/jeff-kagan/

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Equities Columnist: Jeff Kagan

Source: Equities News