Who Knew AT&T Stock Had Fuel in the Tank?
For several years, analysts were concerned that AT&T Inc. (NYSE:T) would lose business to Google (Alphabet Inc.) (NASDAQ:GOOGL). Sounds absurd, right? I never seriously worried that Google would harm AT&T stock, but the threat was real enough to warrant my attention.
Here’s what happened.
At some point, Google realized that Internet speeds were ridiculously slow in the United States. And since the end goal of Silicon Valley is to have more and more commerce functioning via the Internet, this barrier imposed a low ceiling on technological growth. It was terrible for businesses and customers alike.
Just think of that time you tried to stream a video, only to be thwarted by a slow Internet package. The video would play for 20 seconds, then buffer, then play, buffer, play…it’s enough to make you stop watching after a point. You leave the transaction feeling frustrated and the company gets none of your business.
Everybody loses in that scenario, which is why some analysts thought AT&T stock could become collateral damage as well. After all, the company is responsible for providing Internet to the customer. Google saw this as an opportunity, so it introduced “Fiber,” an ambitious program to conquer and pillage the telecom market.
The plan was simple: lay fiber-optic cables (which deliver lightning-fast Internet speeds) in major U.S. cities, poach market share from the existing telecoms, and watch AT&T stock burn.
Internet delivered through fiber-optics is unbelievably fast. You can download 25 songs in one second, a TV show in less than four seconds, or a high-definition (HD) movie in just over 30 seconds.
It seemed like the perfect scheme for Google to bring down T stock and its telecom peers.
Sadly for GOOG shareholders, that doesn’t seem to be going well. There are reports that Alphabet is going to slash the Fiber workforce in half. (Source: “Alphabet is putting serious pressure on Google Fiber to cut costs,” The Verge, August 25, 2016.)
The order apparently comes all the way from founder and CEO Larry Page. It seems that not enough people knew or cared about the Fiber program. Moreover, the cost of getting cables into that “last mile” to people’s homes proved more costly than imagined.
What’s worse is that AT&T stock didn’t suffer a dent. In fact, T stock actually benefitted from developing its very own fiber-optics program.
It faced a similar “last mile” problem to Google, but home-court advantage can compensate for a lot of problems. Rather than downsizing its program, AT&T has been expanding into dozens of cities, townships, and other communities.
They are covering the map at a rapid pace.
Why? Simple: the brand is the recognizable face of telecom in the U.S. Not only does that provide a ton of incumbency power, it also means that AT&T has the infrastructure and local partnerships to make this transition at a fraction of the cost.
What This Means for T Stock
As industries go, telecom tends to be a very stable portion of the tech sector. Compared to the “wild west” of Silicon Valley’s startup environment, telecom more closely resembles a nature reserve. It is fenced off from intrusion.
Google saw an opening in the fence. It decided that telecom was ripe for a takeover, and moved into action immediately. I don’t blame the company for doing that; in fact, it’s the kind of ambition that makes Google stock such a valuable asset.
But there’s no denying that Google bit off more than it could chew. In trying to bring down AT&T stock, Google simply made T stock even stronger than it was before. After several years of competition, the Fiber program is on its last leg, while AT&T is sprawling.
Instead of crippling T stock, Google helped drive AT&T stock up 26.25%. Now that Google is virtually out of the running, I’d wager that T stock will continue to surge.
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