For nearly a century, AT&T Inc. (T) was one of the largest corporations not just of its kind, but in all of existence. It was as large and influential as Apple Inc. (AAPL) or Exxon Mobil Corp. (XOM) is today. AT&T’s telephone business, which generations of people have since taken for granted, was at least as revolutionary a development as the internet. The idea of being able to converse with someone live, without having to be in each other’s physical presence, not only transformed daily life but made the company an unending stream of money.

State-Sanctioned Monopoly

In 1918, AT&T received a government-sanctioned monopoly as the sole provider of phone service throughout almost the entire United States. Then in the early 1970s, the federal government changed its mind and filed an antitrust suit against the company. The case was one of the largest and most convoluted in history and took nearly a decade to resolve. AT&T ended up divesting itself of its monopoly, which led to the creation of regional telephone companies, also known as "Baby Bells." In 2005 one of those babies, Southwestern Bell, ended up purchasing its erstwhile parent. Southwestern Bell then rebranded itself as AT&T, indirectly leading to the creation of a company that can trace its roots back to the 19th century but that we know today mostly as a mobile phone service provider. (For related reading, see: What Is A "Baby Bell?")

Today, with a quarter million employees and a market capitalization of close to $223 billion, Dallas-based AT&T is as dominant in absolute terms as it’s ever been. Still, you might be surprised to know that your and your neighbors’ monthly cell phone bills are responsible for only part of that domination.

A Company in Four Parts 

The company's largest segment actually has little to do with individual phones. Business Solutions is the largest of AT&T's four segments, and provides services used by companies, governments, and other organizations. In today's market, having fast and reliable internet is a must in corporate offices, and AT&T makes a killing providing WiFi and more. In their 2016 annual report, AT&T announced the Business Solutions segment generated $71 billion in revenue. 

As for AT&T's three smaller segments, the second largest is the Entertainment Group, which includes the recently acquired DirecTV, and provides vudei, internet, voice communication and advertising services. The main moneymaker in this segment is U-verse, if you use this service for your tv or internet, this is where your money is going. This segment also handles the few customers still on landlines, which comprises about 9% of the segment. This segment makes up 32% of AT&T's total revenue ($51 billion). 

The third largest segment is Consumer Mobility, which accounted for 20% of the company's 2016 revenue ($33 billion). This is the service we're all familiar with. If you have an AT&T plan on your phone, this is the segment where that money goes. This segment has been losing revenue for the last few years, which AT&T claims is because more and more people are buying data plans through employer-sponsored discounts. As of December 31, 2016, the company has 134.5 million wireless subscribers. 

AT&T's smallest segment is their International business. It mainly consists of Latin American operations and Mexican operations, which the company acquired in 2015. The company offers phone, video, and data plans to citizens of the region. AT&T announced its international segment made more than $7 billion in revenue in 2016. 

The Smart Business of Smartphones

If enabling people to make mobile voice calls was all AT&T did, it would sell nothing but cheap flip phones. The company attributes the yearly increases in its operating revenues not merely to the sale of data plans, but to the sale of the vehicles with which to use them. In other words, smartphones. There’s a reason why AT&T can sell a 64GB iPhone that normally retails at $850 for only $400, and that reason is not to be altruistic to customers. A $450 reduction in upfront costs pays for itself several times over during the months and years that an AT&T customer uses such a phone to access data. Allowing more and more people to access that data comes with negligible marginal costs to AT&T.

Time Warner Merger 

 AT&T and Time Warner (TWX) announced in 2016 that they intended to merge into a mega-company. The deal signaled that AT&T would pay $85 billion for the media company, with a 50/50 split in cash and stock. The announcement sent shockwaves around the business world, as it would mean AT&T would control Warner Bros, HBO, CNN, and countless other assets, radically changing the landscape of the entertainment industry. 

In November of 2017, the U.S. Justice Department sued the companies, setting the stage for one of the most closely watched antitrust battles in modern times. The lawsuit is considered odd, as AT&T and Time Warner are very different companies, which would normally be fine to merge as they wouldn't create a monopoly. The Justice Department has previously demanded that Time Warner divest some of its assets, like CNN, for the merger to go through. AT&T claims that the lawsuit may come from Donald Trump, who is a vocal critic of CNN, using his position as President to punish CNN for reporting damaging information about the Trump Administration. The companies will meet the Justice Department in court on March 19, 2018. 

The Bottom Line

AT&T has enjoyed one of the most successful runs in the history of American business, yet still manages to stay technologically up-to-date, relevant and vital. That’s tough for any company to pull off, but any one that does can assure itself of huge profits for the foreseeable future.

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