For nearly a century, AT&T Inc. (T) was considered one of the largest corporations—not just in telecommunications, but across the entire market. At its height, AT&T was just as, if not more, influential than Apple Inc. (AAPL) and Exxon Mobil Corp. (XOM) are today. Now, AT&T makes money through four different segments: Communications, WarnerMedia (including television networks, premium pay services, and film and television production), Latin America (including services offered to customers throughout Latin America), and Xandr (an advertising services provider).

AT&T is the largest telecommunications company in the world, originally founded as Southwestern Bell Telephone Company in 1880. In 1918, AT&T received a government-sanctioned monopoly to become the sole provider of phone service throughout most of the 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. AT&T’s telephone business may have been taken for granted by generations of consumers, but it's important to remember that cellular technology was at one point as revolutionary as the Internet or artificial intelligence. 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.

On Dec. 21, 2018, AT&T launched its mobile 5G network in 12 cities around the United States, becoming the second major telecommunications provider to do so after Verizon. The first wave of 5G cities includes Atlanta, Charlotte, Raleigh, Dallas, Houston, Indianapolis, Jacksonville, Louisville, Oklahoma City, New Orleans, San Antonio, and Waco. The first Samsung 5G phones were released early in 2019.

According to its 2018 annual report, AT&T's operating revenues for 2018 were $170.8 billion. This constitutes an increase of about 6.4% over the prior year. AT&T's adjusted earnings per share for 2018 was $3.52, up 24% from two years prior. The company has a market capitalization of $247.9 billion as of July 11, 2019.

AT&T is the largest telecommunications company in the world, as well as the largest provider of mobile phone services in the U.S.

AT&T's Business Model

AT&T divides its business into four segments: Communications, WarnerMedia, Latin America, and Xandr. Below, we'll explore each of these segments in greater detail, including any further subcategories where appropriate.

Key Takeaways

  • AT&T primarily earns revenue from its communications business, which includes wireless services and equipment, entertainment services for residential customers, and business services.
  • The company also generates revenue from WarnerMedia, Latin America, and the advertising services segment Xandr.
  • AT&T generated roughly $170.8 billion in revenue in 2018.

AT&T's Communications Business

AT&T's Communications segment is by far its largest, accounting for 84% of total segment operating revenues in 2018. This portion of AT&T's business provides wireless network services and equipment, business services, and entertainment services to both companies and residential customers across the U.S. Most of AT&T's communications products include bundled packages providing products including video, internet, and voice offerings. The Communications segment can further be divided into Mobility, making up 39% of revenues; Entertainment Group, making up 25%; and Business Wireline, accounting for 14%.

Mobility is the largest component of the Communications segment. 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. As of the end of 2017, the company had 171 million wireless subscribers in North America.

The Entertainment Group includes DirecTV and provides video, internet, voice communication, and advertising services. One of the main moneymakers in this segment is U-verse, if you use this service for your television or internet, this is where your money is going. This segment also handles the few customers still on landlines.

Business Wireline is the smallest portion of the Communications segment but still a major driver of AT&T revenue. This portion of the business offers advanced IP products, as well as traditional voice and phone services, to businesses across the country.

AT&T's WarnerMedia Business

On June 12, 2018, AT&T completed a nearly-$109 billion acquisition of Time Warner, following an antitrust lawsuit. The company, which is now a subsidiary of AT&T, became WarnerMedia in the process. WarnerMedia accounted for about 11% of AT&T's operating revenue for 2018, although it's important to keep in mind that the acquisition was completed mid-year. This portion of AT&T's business develops and produces television shows, films, video games, and similar content. WarnerMedia can further be divided into Turner, Home Box Office, and Warner Bros. subcategories.

The Turner component operates basic television networks, while Home Box Office focuses on premium pay networks. Warner Bros. is responsible for producing feature films, television shows, and video games.

AT&T's Latin America Business

One of AT&T's smallest segments is Latin America, comprising about 4% of operating revenues for 2018. 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 those regions.

The Latin America segment is divided into Vrio, which offers video services to residential customers via satellite, and AT&T Mexico, which provides wireless equipment and services to customers in Mexico.

AT&T's Mexico sub-segment is growing quickly; the company has more than doubled its subscriber base (to 18.3 million in 2018) since 2015.

AT&T's Xandr Business

Xandr is the smallest segment of AT&T's business, accounting for roughly 1% of operating revenues in 2018. Xandr is AT&T's advertising services branch, utilizing data insights in order to provide targeted advertising opportunities.

Future Plans

The acquisition of Time Warner in 2018 signaled a major shift in AT&T's business model, and the company is no doubt continuing to adjust following the merger. AT&T is now extremely well-positioned, as it now holds a huge base of premium content as well as dozens of millions of customers. The company indicated in its 2018 letter to shareholders that it plans to launch a subscription video-on-demand service incorporating content from the WarnerMedia segment by the end of 2019. In the near future, AT&T will also likely continue to develop and roll out its 5G network.

Key Challenges

The telecommunications industry has undergone tremendous change in recent years and it appears that the tumultuous period is far from over. While this presents exciting opportunities, it also introduces challenges, even to stalwarts like AT&T. With new competition emerging all the time, AT&T must ensure that its customers are satisfied that it is able to provide the latest technologies and adequate service. Some of these technologies, including streaming video services and others, may end up adding to AT&T's total cost of operation, affecting the company's business model. Similarly, changes in customer taste and in content delivery methods could also necessitate business changes as well. Finally, regulation continues to be a major challenge for AT&T; although it won the antitrust suit regarding its acquisition of Time Warner, that is likely not the last time that AT&T will face regulatory pressures.