AT&T (NYSE:T) is not a company that is used to being defensive. Typically, AT&T is the aggressor. It operates in an industry where it is half of a duopoly, and in all the sub industries where it conducts business, it is by far the largest and most powerful. Yet, it appears that AT&T has met its match in Alphabet Inc (NASDAQ:GOOG) (NASDAQ:GOOGL). The search giant is going right after AT&T’s largest, most important industries, and there is nothing AT&T can do about it.
Granted, the AT&T stock bull will say that Google is no threat. However, with a larger market capitalization, a stronger balance sheet, and being one of the smartest technology companies in history, Alphabet is proving to be very dangerous for AT&T stock and company.
Alphabet’s Google Fiber arrives
Consider the fact that AT&T and Alphabet launched their respective high-speed broadband services at the same time. Alphabet launched Google Fiber and AT&T had GigaPower. Each boasted speeds up to 1 Gbps. With AT&T’s existing infrastructure (U-Verse), it is no question that the telecom giant had a huge head start on Google Fiber. In fact, Goldman Sachs figured back in 2013 that if Google Fiber were to reach every household in America, it would cost $140 billion! That’s an expense that not even Alphabet can swallow easily.
However, something very odd has happened in the battle between AT&T GigaPower and Google Fiber. Alphabet has successfully convinced city ordinances around the country that more broadband service providers are good for customers. This has been Alphabet’s approach since Day 1 to reduce costs, an argument the company first made in Kansas City and Austin, TX.
By doing so, Google is getting approvals to use its fiber on existing utility poles that provide broadband services, many of which are owned by its competitor AT&T. We just saw it happen again in Nashville, when the city approved “One Touch Make Ready” regulation to allow this practice. What this means is that Alphabet can greatly reduce those large expected costs by piggybacking the investments that AT&T has already made. It really is genius, and instantly makes Google Fiber and Alphabet a real threat to AT&T.
AT&T Fiber proof of defensive play
With that said, the AT&T stock owner will argue that high-speed broadband is only a piece of the company’s business, about 10%. It is not really that important. Furthermore, those same investors will also argue that while Google Fiber has gotten some help from city officials, it only puts Alphabet on a level playing field, not an advantage.
Well, that’s a fair point. However, consider the fact that AT&T is now changing the name of GigaPower to AT&T Fiber! Why would it do that? The answer is simple, to better compete against a Google Fiber that is stealing market share and creating havoc in each market it enters. Yes, it seems like a simple name change, but fact is it’s Alphabet’s name. Fiber belongs to Google, and AT&T’s decision to change and use it illustrates a bit of desperation to gain lost ground.
All things considered, let’s say Google Fiber really is causing problems for AT&T’s broadband business. Sure, that’s great for Google, but the argument remains that we’re only talking about 10% of AT&T’s business, so not a meaningful loss for AT&T stock. However, that’s where AT&T stock owners don’t see the bigger picture.
Alphabet is dangerous for AT&T stock owners
Google Fiber is not just broadband internet, but also very efficient TV. Look where AT&T has made its biggest investments the last five years, in TV. Ever since Google changed its name to Alphabet, it has very quickly targeted AT&T’s business and has tried to weaken the giant. There are far more examples than Google Fiber.
Just look Alphabet’s Pixel phone announcement. Notice how it is exclusive to Verizon Communications Inc (NYSE:VZ)? I think it is because Verizon is not much of a threat. Verizon can not even keep its broadband promises to the state of New York, and after making a horrible $100 billion investment for full ownership of Verizon Wireless, Verizon itself has quite a hole to dig itself out of.
Furthermore, Alphabet’s router ambitions haven’t exactly panned out, but Google Wifi does have the capabilities to expand Wi-Fi usage and take a bite out of wireless data consumption. Alphabet keeps investing in these Wi-Fi related technologies, and innovating the technology to make Wi-Fi work better. It is a matter of time before consumers realize the products that Alphabet has in the pipeline to reduce data consumption and increase performance with speeds like 1 Gbps.
Therefore, I think it is quite obvious from Google Fiber’s continuous wins to piggyback AT&T’s assets; AT&T’s name change to Fiber; the video implications of Google Fiber; and Alphabet’s ongoing work with Wi-Fi that AT&T stock owners should be very worried about Alphabet.