Phone, Cable, Computer – Major Change Drivers, but Who is Winning?

Used to be that we had just one telephone company, AT&T – it was the time when the phone was an appliance and the personal computer was just emerging. Effective January 1, 1984, the old AT&T was broken up by the U.S. Department of Justice, creating seven Regional Bell Operating Companies (RBOCs) and simultaneously permitted AT&T to enter into the computer systems business. Birinyi Associates, Inc. present a clear diagram of the AT&T breakup and the number of companies that were spawned by AT&T.

Roughly during the same time of the breakup of AT&T, three computer companies – IBM, Microsoft & Apple were making significant advances in personal computing. On August 12, 1981 the IBM PC was unveiled. Microsoft built the operating system for the PC. Apple started the personal computing category in year 1976, selling Apple I as a computer kit and advanced the computer to Apple II in 1977. The killer application, “Visicalc” ran on Apple II and provided significant impetus to this market. By 1980, Apple rolled out the Apple III model to the market.

It is indeed fascinating that AT&T was broken up and allowed to enter into the computer systems business and yet couldn’t quite make it into the computer business. AT&T’s main foray into this area came at the time of the emergence of the Personal Digital Assistant (PDA) market in the early 1990’s when AT&T introduced the “EO Personal Communicator” and competed with Apple’s Newton. Both Apple and AT&T lost in the PDA market as these devices were plagued by poor handwriting recognition, large size (therefore less mobility) and the lack of availability of an alternative (such as a keyboard) for data entry.

In the meantime, cable companies thrived as more and more content became available and further got an impetus as broadcast moved into digital and then HD.

So, while the charter for the new AT&T after breakup was to enter into the computing business, in reality it has stuck to its core business of communications services. Of course, AT&T has changed – it is more of a wireless service provider now than a landline service provider and it has grown its customer base significantly to each member of a household from being limited to one or two lines per household. With such changes and such market expansion, how has its stock performed compared to its computer company peers?

The following table shows stock performance for AT&T, Comcast, Apple, IBM and Microsoft over the last 26 years:

Stock return comparison of phone - cable - computer companies, excluding annual dividends which could be substantial in some cases. For example, AT&T currently has an annual dividend yield of approx. 6%

Stock return comparison of phone - cable - computer companies, excluding annual dividends which could be substantial in some cases. For example, AT&T currently has an annual dividend yield of approx. 6%

The clear historical winner is neither the phone company nor the computer company – it is the software maker, Microsoft. No one can predict the winners of the future, but one thing is for sure – the phone company does have tremendous staying power and is perfectly in the midst of major changes such as the commoditization of the long-distance communication services, the rise of the Internet and the most recent Mobile revolution and the convergence of TV and computing. Through all these revolutions, is it possible that the only winners in this change are the management executives at the phone companies and not its stockholders?

References:

AT&T: Historical stock splits – http://www.att.com/gen/investor-relations?pid=5673

APPLE: Investor relations information (IPO date, price, etc.) –  http://phx.corporate-ir.net/phoenix.zhtml?c=107357&p=irol-faq#stock6

IBM: History highlights – http://www-03.ibm.com/ibm/history/documents/pdf/1885-1969.pdf

All financial data from http://www.finance.google.com

208 Comments

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