Daily Brief: You’re Stuck With AT&T, And The Telecoms Giant Knows It

Daily Brief: You’re Stuck With AT&T, And The Telecoms Giant Knows It

over 2 years ago3 mins

AT&T revealed an encouraging second-quarter update on Thursday, as the telecoms and media giant’s customers realized a life without WiFi isn’t much of a life at all.

What does this mean?

AT&T recorded more net new subscribers last quarter than investors were expecting, partly because it managed to hold on to so many. It’s not exactly convenient, after all, to switch your cell phone or internet provider when you need to log in to the boardroom from your bedroom. AT&T’s marquee acquisition pulled its weight too: Warner Media saw its revenue climb a better-than-expected 30% from the same time last year. Between those two triumphs, the company beat revenue and profit expectations for the quarter, while also pushing up its earnings estimate for the rest of the year – and investors duly sent its stock up on Thursday.

Subscribers

Why should I care?

The bigger picture: You’re gonna need a bigger bundle.

For years now, global telecoms and media providers have been teaming up to provide services that one has and the other doesn’t. The thinking is that bundling together a variety of products – including phone services, television packages, mobile data, and broadband – will make customers less likely to leave, as well as give companies more room to hike prices over time. AT&T has been following this strategy to the letter, and it seems to be paying off – so much so that investors and rivals alike might want to take note.

For markets: Not all deals are created equal.

The success of Warner Media – bought by AT&T in 2018 – is a reminder of how effective a well-executed acquisition strategy can be. But it’s also pretty rare: the majority of mergers and acquisitions can take years to pay off, even if companies talk a big game about the extra revenue they’ll earn once they team up. If you only have a short-term investing horizon, then, it’s worth being aware that you stand to lose out.

Keep reading for our next story...

The European Central Bank Is Leaving Interest Rates Alone

ECB image

The European Central Bank (ECB) announced in an update on Thursday that it won’t be tweaking interest rates, but it will keep being agonizingly cautious.

What does this mean?

You’d be hard-pressed to find an economist who was expecting the ECB to adjust key interest rates on Thursday. And spoilers ahead for any contrarians still out there: the central bank said it won’t increase rates until inflation hits its new target of 2% and stays there for a while.

Inflation
Source: Bloomberg

Still, the ECB did announce that it’ll keep buying bonds for as long as needed to support the eurozone economy. In fact, the central bank said it’ll probably spend more in the next few months than it did in the first few of this year. That demand should keep bond prices high and yields – and, by extension, effective interest rates – low, which should encourage economy-boosting borrowing.

Bond buying

Why should I care?

For markets: The ECB’s plan is working.

The ECB basically promised in March to do whatever it takes to limit European borrowing costs, and Italy’s 10-year government bond yield is a good way to track how well investors think it's keeping its pledge. That yield has fallen from highs of almost 1% earlier this year to just 0.66% now. So if the ECB’s bond-buying has enabled Italy – the riskiest eurozone economy – to borrow so cheaply, the rest of the bloc must be paying even less. And that should help boost growth once we’re well and truly out the other side of this pandemic.

The bigger picture: How long is the ECB’s piece of string?

The ECB has dubbed its current spending plan its “pandemic emergency purchase programme”, which begs the question: when will the “emergency” be over? The answer will determine when and how quickly the central bank withdraws its bond-buying – and it’s one investors need to know if they want to avoid a severe case of whiplash.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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