AT&T has an opportunity to continue competing in the $70 billion business services market, but the service provider says that business customers’ investment is being hampered by high corporate tax rates.
Randall Stephenson, CEO and chairman of AT&T, told investors during the Goldman Sachs Communacopia event that businesses spending capital on network services and upgrades directly ties into the profitability of AT&T’s business service unit.
“This business’ growth trajectory matches business investment,” Stephenson said. “As you see business investment pick up, you see business pick up.”
Stephenson added that the current lower state of investment is having an impact on being able to sell more business services.
“When you have an environment where business investment as a percentage of our economy continues to run at the lowest level since World War II, it’s hard to get growth traction in this side of the house,” Stephenson said. “This is one of the reasons why we’re aggressive to push for corporate tax reform.”
But driving businesses to invest more in services is just one part of the equation that AT&T says tax reform will help.
AT&T itself would also enhance its spending for its overall business.
Although he did not call out specific targets Stephenson said that AT&T overall would significantly increase its corporate spending if the corporate tax rate is lowered to between 20% and 25%.
“We would invest more,” Stephenson said. “We are already the largest investor in America, and have been so for the last five years. If we got tax reform, you would see AT&T step its investment up.”
Business service challenges
As a result of the higher tax rate and lower investments by business customers, AT&T continues to see business service revenue challenges.
“What will get that low investment turned in a short period of time is tax reform,” Stephenson said. “When you’re taxing profits at the highest level in the OECD, it’s logical you’re getting lower investment than in the OECD as a percentage of the economy.”
The effect of lower business investments was clearly felt in the second quarter’s business segment revenues. Additionally, the service provider saw wireline pressure from legacy services and equipment sales.
AT&T reported second-quarter Business Solutions segment revenues were $17.1 billion, down 2.7% year-over-year due to continued declines in legacy services and fewer wireless equipment upgrades, partially offset by growth in strategic business.
The provider will continue to focus on cost management initiatives and process automation service delivery efficiencies as well as SDN and virtualization.