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AT&T slashed billions from network spending, cut tens of thousands of jobs

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Enlarge / An AT&T sign outside a company office in New York City.

AT&T slashed capital expenditures by more than $1.6 billion in 2019 and projects a capital-investment cut of more than $3 billion in 2020.

AT&T’s capital expenditures for the full year of 2019 totaled $19.64 billion, down from $21.25 billion in 2018, an AT&T investor briefing released yesterday said.

The broadband industry and Federal Communications Commission officials have used capital expenditures as a measure of broadband-network investment and have claimed that eliminating net neutrality rules and other regulations would cause such investment to rise. But some of the biggest ISPs, such as Comcast and Charter, have been reducing capital expenditures despite getting their sought-after net neutrality repeal and a large corporate tax cut.

As we reported in October, AT&T has been warning of a $3 billion cut in capital investment to come in 2020, which would reduce the amount it spends on upgrading and expanding wireline and mobile broadband networks. The company reiterated that guidance and discussed its plans in its earnings report yesterday.

The planned cut is based on a slightly different measure that AT&T calls “gross capital investment,” which includes the $19.64 billion in capital expenditures plus “cash payments for vendor financing” and spending on FirstNet, a public-safety network AT&T is building with a government contract. AT&T said that this vendor financing is generally excluded from capital expenditures and reported separately as financing activities, but AT&T has started reporting its capital-spending numbers both with and without the long-term financing.

AT&T said its gross capital investment in 2019 was $23.7 billion, which AT&T said meets its goal of spending in the “$23-billion range.”

In 2020, AT&T said its goal is much lower, with gross capital investment somewhere in the “$20-billion range,” likely resulting in a cut of more than $3 billion. Vendor-financing payments are expected to make up about $3 billion of that $20 billion.

In an earnings call yesterday, AT&T CEO Randall Stephenson said the “board has developed a very thoughtful capital allocation approach that will maintain a solid balance sheet and drive shareholder value.”

Despite tax break, another 20,000 job cuts

In addition to the drops in capital spending, AT&T continues cutting jobs despite Stephenson previously claiming that AT&T would use a corporate tax break to create “7,000 hard-hat jobs.” As we noted in a story yesterday, AT&T had 247,800 employees at the end of 2019, down from 268,220 one year earlier. That’s a 7.6 percent drop in employment.

The new earnings report “shows that AT&T continues to cut jobs and reduce capital expenditures even as the company announced record operating and free cash flow for 2019 and more than $5 billion in stock buybacks in the past four months,” the Communications Workers of America (CWA) union said in a statement. “The company has cut 37,818 jobs since the Tax Cuts and Jobs Act (TCJA) went into effect in 2018, including 4,040 in the fourth quarter of 2019.”

AT&T notified the union last week “of its plans to cut an additional 200 technician positions in California on February 14, 2020,” the CWA said.

Verizon reported earnings today, saying that its capital expenditures rose from $16.7 billion in 2018 to $17.9 billion in 2019. Verizon said its capital spending in 2020 will be “in the range of $17 billion to $18 billion.” Verizon’s number of employees dropped from 144,500 at the end of 2018 to 135,000 at the end of 2019.

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AT&T announces deal to spin off DirecTV into new company owned by… AT&T

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Enlarge / AT&T’s logo at its corporate headquarters on March 13, 2020 in Dallas, Texas.

Nearly six years after buying DirecTV for $48.5 billion, AT&T today announced a deal to sell a minority stake in the business unit and spin it out into a new subsidiary.

AT&T said its deal with private equity firm TPG Capital values the TV business at $16.25 billion. A press release said that AT&T and TPG “will establish a new company named DirecTV that will own and operate AT&T’s US video business unit consisting of the DirecTV, AT&T TV, and U-verse video services.”

AT&T will own 70 percent of the spun-off DirecTV company’s common equity while TPG will own 30 percent. DirecTV in its new form “will be jointly governed by a board with two representatives from each of AT&T and TPG, as well as a fifth seat for the CEO, which at closing will be Bill Morrow, CEO of AT&T’s US video unit,” the announcement said.

AT&T acknowledged that its DirecTV purchase didn’t work out as planned.

“With our acquisition of DirecTV, we invested approximately $60 billion in the US video business,” AT&T said in materials distributed to reporters. “It’s fair to say that some aspects of the transaction have not played out as we had planned, such as pay TV households in the US declining at a faster pace across the industry than anticipated when we announced the deal back in 2014. In fact, we took a $15.5 billion impairment on the business in 4Q20.”

Focus on 5G, fiber, and HBO Max

Separating DirecTV into a new unit will help AT&T focus on its key “strategic” areas of 5G mobile service, fiber Internet, and HBO Max, AT&T said.

“As the pay-TV industry continues to evolve, forming a new entity with TPG to operate the US video business separately provides the flexibility and dedicated management focus needed to continue meeting the needs of a high-quality customer base and managing the business for profitability,” AT&T CEO John Stankey said. “TPG is the right partner for this transaction and creating a new entity is the right way to structure and manage the video business for optimum value creation.”

The companies said they expect to close their transaction in the second half of 2021 and that it “is subject to customary closing conditions and to regulatory reviews.” AT&T said it expects to receive $7.6 billion in cash from the partial sale and that it will use the money to reduce its debt.

8 million TV customers fled AT&T

AT&T has lost over 8 million customers since early 2017 from its Premium TV services, which include DirecTV satellite, U-verse wireline video, and the newer AT&T TV online service. Total customers in that category decreased from over 25 million in early 2017 to 16.5 million at the end of 2020.

“Since AT&T closed the DirecTV acquisition in 2015, the business has generated cash flows of more than $4 billion per year, and the company expects this to continue in 2021,” today’s announcement said.

DirecTV’s deal with NFL Sunday Ticket apparently will not be disrupted, as AT&T said it will continue to “fund NFL Sunday Ticket for 2021 and 2022 (up to a $2.5B cumulative cap).”

Current video customers should not expect major changes, AT&T said.

“Existing AT&T video customers will become DirecTV customers at close and will be able to keep their video service and any bundled wireless or broadband services as well as associated discounts,” AT&T said. “AT&T and TPG are committed to a smooth transition and seamless customer experience and will work to further improve customer service and bring new features to DirecTV’s video services.”

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Armed with exploits, hackers on the prowl for a critical VMware vulnerability

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Hackers are mass scanning the Internet in search of VMware servers with a newly disclosed code-execution vulnerability that has a severity rating of 9.8 out of a possible 10.

CVE-2021-21974, as the security flaw is tracked, is a remote code-execution vulnerability in VMware vCenter server, an application for Windows or Linux that administrators use to enable and manage virtualization of large networks. Within a day of VMware issuing a patch, proof-of-concept exploits appeared from at least six different sources. The severity of the vulnerability, combined with the availability of working exploits for both Windows and Linux machines, sent hackers scrambling to actively find vulnerable servers.

“We’ve detected mass scanning activity targeting vulnerable VMware vCenter servers (https://vmware.com/security/advisories/VMSA-2021-0002.html),” researcher Troy Mursch of Bad Packets wrote.

Mursch said that the BinaryEdge search engine found almost 15,000 vCenter servers exposed to the Internet, while Shodan searches revealed about 6,700. The mass scanning is aiming to identify servers that have not yet installed the patch, which VMware released on Tuesday.

Unfettered code execution, no authorization required

CVE-2021-21972 allows hacker with no authorization to upload files to vulnerable vCenter servers that are publicly accessible over port 443, researchers from security firm Tenable said. Successful exploits will result in hackers gaining unfettered remote code-execution privileges in the underlying operating system. The vulnerability stems from a lack of authentication in the vRealize Operations plugin, which is installed by default.

The flaw has received a severity score of 9.8 out of 10.0 on the Common Vulnerability Scoring System Version 3.0. Mikhail Klyuchnikov, the Positive Technologies researcher who discovered the vulnerability and privately reported it to VMware, compared the risk posed by CVE-2021-21972 to that of CVE-2019-19781, a critical vulnerability in the Citrix Application Delivery Controller.

The Citrix flaw came under active attack last year in ransomware attacks on hospitals and, according to a criminal indictment filed by the US Justice Department, in intrusions into game and software makers by hackers backed by the Chinese government.

In a blog post earlier this week, Klyuchnikov wrote:

In our opinion, the RCE vulnerability in the vCenter Server can pose no less a threat than the infamous vulnerability in Citrix (CVE-2019-19781). The error allows an unauthorized user to send a specially crafted request, which will later give them the opportunity to execute arbitrary commands on the server. After receiving such an opportunity, the attacker can develop this attack, successfully move through the corporate network, and gain access to the data stored in the attacked system (such as information about virtual machines and system users). If the vulnerable software can be accessed from the Internet, this will allow an external attacker to penetrate the company’s external perimeter and also gain access to sensitive data. Once again, I would like to note that this vulnerability is dangerous, as it can be used by any unauthorized user.

The researcher provided technical details here.

Positive Technologies

CVE-2021-21972 affects vCenter Server versions 6.5, 6.7, and 7.01. People running one of these versions should update to 6.5 U3n, 6.7 U3l, or 7.0 U1c as soon as possible. Those who can’t immediately install a patch should implement these workarounds, which involve changing a compatibility matrix file and setting the vRealize plugin to incompatible.

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Verizon and AT&T dominate spectrum auction, spending combined $69 billion

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Verizon and AT&T dominated the US government’s latest spectrum auction, spending a combined $68.9 billion on licenses in the upper 3GHz band.

Verizon’s winning bids totaled $45.45 billion, while AT&T’s came in at $23.41 billion. T-Mobile was third with $9.34 billion as the three biggest wireless carriers accounted for the vast majority of the $81.17 billion in winning bids, the Federal Communications Commission said in results released yesterday. US Cellular, a regional carrier, was a distant fourth in spending, at $1.28 billion, but came in third, ahead of T-Mobile, in the number of licenses won.

The auction distributed 280MHz worth of spectrum in the “C-Band” between 3.7GHz and 3.98GHz. This spectrum will help carriers boost network capacity with mid-band frequencies that cover large geographic areas and penetrate walls more effectively than the higher millimeter-wave frequencies that provide the fastest 5G speeds to very limited geographic areas.

Mid-band spectrum doesn’t match the geographic coverage and obstacle penetration properties of the low-band spectrum below 1GHz, which was used extensively to deploy 4G networks. But there’s more spectrum available in the mid-band than in the low-band. Carriers are using a mix of low-, mid-, and high-band spectrum for 5G.

“It is essential to America’s economic recovery that we deliver on the promise of next-generation wireless services for everyone, everywhere,” FCC acting Chairwoman Jessica Rosenworcel said in the results announcement. “This auction reflects a shift in our nation’s approach to 5G toward mid-band spectrum that can support fast, reliable, and ubiquitous service that is competitive with our global peers. Now we have to work fast to put this spectrum to use in service of the American people.”

T-Mobile and US Cellular

Licenses are being distributed in 14 blocks of 20MHz each in 406 “partial economic areas” across the US, for a total of 5,684 licenses. Verizon Wireless (referred to as “Cellco Partnership” in the FCC auction) won 3,511 licenses in 406 areas, AT&T won 1,621 licenses in 406 areas, and T-Mobile won 142 licenses in 72 areas.

US Cellular’s $1.28 billion in winning bids accounts for 254 licenses in 99 areas, suggesting that it purchased licenses in parts of the US with lower demand from the big carriers. Overall, 21 bidders won spectrum licenses, which last 15 years.

Winning bidders must make down payments by March 10 and final payments by March 24, with the money going into the US Treasury.

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