If you’ve ever been in contact with AT&T to fix a billing error you know it sucks. It sure feels like a group of folks trying to justify fraudulent behavior with a flawed internal system. “That’s just how it works” is something you’ll hear often. It happened with Worldcom, MCI, Norvergence, Qwest and many other telecom companies that left businesses and sales people wondering what happened to all the money. Stock holders can’t understand why shares plunged to near its 52 week low. Is AT&T’s service delivery, sales, and accounting bordering on fraud? There are a lot of great minds that feel that a bubble’s best indicator is the emergence of widespread fraud.

Typically, there are indirect consultants that sell AT&T products and services. They compete directly with AT&T’s internal sales reps but they are able to offer broader solutions. Today, the indirect and direct sales teams can work together without either taking a compensation hit. That’s right they’re paying twice. Whenever I’ve worked for a telco in the past, a year or two before a merger or acquisition, we’d have gross changes in compensation packages that accelerated sales, whether real or fraudulent but usually a mix of both. 

Windstream’s filing bankruptcy and the sale of their network assets comes as no surprise to any telecom vet. Not only does their service and service delivery have room for improvement but if you look at the evolution of the comp plans of Windstream and the companies they acquired you’ll see the same pattern whether at Earthlink, NuVox, Deltacom, Broadview, or any of their other acquisitions. Deltacom’s exclusive agent program paid so well it was hard to believe they’d ever make money.

CenturyLink shares plunged yesterday to their lowest level in 25 years because of “material weakness” in their accounting stemming from the Level 3 acquisition. This comes as no shock to anyone whose worked for or with these organizations. The telecom industry, it should shock no one, is rampant with fraud like slamming. Centurylink in particular has a heritage of this type of behavior coming from roots with Qwest Communications whose leadership served jail time for their misconduct.

AT&T, in my opinion, is next on the chopping block. Whether Centurylink, Worldcom, Norvergence, etc. theres always a tell tale sign that a telecom company is in danger. Follow the money. Commission plans, the dangled carrots, incentivizes sales executives behave in ways that drive the sale of certain products. These aren’t simple changes like “get paid an extra $100 for selling 2 widgets this month”. These are macroscopic changes that alter salesforce behavior. Over the few two years things at AT&T went from bad to worse with compensation packages that encourage unscrupulous behavior. 

I’ve been working with AT&T pretty closely for a few years now and watched customer service suffer, service delivery has deteriorated but sales compensation has improved, at almost the same pace. This should sound an alarm. If you’re selling a lot and booking revenue that may not install for long periods of time you’re left with gaps in time that make manipulation of GAAP very easy. Here is the anatomy of an AT&T sale and install below over the course of a year and keep in mind that sales revenue must be booked:

• Customer calls me and says hey I need solid internet at 123 XYZ St
• I say that I see AT&T has fiber nearby, provide a quote, and get a signature
• AT&T pays commission to me, my channel manager, and sales rep
• Customer is waiting for service 
• Since we’re building a new building, AT&T has issues with service delivery and we wrk with the general contractor to coordinate install, risers, conduit, etc. 
• Customer already has AT&T at their current site but has to order new service then cancel the old service because that’s “how their system works” (though true, a bogus answer)
• Alternative fiber provider brings in internet connection (because we’d never rely on AT&T alone)
• AT&T cancels the order internally (completely unrelated to the other provider) claiming site is not ready, meanwhile we have the other fiber provider in there so it must be ready
• AT&T Channel Manager contacts me asking me to get the client to sign a new contract with relatively no material changes, when I ask why… its the system.
• That same AT&T system that accepts our new order then disconnects the phones and internet at the client’s office for non-payment for this service that we are still waiting to install
• Customer pays thousands of dollars to turn the phones back on immediately… having never received a bill it felt like being strong armed
• AT&T says they will not issue a credit until the new service is installed. When will that be? Six months! Golly!!! 
• Thank goodness for that back up fiber provider right?
• Where’s my channel manager in all of this? Wheres the rep? Ducking and dodging like prize fighter… There is no explanation so their tactic is to shuffle you around to other people so the issue is never truly addressed allowing the accounting nightmare to continue internally with that reflected in the stock price
• Fast forward, the building is built, customer is moved in and AT&T is not installed… although they had an extra six months. 
• Asking for an update from AT&T they regurgitate system info… it’ll be there on blah blah date… Well, Mr/Mrs AT&T why is there fiber in the ground from AT&T installed last week and your service delivery project manager doesn’t know? What project is he managing?
• So let’s go to LinkedIn and shout this to the Channel Manager since all I’ve done falls upon deaf ears…. he tells me to go ask my channel manager then deletes the comment

A few years back, AT&T basically paid nothing for selling their products… somewhere around 6%. The agent community hated selling AT&T because it didn’t pay well, took forever to install, and there was always something to correct, but you don’t always have a choice. Comp then changed to 8% but all upfront on order entry… that’s right you get paid upon order entry. So, let’s say you sell a circuit for $1,000/month… your commission is $80/month * 36-60 month upfront plus a bonus and that’s paid out when ink hits paper with little to no confirmation of the sale being real.

It’s easy to see how that impacts sales person behavior but how does that impact the stock price and investment community? Sales was being paid $60/month over the course of the contract and are now being paid 20% more, upfront, making that $60/month commission almost $4k upfront. Talk about dangling a carrot. 

The first mark that someone is trying too hard to drive sales  is evidenced in the compensation model. It leads sales folks to be unscrupulous, book whatever sales they want, get paid, and shuffle things around in a few quarters when a customer gets a bill and starts to complain. A lot of these sales were made via verbal contract without confirming with the customers so there are a lot of bad sales out there that don’t come off of AT&T’s books for years. That’s right, there is not even a contract!

Suppose a sales person cold calls a door of an unsuspecting business whose owner may not speak the best english or be technically savvy… Watch out! You’re getting revenue booked in your name and your avenue of recourse is call the 800 number if you can locate your bill. Don’t believe me? Okay wait until you or your customer gets slammed and you have to call in to hear that they signed the contract, a copy of which can not be produced, because it was verbal. 

AT&T is not Windstream and it is not Centurylink. AT&T’s market cap is 10 times greater than Centurylink and Windstream combined. They are the backbone of our nations telephone and internet infrastructure, with ownership of a majority of both domestic and international long haul fiber optic connectivity. The scale of the company, their assets, and the impact on our nation is enormous and should warrant greater scrutiny. The AT&T-Time Warner acquisition is much more benign than anything having to do with its fiber assets which are much more valuable… after all how else are you gonna get your content? Wireless doesn’t work without wires.

If you think this is a safe place for your retirement, investment, or even a good place to work think again. AT&T is rife with widespread fraud. We’ve known it forever, there’s just nothing to do about it besides short the stock in anticipation of a major telecom fall out. If Windstream and Centurylink are having financial woes, how does that not hit the AT&T balance sheet as the nation’s largest provider?