The organization is AT& T, a telecommunication organization providing Smartphone and mobile services, TV services and IP based services to businesses in Texas and around the whole of United States and the whole world. My organization responds to economic indicators just like the other sectors. When there is unemployment, the economy is characterized by high prices and unemployment, in short inflation levels take a toll and therefore the company volume sales reduce. Inflation makes the organization business performance to contract and therefore registers fewer profit margins.
This happens because unemployment puts less credit in the pockets of households and businesses therefore reducing utilization rates of telecommunicating services of the organization. The subscribers’ rate of using the services is reduced as a result of the cut in the consumption levels of the users of the service. The client business usage rates also reduce because the IP services used by these businesses depend on the cost budget of the client business of the organization. Level of mobile sales drops because the rate at which the new subscribers register to mobile services is low. However the organization registers higher returns with reduction in unemployment, the household have enough savings therefore the rates at which they utilize the services is higher. The businesses can sell off there products due to a rise in demand and therefore there profits margins are average and hence they can adjust there budget to purchase the IP services OF AT&T.
New subscribers can also be noted to come in therefore the general increase in the organizations’ revenue is registered. However the organization manages to keep its revenue margins by reducing the costs involved in its operations. The organization offer more than six per cent dividend yield which is maintained because of the stable profits. During the recession period the organization manages to raise the charges so as to compensate for the inflation to keep the profit margins constant. Coyne, (2009) writes that, in 2010, AT & T showed earnings of 57% per share, nearly topping Wall Street expectation on a net profit of 3.4 billion Dollars. AT & T also managed to cut on jobs by 12000 employees during the contractions which amounted to 4% of the whole work force.
Laying of its’ workers is an essential thing to do because the costs of wages are reduced and the remaining employees are assigned the duties of the cleared employees. Reduction in wage costs stabilizes the profit margin which could have been so squeezed in time of inflation. Inflation times require that the wages be increased to cater for increasing prices, and therefore it becomes precise to cut these wages in order to maintain a stable margin of revenue. The telecom business sector in the United States is a sector that carries huge interest of the investors and therefore its performance is a vital tool of attracting the potential investors. In order to continue being stable, the organization is now planning to merge with a leading German mobile telecom provider; T- mobile, This will increase the number of subscribers to 130 million users which is going to by pass the now leading telecom provider, Verizon.
Merging is beneficial to the organization because of the following reasons; taking advantage of economies of scale whereby the organizations with large investments and huge quantity of output, decrease the average costs involved in rendering the telecom services. The volumes of service sales increase tremendously letting them take advantage of the economies of scale. The organization will be able to compete with Verizon the current leading telecom services company in the U.S. Hence the potential investors should be now be eying the new AT $T merger organization. More shareholders mean more earning per share of AT & T and therefore its shares will yield a higher return on the stock exchange market.
According to the Beige book, financial firms noted the demand for loans by households to be low; this is because the households and the businesses are afraid to take the risks of investing with the trotting of low economic times in reported in Dallas District. AT & T will be impacted by this economic condition in that when the investment levels in the company reduces the rates of interests are going to be low hence the rate of return of the AT &T stocks will be low. This will have an impact on the growth rate of the organization making it to stagnate.
Further low performance of the organizations stocks will reduce the value of the shares resulting to low revenue of the company. Reduction of profit margins is likely to take the company in contraction business state which will force it to take precautionary measures such as raising charges of their services and laying off workers in an effort to reduce the costs involved in its operations. Low investment levels is an indicator of less credit among the households and hence less consumption of the service by the subscribers. Finally, the business sales of AT & T reduce which in turn minimize the revenues of the organization.
In conclusion AT &T is sensitive to economic conditions especially unemployment which is characterized by inflation. As a business that endeavors to remain solvent, the organization takes measures such as increasing service charges and reducing the wage costs so as to maintain its profit margins. The beige book Dallas summary, notes a reduction of loans demanded by business and households of whom are the major consumers of the AT &T services. This means that the organizations performance will also be affected by the condition which will force it again to adjust its strategies; increase charges or lay off workers so as to maintain its revenue.