The shrinking of AT&T formally commenced during the third quarter of 2021 upon the completion of its DirecTV spin-off, and it's poised to get even smaller before summer 2022 when it expects to close a deal to spin off WarnerMedia and combine it with Discovery.

It’s a lot for AT&T to unravel itself from in less than a year, but executives are mostly excited to get the company back to its telecom roots. 

“There are a lot of moving parts, and there have been some distractions,” AT&T CEO John Stankey said during the Q3 earnings call. “As we work our way through this process, and some of those distractions drop away, I think the sky is the limit.”

Stankey described himself as increasingly optimistic about the communications market, pointing to growing investments in the sector fueled by the importance and inherent value customers gain from connectivity. 

“We are moving into what I would call the golden age of connectivity,” he said. 

The company’s also starting to realize the financial benefits of its massive cost-cutting initiative, according to Stankey. The combination of that effort to reduce costs by $6 billion before the end of this year and the company’s relatively quick departure from the media and entertainment business underpins its ability to capture growth in wireless services and fiber-based broadband.

“AT&T has been rightly lauded for acknowledging, just two years after closing their deal to buy Time Warner, that their foray into media was doomed to fail. Companies rarely show such courage, and rarely do they show such courage so quickly,” analysts at MoffettNathanson wrote in a research note. 

However, the analysts note, “strategy can’t be achieved by subtraction alone” and “now AT&T must articulate what it is.”

AT&T faces tough competition in the wireless market. AT&T Communications CEO Jeff McElfresh admitted as much earlier this year. “We are the third-place player in wireless,” he said during the operator’s analyst event. 

Its 5G network strategy and mid-band 5G deployment plans don’t match those of T-Mobile US, but a dramatic increase in mid-band 5G deployment activity could push its 5G footprint ahead of Verizon by the end of 2023.

Additional mid-band spectrum remains a “critical need” for AT&T, but “even with additional spectrum, AT&T appears destined for third place in a three-horse race for network superiority,” MoffettNathanson analysts conclude. 

Meanwhile, profits are increasing as AT&T shrinks but comparisons are complicated amid the spin-offs. DirecTV was still under AT&T’s arm for the first month of Q3.

AT&T banked almost $6.3 billion in net income on $39.9 billion in revenue during Q3, representing a 98% year-over-year increase in profit and 5.7% decline in revenue. AT&T Mobility revenues jumped 7% year over year to $19.1 billion, including wireless service revenue that increased 4.6% to $14.5 billion. Capex increased 20% year over year to $4.7 billion during the quarter.