After recent news of multi-year extension to the current relationship with Disney, AT&T (NYSE:T) is back in the limelight with strong 4Q12 earnings. The company's solid quarter was led by its wireline and wireless business (thanks to its blockbuster product U-Verse!). AT&T also sold record breaking 10.2 million smartphones (the highest ever sold by any U.S. carrier); taking the total customer base to 47.1 million (16% of them were new). However, the company's prepaid services looked a bit shaky and it incurred a loss of 166,000 subscribers due to GoPhone and session based tablets. This was offsetted by 780,000 net wireless postpaid additions and strong growth in wireline consumers which was 36.3% in U-Verse. This led the total of U-Verse subscribers to 8 million.
3 Positive Deals
- AT&T's acquisition of Verizon's B Block Spectrum Holding is creating a win-win situation for both the telecom giants. This spectrum is complementary to AT&T's existing 700 MHz B and C block holdings. With this, AT&T will be able to deploy a 10x10 MHz LTE-B and C combined network in 18 states. Additionally, it will add 42 million POP's + AWS licenses in 5 markets.
- AT&T's equity interest in America Movil is also boosting the company to solidify its presence in the Latin Market. AT&T Mobility is looking forward to expand its 4G-LTE coverage to 300 million consumers by the end of 2014, and will give a tough fight to Verizon's 4G-LTE coverage area.
- Recently AT&T announced the purchase of Atlantic Tele-Network's U.S. retail wireless business (585K subscribers) and its spectrum for $780 million. Seeing the declining growth in the wireless segment, I regard this deal as a positive move for the wireless assets running on the cellular spectrum.
The company reported robust 4Q12 earnings with 8.5% year over year rise in the wireless segment. Its Wireline segment however, declined by 28% to 144,000 in 4Q12 v/s 201,000 in 4Q11. Compared to 780,000 postpaid additions of AT&T, Verizon added 2.1 million customers. At the end of 2012, Verizon had 92.5 million subscribers, compared to 70.5 million for AT&T, proving it is still ahead of AT&T in the wireless business. Verizon reported that 86.5% of all postpaid handsets sold in 4Q12 were smartphones v/s 70.3% in 4Q11.
I expect the smartphone segment to continue to grow and will contribute to the increase in operating expenses. The company also attracted its FiOS customers by giving them online access to its NFL network programming to enable them to watch their favorite football teams. Verizon is continuous in expanding its next-generation 100 gigabits-per-second network, allowing more network routes in the US and 2 additional routes in Europe. In my opinion, seeing the demand of wireless services and the current dividend yield of 4.8% this stock offers a good opportunity to growth investors.
To snatch the market from AT&T, it deployed its 4G LTE technology in dominant areas of AT&T- Dallas, Atlanta, San Antonio and Houston. Now Sprint is planning to bring 4G-LTE to Oakland, Los Angeles, and Indianapolis. In terms of net income, Sprint at $-4.31 billion is outperforming AT&T at $4.44 billion, and Verizon at $3.8 billion. Even if we include the dark spot of the Nextel run-off, Sprint's wireless platform managed to generate revenue growth rate of 7 % in 2012, giving a neck to neck competition to Verizon's 7.3 % and AT&T's 6.6% growth rate. I anticipate this growth trend to continue for 2013 with benefits coming in the second half as it finishes its network upgradation program. Additionally, this stock should gain further support from Softbank as well as Clearwire.
The versatile portfolio of the AT&T with an attractive above average 5.3% dividend yield makes the telecom tycoon-AT&T stock a buy. The company also repurchased 371 million shares or about 6% of the outstanding shares for $12.8 billion, leaving room for another year of good returns to the shareholders. Its Project Velocity IP LTE is also looking forward to cover more of the U.S. population by this year end. In terms of LTE, AT&T covers 150 million Americans which seems very impressive to me. For the defensive investment player who wants to play safe, desires to have steady growth and dependable income - AT&T is the best stock, followed by Verizon and Sprint.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.