Shares of AT&T (T) rose more than 4% Tuesday after the company announced it would increase its dividend and launched a $15.2 billion share repurchase plan. The company raised its dividend by 12.7% and said it would purchase as much as 6.6% of shares outstanding. "Clearly they believe their stock's undervalued, which is great for investor confidence," Wachovia analyst Jennifer Fritzsche said. Some of AT&T's recent strength may be a result of its exclusive partnership with Apple (AAPL) in carrying its iPhone, which helped AT&T add 2 million wireless customers last quarter.
The company also announced more plans for its TV service, known as U-verse. At the end of last quarter, the company had only 126,000 subscribers, but the company expects that number to increase 10-fold over the next few years as it makes the service available to more customers. AT&T projects U-verse will be available to 30 million customers by 2010. To build the infrastructure needed and deal with increasing internet traffic, AT&T said it will buy core routers from Cisco (CSCO). "As the demand for Internet and IP-based applications continues to explode, IP traffic on the AT&T network has doubled throughout the past two years, and we fully expect this substantial growth to continue in the future," said AT&T's John Stankey. The move is a win for Cisco, which fended off competition from Juniper (JNPR) for the business. Shares of Cisco were up 1.1% to $27.98 Tuesday. Shares of EchoStar (DISH) slid 3.1%, as analysts took AT&T's enthusiasm over U-verse as a sign a hoped-for DISH acquisition is unlikely. AT&T CFO Rick Lindner said Tuesday the company won't decide until H2 2008 whether it will take on EchoStar on rival DirecTV (DTV) as its sole satellite partner.
Additional Reading: AT&T Touts Its Open Network in Effort to Preempt Google
Earnings call transcript: AT&T Q3 2007
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