Telecom Sector Dividends: Reviewing AT&T's Challenges And Opportunities

| About: AT&T Inc. (T)
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AT&T (NYSE:T) has faithfully served as a prominent dividend provider for decades. The company's reliability has caused investors to place the stock in the "widow and orphan's stock" category. Reviewing the company, compared to years past, is truly remarkable. The company has effectively changed with technology and communication enhancements. The following article is a review of the company's challenges and opportunities.

AT&T, Inc. is the former SBC Communications Inc. AT&T, Inc. continues to be a a global leader in the telecom industry and is the largest telecom provider in the U.S. AT&T's traditional wireline subsidiaries offer services in thirteen states. These states include California and Texas, which are major revenue locations. AT&T, Inc. owns Cingular, which currently operates by the name "AT&T Wireless".


AT&T, Inc. (T) has rewarded shareholders with a 4.7% total annualized rate-of-return over the past 3 years. This is below its peer group, specifically Verizon Communications' (NYSE:VZ) 6.8% total annualized rate-of-return over the past 3 years.

The AT&T 3 year results are below the S&P 500's 13.2% total annualized rate-of-return. The telecom industry is rapidly changing and the future has plenty of positive growth opportunities.

AT&T, Inc offers shareholders a 5.9% dividend yield. The company is currently trading at about a 12x price-to-earnings multiple.


Pending Purchase of T-Mobile USA from Deutsche Telekom AG

AT&T has offered $39-billion, in cash and T shares, to buy T-Mobile USA from Deutsche Telekom AG (OTCQX:DTEGY).

This deal would make AT&T the nation's largest wireless operator. AT&T would have approximately 130 million wireless subscribers. Verizon Communications Inc. would have approximately 100 million wireless subscribers. This would provide AT&T with ample opportunities to enhance smart phone product offerings to mobile customers. The benefits would be immense. The net gains in revenue and income could provide the catalyst for significant dividend hikes.

The Justice Department has, however, filed an antitrust suit in a Washington, D.C. federal court. The main thrust of the suit is belief that the merger would reduce wireless competition in the U.S.

The states, via their respective attorneys general, that have stated their pro-favor of the Department of Justice suit are New York, California, Illinois, Massachusetts, Ohio, Pennsylvania and Washington.

The states, via their respective attorneys general, that have stated their pro-AT&T views include Alabama, Arkansas, Georgia, Kentucky, Michigan, Mississippi, North Dakota, South Dakota, Utah, West Virginia and Wyoming.

Business Summary

AT&T has been the epitome of excellence when it comes to customer service in the communication industry, and has developed and branched out in the last century from being a basic IP connection service to being the fastest broadband network providers for businesses nationwide. It also has the highest range when it comes to international network coverage over any other wireless network based in the U.S. Its Wi-Fi zones are pointedly placed throughout different hotspots in the country, making internet accessible to almost any place that shows signs of remote civilization.

AT&T is hoping to create a vast umbrella that covers all aspects of communications and entertainment, from the state-of-the-art smart-phones to the avant-garde TV services. AT&T always seems to be on the next level when it comes to making waves in the communication world with its innovation.

Though AT&T is constantly striving to venture out into the unchartered territories of invention, it never loses sight of its sole mission statement, which is to provide the best in customer service that anyone could ever hope to enjoy.

Business Model

AT&T has an incredibly diverse range of services and products; therefore it has a varied range of clientele as well. People from all walks of life have the liberty to subscribe to a package that best services their needs, and since all the offers come in attractive package bundles, it is an excellent way to achieve cost effective communication. Services that are included in these packages comprise of broadband, international service plans, local search, mobile phones, network news, retail, u-verse, wireless networks and Wi-Fi.

AT&T is well aware of the changing definition of broadband - in fact its progression is mostly AT&T’s own doing. It has redefined the conventional “broadband is high speed connection available at home” into “broadband is a means of connection wherever needed.” It literally translates into speed and mobility that competitors cannot even hope to achieve.

The AT&T wireless network operates on the GSM world standard, allowing data access and communication in more than 220 countries across the globe. Nationwide, the local search facility is basic accessibility on the go, with interactive GPS and a mobile directory linked with that keeps clients updated through network news. It acts as a carrier for almost all smart-phones throughout the country. AT&T has diverse retail outlets throughout the country, making purchases easy in terms of availability and language. With the advent of the u-verse, AT&T put together a complete viewing experience which can be accessed from the most common screens in the world: TV, PC and cellphone.

Industry Peers

The communication industry has changed drastically since the 1970s. I believe few could have imagined that 2011 would be so drastically different than our youthful AT&T memories. Here are a few details on AT&T and its industry peers.

Verizon Communications Inc. (VZ)

Verizon Communications Inc. was established by the merger of Bell Atlantic and GTE in 2000. Earlier this year, Verizon completed the Terremark Worldwide merger. Terremark Worldwide is a worldwide provider of managed IT infrastructure and cloud computing services. Verizon is expected to sell 11 million iPhones by the end of December 2011.

Verizon Communications Inc. as provided shareholders a 6.8% total annualized rate-of-return over the past 3 years.

Telecom Corp. of New Zealand Ltd. (NZT)

Telecom Corp. of New Zealand Ltd. operations will, in future years, focus upon the retail fixed-line, mobile services, and information, communication and technology (ICT) services. This is due to the separation of Telecom Corp. of New Zealand's and the Chorus business unit. Chorus provides local access network operations. Chorus will be spun off as a separate entity.

Telecom Corp. of New Zealand Ltd. has rewarded shareholders with a 27.5% total annualized rate-of-return over the past 3 years.

Vonage Holdings Corporation (NYSE:VG)

Vonage Holdings Corporation provides unregulated local and long distance telecom services in the U.S., Canada and the United Kingdom. Vonage Holdings Corporation continues to grow and focus upon paying down its debt load.

Vonage Holdings Corporation has provided shareholders a 75.1% total annualized rate-of-return over the past 3 years.

Millicom International Cellular (OTCPK:MIICF)

Millicom International Cellular offers mobile telecommunication services to Latin America and Africa. Specific countries include Bolivia, Colombia, El Salvador, Guatemala, Ghana, and the Democratic Republic of Congo.

Millicom International Cellular offers prepaid services; provides local and long distance telephony, cable, broadband Internet; and offers public telephone services. The company has over 30 million mobile customers.

Millicom International Cellular has rewarded shareholders with a 39.1% total annualized rate-of-return over the past 3 years.

America Movil S.A.B. de C.V. (NYSE:AMX)

America Movil S.A.B. de C.V. is the largest company-specific provider of wireless services in Latin America.

America Movil S.A.B. de C.V. has rewarded shareholders with a 19.5% total annualized rate-of-return over the past 3 years. America Movil S.A.B. de C.V. is experiencing a competitive market space in the Brazil and Mexico markets. America Movil S.A.B. de C.V. is continuing to experience strong revenue growth in other countries: Argentina, Paraguay, Uruguay, Colombia, Panama, Ecuador, and Peru.

Telephone & Data Systems Inc. (NYSE:TDS)

Telephone & Data Systems, Inc. is a telecommunications service company. The company provides mobile and landline operations to more than 7 million customers.

Telephone & Data Systems, Inc. has provided shareholders with a -9.4% total annualized rate-of-return over the past 3 years. Telephone & Data Systems, Inc. owns 82% of U.S. Cellular. U.S. Cellular has experienced a decrease in customers due to the changing smartphone landscape.

Disclosure: I am long NZT.