Telecommunications giant AT&T (T) dropped after its first-quarter earnings report due to margin concerns that brought down the stock's performance. AT&T is facing tough competition from the likes of Verizon (VZ) and T-Mobile (TMUS) which are attracting more customers, but still the company has done well so far in retaining market share.
In addition, the strategy of AT&T for strong cash generation and monetization of non-strategic assets have been successful so far, and the same is expected to continue in the future. Let's have a look at whether the company is worth investing in.
Moving Forward Aggressively
AT&T returned a total of $23 billion through dividends and share repurchases and also invested $25 billion in infrastructure and spectrum for last year. For this year, AT&T expects to gain from increasing smartphone penetration and newer business opportunities in LTE. Going ahead, the company is focusing on connected homes, connected cars, video and mobile business solutions.
The LTE platform of AT&T is growing at rapid pace in the U.S. In order to secure a competitive edge in the market it is focusing on price, customer service, technological innovation, network coverage, and quality. AT&T projects to reach 300 million people in 2014 with its unique offerings in LTE network, and ramping of its operations coupled with aggressive strategies should enable it to achieve this target.
Rivals Are Not Sitting Idle
AT&T looks to be doing the correct thing by building a strong LTE network as it challenges Verizon. Verizon dominates the LTE network in the U.S. with presence across more than 500 markets, covering more than 97% of the nation's population. The number of people already having access to Verizon's network has exceeded 305 million. Presently, Big Red is aiming to make its network more efficient by deploying small cells. Verizon uses Alcatel-Lucent's small cells to boost its LTE network and enhance coverage in dense, high-traffic areas.
This step will enable a more efficient Verizon network. But AT&T is looking to counter this with its Project VIP, under which it is investing $14 billion in 3 years to upgrade its network.
However, AT&T also needs to look out for competition from smaller peers such as T-Mobile and Sprint. T-Mobile plans to build a more consistent and reliable network. It’s using a 4-by-2 multiple input-multiple output technology in Chicago, Dallas, and San Antonio to deliver a better LTE experience to customers. Further, since T-Mobile's EDGE network at present covers around 284 million people, according to FierceWireless, an upgrade to LTE is bound to put the company quite close to AT&T in terms of coverage.
More Reasons to Be Positive
AT&T also targets technology solutions. The technology giant is experiencing success with its net bond service that combines the VPN network of cloud services from companies such as IBM and Microsoft. This technology offers customers with a secured network that is hard to find on public Internet.
AT&T is also determined on innovation to refine its services. So, the company has several exciting products in its pipeline and is aggressively rolling out Project VIP with initiatives like the launch of U-verse 1 Gig in Austin. AT&T is planning to provide ultra-fast connectivity to cloud applications and smartphones through this move.
AT&T is also ramping up its network in order to provide robust video delivery services over both wireline and wireless networks. Moreover, AT&T is focusing on virtualization of its network to shift functionality from hardware to software. Its dealing with companies such as GM, Ford, Nissan, Audi, BMW, and Tesla for connected cars should also provide it with more opportunities in the future. Going ahead, AT&T has several other strategies in the pipeline for the prepaid and postpaid segments also. The company is launching new mobile share value plans to attract more customers for the postpaid category.
There’s a robust outlook for AT&T in 2014. The cash flow is expected to be around $11 billion this year. The company has plans to offer services with additional features such as TV everywhere, allowing customers to view programs on smartphones and tablets anywhere. Further, its focus on upgrading the network to deliver better service to customers is another reason that makes it attractive regarding its future prospects. Therefore, the investors are advised to definitely consider an investment in AT&T as the stock looks well-positioned for the long run.