AT&T Inc.T

Morningstar Rating

Stock Research and Analysis

by Michael Hodel, CFA

AT&T has performed relatively well over the past year in the face of economic pressure. Though consumers are cutting fixed-line phone service as quickly as ever and business spending on telecom services is down sharply, the firm has done a great Read more

Bulls Say

AT&T has direct access to and established relationships with millions of residential and business customers. The firm's network upgrade plans should enable it to offer these customers more and better services, driving revenue growth without consuming loads of capital.

The customer base for AT&T's high-speed Internet service is the largest of any provider in the U.S., and around half of the firm's residential phone customers subscribe to the service. These customers are more likely to remain loyal than those who don't subscribe.

AT&T Mobility and Verizon Wireless stand head and shoulders above the rest of U.S. wireless industry. Unlike Verizon, AT&T owns all of its wireless subsidiary. AT&T also boasts the deepest-spectrum portfolio of any major carrier in the nation's largest markets. Wireless should generate strong profits and differentiate the firm from the cable companies as consumers migrate to wireless services.

The firm's directory publishing business is among the most profitable in the industry, generating extremely strong cash flow. While this business is struggling in the current economy, it could provide the platform to build a strong advertising business on top of AT&T's wireless and television operations. Read more

Bears Say

The bulk of revenue and cash flow still comes from fixed-line local and long-distance phone services, but these business are under increasing attack from competitors and technological substitution.

AT&T's heavy reliance on the iPhone is an issue. About one in five of its postpaid customers use the device, and the firm's reputation has taken a hit as data-hungry users have clogged networks in some areas. These customers could be ripe for defection when AT&T's exclusive arrangement with Apple ends.

AT&T's local network upgrade may leave the firm with too little capacity, especially as it pushes into the video business.

Although AT&T has a manageable debt load, add in other liabilities--unfunded postretirement-benefit obligations and deferred tax liabilities--and its financial position, especially if business begins to deteriorate, doesn't look as strong. Read more

Strategy

AT&T hopes to use its wide array of networks, especially its wireless capabilities, to differentiate its services. To attract consumers and combat cable competition, the firm is upgrading local phone Read more

Management

Edward Whitacre, chairman and CEO since 1990 and the architect of the firm's transformation into a global behemoth, retired in June 2007. His replacement, Randall Stephenson, has been with the company since 1982, serving most recently as COO. He was Read more

Profile

AT&T is the dominant local phone company in 22 states, serving about 50 million local phone lines and 16 million high-speed Internet users. The firm also provides phone Read more

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