Investors would have to go all the way back to 2002 to find a time when AT&T’s price was as high as it today. After peaking at $35 a few days ago, it now stands at $33. This past January, the stock was at $25. Cable companies and telecom stocks have had a good year, so the tide has lifted all boats, but perhaps not deservingly.
AT&T’ merger with BellSought has hit some bumps, but it would appear that it will go though. Whether the Democrats will want to exact a pound of flesh for merger approval has yet to be seen. If the merger works, there are likely to be very good savings on overlapping costs.
But, there is some trouble brewing. As Morningstar astutely points out, AT&T has a tremendous unfunded retirement obligation of $23 billion.
The bigger knock against the stock is VoIP. AT&T still relies heavily on the plain old phone call for most of its revenue. So does BellSouth. VoIP subscriptions are growing at a phenomenal rate at companies like Comcast, Cablevision, and Time Warner Cable. And, that will continue. Skype, a division of Ebay, and Vonage are also after the telephone company’s core business. VoIP is cheaper and has become very reliable.
AT&T largest future problem may be what it is not doing. Verizon has decided to bet much of its future on fiber-to-the-home. The theory is that without an arsenal of voice, TV, and broadband, the cable companies will eventually overwhelm the large regional telephone companies with a suite of services that cannot be duplicated. AT&T may be right to take a slower approach than Verizon is, but, if it is wrong, the consequences could be severe.
WiMax is another enemy for AT&T. Its Cingular cell phone operation is large and healthy. But, Sprint cannot survive as an independent company without a highly successful 4G product and it is throwing its support to WiMax to get these broadband-to-portable phone features in place quickly. It helps that Intel, Samsung, and Motorola are all big WiMax backers.
AT&T is doing well, but it has a lot of dogs biting at it heels. And, one or more may draw blood.
Douglas A. McIntyre can be reached at email@example.com. He does not own securities in companies that he writes about.
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