Ma Bell Places Her Bets

Has AT&T (NYSE: T  ) found a magic bullet to kill its network problems?

The Apple (Nasdaq: AAPL  ) iPhone has been exclusive to AT&T for nearly three years now, and perhaps the biggest complaint raised against the ultra-sleek phone has been the quality of AT&T's service. Dropped calls and crawling data connections have inspired even diehard Apple fanatics to trade their beloved iPhones for Google (Nasdaq: GOOG  ) Android handsets or Research In Motion (Nasdaq: RIMM  ) BlackBerry phones on a less exasperating network.

While dropping the iPhone deal would certainly alleviate the pressure on AT&T's radio towers, Ma Bell is working hard on some much-needed network upgrades as well. The company just selected Alcatel-Lucent (NYSE: ALU  ) and LM Ericsson (Nasdaq: ERIC  ) as hardware suppliers for its upgrade to 4G network standards. Since 4G can deliver about 10 times the connection speeds of a 3G network, and the back-end connections should be built to handle that kind of traffic, AT&T's slow days should be over.

Not today, though. The actual upgrades won't roll out until 2011, giving AT&T haters ample time to bemoan the problems they see today. That also means you'll have time to invest in wireless infrastructure leaders Ericsson and Alcatel if you see them benefiting from a co-exclusive supplier deal with the largest network in North America. Ericsson also handles support and services for the new 4G installations, which probably means the Swedes get the lion's share of this contract.

AT&T is running about a year behind archrival Verizon (NYSE: VZ  ) when it comes to converting to the Long-Term Evolution (LTE) standard for 4G connectivity. On the other hand, Verizon is switching from one family of technologies to another, incompatible one, while AT&T is upgrading within the family. In other words, Verizon's LTE benefits will come in fits and starts, while AT&T's 3G networks gain strength from the 4G upgrade.

Of course, you'll need a 4G-capable iPhone in order to fully appreciate AT&T's new networks, so there's another upsell for Apple. By and large, AT&T is keeping up with the Verizons (Joneses?), and I'd be very surprised if the company didn't renew its exclusive iPhone deal for another handful of years.

Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. Google is a Motley Fool Rule Breakers selection. Apple is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletter services free for 30 days. You can check out Anders' holdings and a concise bio if you like. The Motley Fool is investors writing for investors.


Read/Post Comments (5) | Recommend This Article (6)

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  • Report this Comment On February 11, 2010, at 12:40 PM, SkpJ wrote:

    Bringing in Alcatel-Lucent is a smart idea. Bringing in Ericsson is not smart at all, they have brought nothing but disorganization to Sprint's network and it will show very soon that they are not ready for the North American market. Also they are taking away American jobs and laying off the people that were guaranteed jobs for one year with the outsourcing. They are about to contract out many jobs in America to India. The NOCC is completely moving to India, the RF Engineers are training their replacements that are working on work visa's as I am writing this. I cannot support a company that is taking jobs away from American people. I hope that anyone that is considering Ericsson will take this and think seriously about this before they make a commitment to Ericsson.

  • Report this Comment On February 11, 2010, at 2:23 PM, TMFRhino wrote:

    I should point out, AT&T's "largest digital voice and data network" is a company claim. In terms of users, Verizon's actually larger. Other measurements are obviously more subjective.

    -Eric (TMFRhino)

  • Report this Comment On February 11, 2010, at 5:06 PM, demodave wrote:

    SkpJ, two points to consider:

    1) Alcatel-Lucent is incorporated in France, and is therefor not really any more American than Ericsson.

    2) Alcatel-Lucent is also laying off people.

    Strangely, I am not actually writing this to slam anyone.

    Now, on to the iPhone...

    I have one and I love it. I use my small share of bandwidth (could probably get away with a 250MB/month plan on the iPad without too many overages). I use my iPhone in WiFi zones constantly, as I am sure I eventually will an iPad. But....

    The iPhone (today) has a radio antenna that is not the best in the business by any means. That may also be a contributor to the dropped calls. (I admit, I am data-poor as to what the failure rates are by-device vs by-provider or any interactions of those pairings. Hmm.... sounds like a nice little DOE, except that CDMA don't speak HSDPA and vice versa.)

    What I am hoping is that the next generation iPhone will have a better cell-phone antenna. Maybe we can get back to talking abotu that when this iPad thing settles down.

  • Report this Comment On February 11, 2010, at 5:08 PM, demodave wrote:

    SkpJ, two points to consider:

    1) Alcatel-Lucent is incorporated in France, and is therefor not really any more American than Ericsson.

    2) Alcatel-Lucent is also laying off people.

    Strangely, I am not actually writing this to slam anyone.

    Now, on to the iPhone...

    I have one and I love it. I use my small share of bandwidth (could probably get away with a 250MB/month plan on the iPad without too many overages). I use my iPhone in WiFi zones constantly, as I am sure I eventually will an iPad. But....

    The iPhone (today) has a radio antenna that is not the best in the business by any means. That may also be a contributor to the dropped calls. (I admit, I am data-poor as to what the failure rates are by-device vs by-provider or any interactions of those pairings. Hmm.... sounds like a nice little DOE, except that CDMA don't speak HSDPA and vice versa.)

    What I am hoping is that the next generation iPhone will have a better cell-phone antenna. Maybe we can get back to talking abotu that when this iPad thing settles down.

    Probably a repeat repost and stuff. Grrr...

  • Report this Comment On February 11, 2010, at 8:52 PM, SkpJ wrote:

    A lot of companies are laying off, and that is not the point I am trying to make. They are bringing in Foreigners to take the place of American workers at a fraction of the price. Where the company is from has no matter on the issue I was talking about. I am not trying to slam anyone either, but you should read what I wrote in full before you so call slam me on my comment.

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