AT&T Steps Up Its Game

AT&T (NYSE: T  ) is stepping up its game once again after announcing its plan to acquire NextWave Wireless for $600 million in an attempt to boost its spectrum holdings and expand its 4G LTE network. NextWave owns spectrum licenses in the Wireless Communication Services (WCS) and Advanced Wireless Service (AWS) bands.

As more and more consumers pick up data-intensive devices like smartphones and tablets, wireless carriers have been fighting for access to more spectrum so their networks do not become overloaded. The situation can get worse as carriers switch over to faster and bandwidth heavy 4G LTE networks. The big question that still remains is how best to allocate available spectrum as carriers, Congress, and the FCC all try to reach a consensus.

At the end of the day, your obvious question is, "Why do I have to pay close to $100 for my mobile bill?" The reason is that we are victims of a duopoly, where we have very few options outside of the two giants, AT&T and Verizon (VZ). Both companies provide the most predictable service and offer the largest spectrum. Although there are benefits of a duopoly, such as close competition and simplicity, the disadvantages are relatively more harmful to the consumer. In many cases, duopolies will reach a Nash Equilibrium, prices will not drop, and sometimes the lack of new companies being able to enter the market could mean stale, old products for consumers.

Valuation
AT&T stock is trading at $37.44 versus the 52 week range of $27.2-$38.28 with a trailing 12 month P/E of 16.56 and an estimated 2012 P/E of 15.6, compared to Verizon, which is trading at $44.47 versus its 52 week range of $32.28-$46.41 and an estimated P/E of 17.86.

As a reminder, in addition to the unfunded pension liabilities, the competitive landscape, and the unfavorable technicals, AT&T plans to invest over $4.4 billion to build a fiber-optic network to offer IP-based video, broadband Internet, and VolP services over a single line. The 5% dividend on the stock might look favorable, but the telecom space also requires a deep-dive analysis to understand its future in this highly regulated sector.

(Click here to access free, interactive tools to analyze these ideas.)

Use the Turbo Chart to Compare the Performance of these two big players versus the S&P 500:


Written by Kapitall's Sabina Bhatia

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