AT&T (NYSE:T) will release its quarterly report tomorrow, and investors haven't been all that optimistic about the stock's prospects lately. But the big question that AT&T faces is whether it can stand up to rival Verizon (NYSE:VZ) as well as challenges from Sprint (NYSE:S) and T-Mobile (NASDAQ:TMUS) just as Apple has announced poor iPhone sales during its most recent quarter.

AT&T remains the dividend king of the Dow Jones Industrials, carrying an impressive 5.5% dividend yield. But shareholders aren't all that happy with the stock's underperformance, and questions about how it can answer Verizon's takeover of its wireless unit still abound. With its T-Mobile takeover bid having been thwarted by regulators, where can AT&T look for further growth? Let's take an early look at what's been happening with AT&T over the past quarter and what we're likely to see in its report.


Stats on AT&T

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$33.06 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Can AT&T earnings hold up this quarter?
Analysts haven't budged in recent months on their views of AT&T earnings, holding steady both for the fourth quarter and for full-year 2014 projections. The stock, though, has fallen to its worst levels of the year, dropping 4% since late October.

AT&T's third-quarter results seemed perfectly reasonable, with revenue rising 2.2% on strength in wireless revenue, especially on the data side. The company also gained 989,000 wireless subscribers, with more than a third of them being postpaid customers. About half of those postpaid pick-ups were for smartphone subscribers, from which AT&T gets much larger average revenues. All told, AT&T had record smartphone sales of 6.7 million.

But competition has gotten ever fiercer. Verizon has traditionally been AT&T's biggest competitive threat, and there's no questioning that Big Red is moving strongly to take maximum advantage of the U.S. wireless market. But more recently, T-Mobile has made huge moves to poach AT&T customers, with the carrier offering to cover up to $350 toward early termination fees and an additional $300 credit for trading in phones. AT&T is offering up to $450 in incentives to get T-Mobile customers to switch, but the price war could prove damaging to both carriers.

In order to streamline its operations, AT&T has made some strategic deals that could shore up its finances. Last month, AT&T sold off its Connecticut landline operations and fiber network to Frontier Communications (NASDAQ:FTR), reaping $2 billion in cash from the sale. AT&T can use the money to go toward upgrading its network, while Frontier hopes to salvage the best of the deteriorating landline business and encourage customers to upgrade to higher-margin services.

Meanwhile, AT&T is trying to keep up with rivals' initiatives on the price front. In early December, the company started offering its Mobile Share Value Plan, giving some customers lacking a contract a break on their service. That move is likely also a response to T-Mobile, which eliminated its phone subsidies in favor of monthly installment payments. If AT&T can wean its customers away from subsidized phones, it could lead to vast improvements in its earnings.

In the AT&T earnings report, watch to see whether Apple's iPhone shortfall results in fewer smartphone sales for the telecom giant. If so, then competition from Sprint, T-Mobile, and Verizon could get even more cutthroat in 2014.

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Fool contributor Dan Caplinger owns shares of Apple. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.