Will AT&T Connect Investors With Growth?

Telecommunications juggernaut AT&T (NYSE: T  ) is set to report fiscal fourth-quarter and full-year earnings on January 28. In addition to traditional metrics, such as subscriber numbers and revenue growth, AT&T investors should pay particular attention to what the company has to say in regards to its other major strategic initiatives. These include its acquisition of smaller rival Leap Wireless (NASDAQ: LEAP  ) , as well as AT&T's decision to not pursue European telecom giant Vodafone (NASDAQ: VOD  ) .

With all these items in mind, this round of earnings is particularly important for AT&T. Here's what investors should focus on when the company reports.

To merge, or not to merge
That's the question of the day in the telecom sector. Over the past three months, the telecom industry has seen a great deal of mergers and acquisitions activity. AT&T purchased Leap Wireless, operator of the Cricket brand, last October for $1.2 billion in cash. This deal was made in an attempt to boost AT&T's presence in the prepaid subscription market, in which consumers pay for wireless service from month to month without having to sign longer-term contracts. Leap is a leader in this segment, as it's the sixth-largest company in prepaid service.

AT&T sees a great deal of integration possibilities with this acquisition, since it intends to maintain the Cricket brand and provide Cricket customers with the AT&T network. Bringing Cricket under the much larger AT&T umbrella will also allow the Cricket brand to expand into more cities in the United States. As a result, progress in integrating Leap should be an important consideration for investors when AT&T reports.

Vodafone on the dial?
Equally important for AT&T is to discuss its ongoing dance with European telecom giant Vodafone. Vodafone is on the market, especially since it sold its 45% stake in Verizon Wireless last year to Verizon Communications (NYSE: VZ  ) for a cool $130 billion.

Verizon Communications has a significant advantage now that it's absorbed the remainder of its highly profitable wireless business. By the same token, it's not surprising to see Vodafone pursue a strategy of selling assets (or possibly the entire company) since it's struggling mightily in the current environment.

The ongoing economic calamity in Europe has certainly weighed on Vodafone. In its most recent financial update, Vodafone's organic service revenue fell nearly 5%. Southern Europe was the major culprit, where service revenue experienced a double-digit decline.

Vodafone has the benefit of a massive financial windfall as a result of selling its stake in Verizon Wireless. Of the $130 billion proceeds from Verizon Communications, management estimated $84 billion would be returned to shareholders.

The remainder would be allocated toward expanding, particularly in the emerging markets, where Vodafone's operations are holding up relatively well. In fact, organic service revenue in its Africa, Middle East, and Asia Pacific (AMAP) segment increased by nearly 6% in the most recently reported six-month period. Nevertheless, Vodafone still generates approximately 70% of its revenue from Europe, which explains why a partnership with a U.S.-based giant makes sense.

Closing thoughts
AT&T's billion-dollar acquisition of Leap Wireless should be in focus when AT&T reports earnings. This represents a major expansion into the prepaid wireless service market.

Plus, it's worth noting that when it comes to Vodafone, AT&T is very much still in the game. AT&T's recent announcement simply means it can't initiate a bid for Vodafone over the next six months. It can still respond to an offer initiated by Vodafone, or make a bid in response to an offer by another company.

That's why AT&T investors should pay close attention to how the integration of Leap Wireless is proceeding, as well as any tidbits the company has to say about Vodafone in the upcoming earnings report and conference call.

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