Telecommunications giant AT&T (NYSE:T) fell after its first-quarter earnings report as margin concerns weighed on the stock's performance. AT&T is competing in a tough market where the likes of Verizon Communications (NYSE:VZ) and T-Mobile (NASDAQ:TMUS) are looking to attract more customers, but the company has done well so far in retaining market share.
In addition, AT&T's strong cash generation and monetization of non-strategic assets have been fruitful and looks set to continue in the future. Let's take a look at the company's prospects to see if it could be a good investment.
Moving forward aggressively
Last fiscal year, AT&T invested $25 billion in infrastructure and spectrum, apart from returning a total of $23 billion through dividends and share repurchases. This year, AT&T expects to benefit from increasing smartphone penetration and new business opportunities in LTE. In addition, the company is focusing on connected homes, connected cars, video, and mobile business solutions.
AT&T's LTE platform is growing at a rapid pace in the U.S. It is focusing on price, customer service, technological innovation, network coverage, and quality -- to secure a competitive edge in the market. AT&T expects to reach 300 million people in 2014 with its LTE network, and its improving operations and aggressive strategies should enable it to achieve that target.
Rivals are not sitting idle
I think AT&T is doing the right thing by building a strong LTE network as it challenges Verizon. Verizon has the largest LTE network in the U.S. with presence across more than 500 markets, covering more than 97% of the nation's population. More than 305 million people already have access to Verizon's network. At present, Big Red is trying to make its network more efficient by deploying small cells. Verizon is using Alcatel-Lucent's small cells to boost its LTE network and enhance coverage in dense, high-traffic areas.
This move will lead to a more efficient Verizon network. But AT&T is looking to counter this with its Project VIP, under which it is investing $14 billion in 3 years to upgrade its network.
However, AT&T also needs to watch competition from smaller players such as T-Mobile and Sprint. T-Mobile is focusing on building a more consistent and reliable network. The carrier is using a 4-by-2 multiple input-multiple output technology in Chicago, Dallas, and San Antonio to deliver a better LTE experience. Moreover, as T-Mobile's EDGE network currently covers around 284 million people, according to FierceWireless, an upgrade of this network to LTE will put the company quite close to AT&T in terms of coverage.
More reasons to be positive
AT&T is also focusing on technology solutions. The company is seeing success with its net bond service that combines the VPN network of cloud services from companies such as IBM and Microsoft. This technology gives customers a secured network that isn't available on public Internet.
AT&T is working to innovate and refine its services. So, the company has many products in its pipeline and is aggressively rolling out Project VIP with initiatives like the launch of U-verse 1 Gig in Austin. With this move, AT&T is aiming to provide ultra-fast connectivity to cloud applications and smartphones.
AT&T is strengthening its network in order to provide robust video delivery services over both wireline and wireless networks. In addition, AT&T is virtualizing its network to shift functionality from hardware to software, while deals with companies such as General Motors, Ford, Nissan, Audi, BMW, and Tesla Motors for connected cars should also provide it with more tailwinds in the future. Further, AT&T has other strategies in the pipeline as well for the prepaid and postpaid segments. In postpaid, the company is bringing out new mobile share value plans to attract more customers.
AT&T has a strong outlook for 2014 and is expecting cash flow to be around $11 billion this year. The company plans to come up with additional features such as TV everywhere, allowing customers to view programs on smartphones and tablets anywhere. Moreover, its focus on upgrading the network to deliver better service to customers is another reason to be bullish about its prospects. So, you should definitely consider an investment in AT&T as it is looking well-positioned for the long run.
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Mukesh Baghel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.