Google Fiber Is Shaping Up to Be an Expensive Headache for AT&T

The search king’s efforts to expand is putting pressure on telecoms to respond.

Apr 29, 2014 at 7:35PM

AT&T (NYSE:T) wants to expand high-speed fiber Internet access to 21 major metropolitan areas. Fool contributor Tim Beyers explains the company's motivation, and its implications, in the following video.

In a press release earlier this month, AT&T said it plans to expand ultra high speed broadband to as many as 100 cities and municipalities. Plans call for U-verse TV with GigaPower Internet at speeds "up to 1 gigabit per second." The announcement comes just weeks after Google (NASDAQ:GOOGL)(NASDAQ:GOOG) committed to expand its fiber service to as many as 34 municipalities.

Tim says it's a game one-upmanship that benefits Google investors nearly as much as it hurts AT&T investors. Why? Google is flush with more than $57 billion in cash and investments versus about $8 billion in debt. By contrast, AT&T counts 46.6% of its entire capital as debt -- a limitation that could prevent the company from rolling out ultra service as fast as executives might like.

In response, the telecom used the rollout PR to essentially lobby for local assistance. Lori Lee, senior executive vice president of AT&T Home Solutions, said the company is interested in working with communities that offer "solid investment cases and policies." Translation: Those cities that offer us tax relief and development funds can expect us to invest. Those that don't, well ... don't hold your breath.

Now it's your turn to weigh in. Do you believe AT&T will invest what it takes to compete with Google Fiber? Or do you expect the search king to make the big investments required to become a top national supplier of high-speed broadband? Please watch the video to get the full story, and then leave a comment to let us know your take, including whether you would buy, sell, or short AT&T stock at current prices.

Why you might invest in AT&T anyway...
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term, and AT&T yields more than 5% as of this writing. But high yields alone aren't enough. Wealth is the result of a well-constructed dividend portfolio. How to build one? Our top analysts give you the answer in a new report on high-yielding stocks that should be in any income investor's portfolio. Click here now for your copy -- it's 100% free.

Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Google (A and C class) at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool recommends Google (A and C shares). The Motley Fool owns shares of Google (A and C class). 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.

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