Can AT&T Survive After Big Moves From Verizon Communications and Sprint?

AT&T (T 1.54%) will release its quarterly report on Wednesday. The telecom giant hasn't given investors what they've wanted to see in terms of stock performance. Even though the company pays the best dividend in the Dow Jones Industrials, AT&T hasn't been able to put together anything particularly noteworthy recently. In contrast, Verizon Communications' (VZ 1.68%) complete takeover of its Verizon Wireless division and Sprint's (S) big cash infusion from Japanese telecom SoftBank put AT&T's main U.S. rivals in position to grow -- potentially at AT&T's expense.

AT&T's history goes back much further than Verizon's or Sprint's, with its landlines having formed the foundations of the telecom industry. But the rapid pace of technological innovation doesn't leave AT&T any room to coast on its past success, and, after its failed attempt to take over T-Mobile, AT&T finds itself hemmed in by antitrust considerations and stronger competition. Can AT&T find growth abroad? 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

Source: Yahoo! Finance.

Will AT&T earnings prove the telecom can still grow?
In recent months, analysts have been less optimistic about AT&T earnings, cutting their third-quarter and full-year 2013 estimates by $0.03 per share. The stock has gone nowhere, falling 2% since mid-July.

AT&T didn't come into the quarter on the best of notes, with a second-quarter report that included better-than-expected sales but a shortfall on earnings. Once again, though, subsidized smartphone sales explained much of the disparity, as 551,000 new contract customers took advantage of the typical discounts that customers reap at the beginning of their contracts. Over time, AT&T collects enough extra from its service subscriptions to make up for these discounts, but impatient investors still fret about subsidies.

One bigger problem AT&T has is that it's playing catch-up in terms of network coverage. Verizon already has a wider 4G LTE network, spanning more than 500 markets. AT&T has faster speeds in some key markets, but it serves 100 fewer markets than Verizon. Sprint remains well behind, but with its capital infusion, it's planning to ramp up its 4G adoption at an accelerated pace.

But AT&T is doing its best to boost its competitive position. Over the weekend, the company finalized a deal with Crown Castle International to sell its wireless towers for $4.85 billion. The deal gives Crown Castle another key set of assets to add to its portfolio, but it gives AT&T precious cash to use for other corporate purposes, such as improving its network or buying back shares. The company's bid to buy Leap Wireless in July will also give it more spectrum to help it with its network improvement plans.

The big wildcard for AT&T is whether it will look to buy an international carrier in order to find an avenue for growth. Management has said that the company is interested in making a purchase in Europe, but without any definitive target, there is a danger that AT&T will buy something simply for the sake of appearances, rather than a strong strategic reason.

In the AT&T earnings report, watch to see how the company responds to the Verizon Wireless transaction. If AT&T identifies Verizon as a stronger threat, then you'll need to see AT&T respond with concrete ways it plans to hold its own and boost its competitive position in the telecom space both in the U.S. and abroad.

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