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 (OTC: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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