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Dow Earnings Preview: AT&T

By Dan Caplinger – Jul 23, 2014 at 11:00AM

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The Dow's telecom stalwart wants to grow as fast as its rival. Can AT&T get the job done?

The Dow Jones Industrials (^DJI 0.60%) have seen more than half a dozen component companies report their latest earnings this week alone, as earnings season hits its busiest point. But more than half of the Dow 30 have yet to report, and AT&T (T 1.40%) will give investors its latest picture of the state of the telecom industry when it issues its earnings numbers later today. What AT&T says will confirm or contrast with the results seen from Verizon (VZ 1.04%) yesterday and give investors another perspective on opportunities in the wireless niche.

AT&T will release its latest quarterly results this afternoon after the market closes. Following its release, the company has scheduled a conference call for 4:30 p.m. EDT to discuss its financials.

Investors don't have clear expectations of how AT&T is likely to perform this quarter, with analysts expecting slight gains in revenue but mildly weaker earnings compared to year-ago figures. But with so much going on in the telecom industry lately, Dow investors should focus as much on AT&T's long-term strategy as on its short-term results.

Source: AT&T.

Specifically, AT&T and Verizon are sparring to figure out which of their strategies is likely to be most lucrative. Verizon has made its intentions clear to focus on the U.S. wireless market, with a huge nine-figure buyout of its former joint-venture partner to take full control of the Verizon Wireless business. Having taken on huge amounts of debt, Verizon will almost certainly have to spend years consolidating its purchase before considering another major strategic acquisition.

Source: Wikipedia.

By contrast, AT&T appears to recognize that when it comes to the domestic market, it is hemmed in by its competitors and by its size. Its failed attempt to buy T-Mobile showed that antitrust regulators are simply unwilling to allow AT&T to grow beyond its current size domestically; to satisfy growth-hungry investors, that means AT&T has to look at other avenues for expansion. The company has two main choices: expand its geographical reach or broaden its offerings to encompass a greater array of telecom and related services. AT&T's planned acquisition of DIRECTV takes the Dow telecom giant in both directions, with the opportunity to serve more video customers while also opening the doors to a presence in Latin America.

Of course, both AT&T and Verizon must face their smaller competitors. AT&T in particular has been a target of ads urging users to switch providers, and to some extent it has had to respond in order to maintain market share. Yet until smaller carriers can improve their service quality, AT&T will have some flexibility to choose its desired strategic direction without worrying too much about competition from below.

AT&T is one of the oldest companies in the Dow Jones Industrials, and it has adapted to new business models in the past. Doing so this time will take additional effort, and investors should watch closely to see if the company can hold its own in an increasingly cutthroat industry.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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