4G and New Initiatives Roadmap for Telecom Stocks: AT&T Inc. (T), Verizon Communications Inc. (VZ)

Changes in telecom technologies provide a gateway to create new business opportunities. The fourth generation (4G) of cellular technology standards, the rise in smartphone sales, and increasing mobile internet devices are transforming the telecom industry. These factors have reformed the industry into the most evolving sector. Which company will reap the rewards from this changing environment? There are limited players in the U.S. telecom market and the industry has high barriers for entry. AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) are the largest telecom companies in the US. Let us review concrete steps taken by AT&T and how the company stands out from the rest of the telecom players.

AT&T Inc. (T)

AT&T is investing in future growth with Project Velocity IP (VIP). It is a three year planned investment in wireline and wireless IP broadband networks for accelerated growth. It mainly focuses on growing customer demand for high-speed Internet access and new mobile, app and cloud services.

Randall Stephenson, AT&T Inc. (NYSE:T) – Chairman and CEO said “We’re off to a strong start executing Project VIP, our plan to expand our high-growth platforms to millions more customers, and our 4G LTE network deployment is ahead of schedule, delivering outstanding performance.”

Mobile internet growth

4G LTE Expansion: AT&T plans to expand 4G LTE network to 250 million people in the US by year end 2013, and 300 million by year end 2014. Globally, the growth in LTE has been slow but it will gradually increase. In most countries where 4G LTE has launched, 3G and its variants have remained the dominant technology standards. Two main reasons for this are limited LTE customers and a narrow range of compatible devices. The industry expects that speed-seeking users will move to 4G services. There will be an additional approximate 150 compatible smartphones and tablets that will be launched by the year end 2013.

In year 2012, AT&T Inc. (NYSE:T) has acquired spectrum through more than 40 spectrum deals and has plans to buy additional wireless spectrum to support its 4G LTE network.

RootMetrics, an independent mobile analytics firm has published a report in March on 4G LTE download and upload speeds of different carriers. AT&T offered an average download speed of 18.6 Mbps and an average upload speed of 9.0 Mbps. Thus enabling ultra-fast downloads, faster photo sharing, app downloads and faster mobile Internet access. Verizon Communications Inc. (NYSE:VZ) recorded an average download speed of 14.3 Mbps and an average upload speed of 8.5 Mbps. In the second half of 2012, Sprint Nextel Corporation (NYSE:S) had average speeds of 10.3 Mbps for LTE download and 4.4 Mbps for LTE upload. Thus when compared to these two companies, prospective customers would subscribe to AT&T Inc. (NYSE:T) as they provide better download and upload speed.

Network quality, wireline IP and fiber network

AT&T expects to install small cell technology, macro cells, and additional distributed antenna systems to increase the density of its wireless network, which is expected to improve network quality and increase spectrum efficiency.

AT&T plans to expand wireline IP network to 57 million customer locations by year end 2015.

AT&T Inc. (NYSE:T) expects the proactive fiber deployment to increase business revenue growth. Hence they are planning to expand fiber network to reach additional 1 million business customer locations by year end 2015.

    New growth initiatives

    AT&T Digital Life, Mobile Premise Solutions, Mobile Wallet and Connected Car are some of the initiatives that have huge growth potential.

    AT&T Digital Life is an IP-based home security and automation service to be launched inyear 2013. It gives consumers control to secure and manage their homes from virtually any device – smartphone, tablet or PC.

    Mobile Premise Solutions – This new service is an alternative for wireline voice service and in the future will include high-speed IP Internet data services.

    Mobile Wallet – AT&T Inc. (NYSE:T) is participating in the ISIS mobile payment service joint venturealong with T-Mobile and Verizon Communications Inc. (NYSE:VZ). Market trials started with its launch in Austin and Salt Lake City. The two major advantages for this project are – it is being promoted by 3 of the largest carriers in the U.S., and has been embraced by multiple payment processors.

    Connected Car. More than half of new vehicles are expected to be wirelessly connected by 2016. AT&T already has deals with leading manufacturers such as Ford, Nissan and BMW. In late February, AT&T and General Motor’s OnStar service unit struck a deal to bring connected cars to the market starting with the 2015 fleet. The company has beenvery aggressive in connected car business, as there is a huge opportunity to expand.

      Analyzing the revenue of AT&T

      With numerous initiatives and future plans, what is important going forward is whether these investments have positive impact on revenue? The revenue for last two years are, 2011 – $126.72 billion, 2012 – $127.43 billion. There has been a gradual increase in the revenue. Below is a break-down of revenue for 2011 and 2012. There is significant decrease in revenue for Directory and Voice, and increase in revenue under Wireless services, Data and Others.

      Particulars Twelve Months Ended ($ in millions)
      31/12/2012 31/12/2011 % Chg
      Operating Revenues
      Wireless service $ 59,186 $ 56,726 4.3%
      Data 31,798 29,560 7.6%
      Voice 22,619 25,126 -10.0%
      Directory 1,049 3,293 -68.1%
      Other 12,782 12,018 6.4%
      Total Operating Revenues 127,434 126,723 0.6%

      The company has already initiated investment in the Project VIP and returns of this investment will lead to a further increase in revenue under  Wireless, Data and Other.

      If the economy remains stable, Project VIP will drive EPS to grow in the mid-single-digit or above range, consolidated revenues to grow to GDP plus 100 basis points and increase in consolidated margins. Project VIP includes numerous projects from investment in for high speed internet access to new initiative like connected cars. Thus there is huge potential for the company to increase its revenue in the coming 3-5 years. A long term investor who wants exposure in the telecom industry should consider AT&T Inc. (NYSE:T).

      The article 4G and New Initiatives Roadmap for Telecom Stocks originally appeared on Fool.com and is written by Sujata Dutta.

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