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Can AT&T Compete With Verizon?


Think what wireless revenues will look like when AT&T has five, seven or even ten million iPhones in circulation.

While I still favor Verizon (VZ), AT&T (T) could be worth a shot for a trade or longer term position. AT&T is being sold down on yet another pretty good report from a non-homebuilder, non-retailer, non-financial, non-consumer-discretionary company.

Net income was reported at $3.1 billion, or 51 cents per diluted share, compared to $1.9 billion, or 50 cents per diluted share, for 4Q '06. Adjusted earnings were $4.3 billion, or 71 cents per diluted share, up from $2.4 billion, or 61 cents per diluted share, in the year-earlier quarter.

Randall Stephenson, AT&T chairman, CEO and president, said that the company "had an excellent fourth quarter, which affirms our outlook for 2008... Our wireless business delivered outstanding results, with the largest quarterly subscriber gain ever posted by a U.S. provider."

The big gains occurred in wireless revenues -- up 16.3% -- representing a 2.7 million net gain in wireless subscribers. Far and away the biggest contributor to the new subscribers were due to the iPhone, which T said was right around the 2 mln level ending the fourth quarter.

So while the market seems to be focused in the myopic view of what T might do today or the next couple of days, I would rather look out a bit into the future and think what these wireless numbers will look like when T has five, seven or even ten million iPhones in circulation, their owners paying monthly fees and possibly subscribing to more income generating services.

AT&T's U-verse platform is still in its infancy: This is where VZ is years ahead.

It reported to have 231,000 video subscribers, up from 126,000 during the third quarter of last year. T hasn't even introduced this to very many markets, in fact, I believe most of these subscribers are currently in the Texas market. So while legacy income streams will keep working themselves down, at least T is positioned with some very key higher margin products to replace them with.

Bottom line, with the stock approaching 52-week lows again, the dividend yield 4.4%, or 1% higher than a 10-year Treasury and the forward P/E a shade over 11 the stock could be worth putting away for a while.

Meanwhile, I continue to believe we are still exhibiting bifurcated economic conditions with some areas in full recessionary mode and other sectors nowhere close. While I don't think it's a stretch to say we are in or will be in a recession I still have the outlook that a full blown recession can still be averted. Maybe a better way to describe this is that we may never "print" an official recession, which is two quarters of negative GDP growth. And if we never "print" an official recession, are many stocks currently selling too cheap or too dear?

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No positions in stocks mentioned.

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