As AT&T (NYSE:T) prepares to report its first-quarter earnings later today, it could come under more pressure from investors to show financial progress. The pressure is coming at a time when AT&T is investing $18 billion to purchase AWS-3 spectrum, $48.5 billion to buy DirecTV (NASDAQ: DTV) and billions more to move into the Mexican wireless market.
Analysts at Macquarie Research conducted a survey last week among global telecom investors regarding AT&T's DirecTV deal. The firm found that rival Verizon Communications' (NYSE: VZ) is "strongly preferred by investors" over AT&T right now--56.1 percent of those surveyed felt that Verizon was "the best positioned strategically over the next three years" compared with 15.8 percent for AT&T and 28.1 percent for neither.
"In our opinion, T's revenue diversification into Mexico, converged networks and pay-TV may provide better [long-term] growth outlook than VZ's U.S. wireless pure-play strategy, albeit with more execution risk," the analyst wrote in a research note.
According to the Wall Street Journal, AT&T's share price is basically unchanged from three years ago. The WSJ noted that if one goes back to June 2007, when AT&T exclusively launched the first iPhone, the company's share price has lost around 3 percent per year on average in that nearly eight-year span.
Macquarie found that just 21.1 percent of poll respondents cited potential for improved dividend coverage from the DirecTV deal as their primary focus. The analysts think AT&T's management "must begin to shift the focus away from eroding wireless trends," and expect that to happen after the DirecTV deal closes, which is expected later this year. The analysts think AT&T can grow free cash flow over the next few years "even with modestly declining postpaid phone subs."
However, MoffettNathanson analyst Craig Moffett wrote in a research note earlier this month that he is not high on the DirecTV deal. "AT&T would surely reject our characterization of the DirecTV deal as 'diversifying away from U.S. wireless,' but their talk of convergence between wireless and video amounts to little more than arm-waving (DirecTV is a satellite TV distributor without rights to wireless content distribution)," he wrote. Moffett concludes that he is skeptical of synergies and that DirecTV's "best days are behind it."
In March, Ralph de la Vega, CEO of AT&T's Mobile & Business Solutions Group, told FierceWireless that the carrier will be in a much better position to renegotiate content licensing deals with content owners once it closes the DirecTV deal. AT&T's goal is make it much easier for consumers to get TV content on their smartphones and tablets, he said.
- see this WSJ article (sub. req.)
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