Calling all Customers

02/02/2007 12:00 am EST

Focus:

Given up for dead more than once, Ma Bell--the old-guard communications company that wireless wizard Nikhil Hutheesing is recommending in his latest issue, is once again transforming itself via a tremendous resurrection...

"Ma Bell is back. AT&T (T NYSE), which was broken up by the Feds in 1984, has been growing rapidly thanks to its chief executive, Ed Whitacre. Since 1990,Whitacre has pulled off 13 deals with a combined price tag of $285 billion. Just last month, it closed its $85 billion stock-for-stock acquisition of BellSouth Corp., paving the way for the company to take full ownership of the wireless service provider, Cingular. AT&T is now the nation's largest wireless carrier with some 61 million customers.

"The Cingular deal is a coup for AT&T because it means that the company is well on its way to achieving Whitacre's goal: To make AT&T a "three screen" service provider, making its content seamlessly available on TVs, PCs, and handsets.

"The company will face some hurdles, such as its tarnished brand image, due to shutting down its cable and wireless businesses. But the new AT&T Wireless is back and it will have to compete aggressively with big service providers such as Verizon Wireless.

"AT&T will be a strong competitor, although, thanks to its merger with BellSouth, it will have to deal with some conditions imposed by the FCC--to transfer BellSouth's 2.5 gigahertz band spectrum to a third party within a year, and to deployment milestones for most 2.3 gigahertz band wireless communications service (WCS) spectrum by July 21, 2010.

"The new AT&T serves 92 million accounts. It has 68 million phone lines in 22 states, 12 million high-speed Internet access users and 61 million customers nationwide for its wireless service. Its revenue in 2007 should be near $110 billion with net income of $10 billion. While AT&T plans to lose 10,000 people over the next three years (mostly through attrition) the company expects that it will achieve synergies of $2 billion annually from the combined operations in 2008.

"The company's earnings are rapidly growing. In 2006, they were up 54% over the prior year. Yet, the stock does not reflect the high rate of growth and the opportunities for the company going forward. As a result, I recommend buying shares of AT&T (T) at $37.09 and I am adding these shares to the Core Wireless Portfolio."

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