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AT&T Proves It Was More Than iPhone Distributor

NEW YORK ( TheStreet) -- When discussing the competitive landscape in which telecom giant AT&T (T - Get Report) operates, one of the biggest concerns for investors has had to do with the effects of having lost exclusivity rights to Apple's (AAPL - Get Report) iPhone. Wall Street grew concerned over the company's ability to execute and maintain its leverage once fierce rivals in Verizon (VZ - Get Report) and Sprint (S) entered the mix -- and I think it was valid, as the stock experienced a noticeable decline once iPhone rights were extended to Verizon and Sprint. But since then the stock has traded relatively flat and investors are now growing frustrated over what appears as an inability to "break out."

When considering an investment case for AT&T and (in particular) the entire telecom sector, the prevailing rationale has always been that the companies were "safe picks" -- particularly from the standpoint that they offer solid dividends absent their large premiums. But I am beginning to wonder that just maybe it might be time for a new perspective for AT&T -- one where growth can be proven to not be the enemy of maturity. Leading into the company's Q1 earnings results, not only was I looking for justification that it deserves consideration in my portfolio, but for evidence it can execute well enough to increase separation between itself and Verizon and to a lesser extent Sprint.
Losing exclusivity to the Apple iPhone should no longer worry potential AT&T investors.

A better quarter Q1
Last week the company beat analysts' expectations by logging $31.8 billion in revenue and registering profits of $3.6 billion -- an increase of 1.8% over the $3.4 billion it posted in the same period a year ago. Analysts surveyed by Thomson Reuters were looking for sales of $31.85 billion. The company earned 60 cents a share (excluding items) -- an increase from the 57 cents per share earned in last year's quarter while also topping analysts' estimates of 57 cents. Not only is the company demonstrating tremendous overall growth, but it is doing exceptionally well from its U-Verse business to the extent that its revenues grew dramatically -- almost 40%.

Of course, its core wireless business continues to be its bread and butter; that part of the operation climbed more than 5% on an annual basis, to $16.1 billion. All of this while also growing its wireless data revenue to $6.1 billion, or just shy of 20%. What I thought was pretty remarkable was the fact that AT&T added 726K net subscribers for the quarter -- increasing its total to 104 million -- a performance that contributed to a 70% annual increase as it reached just under 6 million customers. I think this trend dispels any cause for concern over having lost exclusivity to the iPhone.

Moving forward
The more time I have taken to analyze the report, the more impressive it gets, not only from the standpoint of AT&T's performance, but also the increased optimism it generates for the entire sector. AT&T demonstrated that it can overcome lackluster iPhone sales and still produce better-than-expected operating margins -- for that matter, so did Verizon. For as popular and as fruitful as Apple's partnership has been for both firms, they have come to the realization that it has helped Apple more than it has benefited their respective bottom lines. For that matter, they are both committed to reducing their dependency on iPhone as well as the resulting subsidies that have now started to hurt their business.

To that end AT&T has begun to push the Lumia 900 from Nokia (NOK), which is based on Microsoft's (MSFT) Windows Mobile OS. How successful this will be remains to be seen. But it is interesting that AT&T is set not only on creating separation for its once advantageous Apple partnership, but on marketing a competing product from hated rivals Nokia and Microsoft. (Be that as it may, I don't think Apple has much of anything to be concerned about, particularly from the standpoint of recent results showing tremendous growth in international markets -- in particular China.)

Bottom line
For AT&T, the bottom line is that its bottom line is trending in the right direction. I don't think it gets enough credit for its recent string of performances. From an investment perspective, the stock is certainly very attractive for a variety of reasons, not the least of which is the fact it offers a very attractive dividend at well over 5%. For value investors who are looking for a safe investment for the next 10 years -- one capable of also showing tremendous growth -- AT&T is certainly one to consider.
At the time of publication, the author was long AAPL, MSFT and held no positions in any of the stocks mentioned, although positions may change at any time.

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