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AT&T CEO Says Large Telco M&A Unlikely

Stocks in this article: AAPL T VZ TMUS

NEW YORK ( TheStreet) -- AT&T (T) CEO Randall Stephenson said on Tuesday he doesn't expect large scale consolidation among the wireless industry's four biggest carriers, given the Department of Justice's enforcement of antitrust laws in recent years.

Stephenson said at the Goldman Sachs Communacopia conference on Tuesday that the DOJ made clear signs it won't allow consolidation from four nationwide players in the wireless industry to three. He cited AT&T's failed $39 billion acquisition of T-Mobile (TMUS) in 2011 and also noted the antitrust regulator's more recent objections to a proposed combination between airlines AMR and U.S. Airways (LCC)

"For the next three years, we feel large scale M&A is not likely," Stephenson said of the U.S. telecom sector. "It seems to us the DOJ has been loud and clear," he added.

The AT&T CEO did reflect on the impact of merger and acquisition activity in the telecom sector, which sped up in the wake of the company's failed bid for T-Mobile.

Noting acquisitions such as SoftBank's recapitalization and takeover of competitor Sprint (S), Stephenson said the wireless industry is "going to get more competitive and it has gotten more competitive." In particular, he said competition has increased in the low-end of the wireless market and was one rationale for AT&T's recent acquisition of Leap Wireless (LEAP).

Sprint's recent acquisition of wireless provider Clearwire (CLWR) also indicates that the Federal Communications Commission may be more amenable to spectrum purchases among large providers, Stephenson said.

In terms of AT&T's core business, Stephenson forecast that the company's pension plan will end the year fully funded. The AT&T CEO also spoke about the company's focus on the transmission of wireless and wireline video service in coming years.

AT&T will make a big investment in the connected car and all of the video transmissions that are expected to emanate from automobiles as soon as 2014. "The future for us whether it is fixed line or wireless is our video capability," Stephenson said.

Those investments may also prove to be a benefit to AT&T's overall profit margins, particularly in its wireless business.

Stephenson said that as AT&T deploys its nationwide LTE network, capital spending is becoming roughly 50% more efficient. In New York City, about half of AT&T's total data traffic has moved to the company's LTE network, he said.

"We believe the cost dynamics are working in our favor ... I have never been in a situation where the bias for capital spending is a downward bias," Stephenson said, adding that it would be disappointing if the company's wireless margins don't expand by the end of the year.

One area of margin expansion may come from AT&T's changing smartphone subsidy model, as the company grows its customer base and renews its existing user base. Fourth-quarter wireless margins may improve as AT&T shifts its subsidy structure to 24-month upgrades, Stephenson said.

AT&T shares have gained just over 1% in 2013, underperforming the S&P 500.

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-- Written by Antoine Gara in New York.

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