Is A Successful Future For AT&T A Lost Cause?

Given its size and huge customer base, AT&T’s (T) future as a successful public company faces challenges that the firm may not be able to  overcome. It has three businesses. One, its land line operations, will almost certainly continue to shrink over the next decade as consumers and businesses move from tradition phone service to VoIP and cell service.

The company’s huge Cingular cell phone service, which is being re-branded AT&T Wireless, operates in a US market where the growth of subscribers is slowing, especially in contrast to the rapid expansion of markets like China and India. It is almost certain the cell phone penetration will reach a saturation point in America fairly soon and that most sales will have to come at the expense of entrenched competitors like Verizon (VZ) and Sprint (S). Or, these competitors will take share from AT&T.

AT&T last business is it broadband operations, which, until recently have been entirely DSL based. But, DSL connections are slower than those provided by cable rivals like Comcast (CMCSA), Cablevision (CVC) and Time Warner Cable (TWX).

As MarketWatch points out, AT&T is faced with two relatively unattractive options to compete with cable. One is to cement relationships with satellite TV providers, perhaps by buying one. Even if the companies were available, they are expensive. Echostar (DISH) has a market cap of almost $19 billion.

The other route AT&T could go is to aggressively put down fiber to build a high-speed broadband network the way Verizon (VZ) has. Verizon has said it will invest $18 billion in the initiative, but it only signed up about 100,000 subscribers. AT&T plans to spend about $5 billion on fiber, but that may well be too little, too late.

Some investors view the Verizon gamble on fiber as too risky, but, it may be the only chance that it has to beat back cable competition. If so, AT&T is over a year behind.

Teaming with a satellite company is probably a poor solution. Because the signal are one-way, this does not help with providing broadband the home, and cable companies have plenty of tools to compete with satellite TV.

Fiber may well be AT&T’s last, best hope. If so, time’s a wasting.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.