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Wednesday, September 06, 2006

AT&T: New High Every Week (T)

Stocks: (T)(BLS)(VZ)(Q)

AT&T and BellSouth hit a new high every week. As Yogi Berra said, "You could look it up."

Well, hyperbole aside, all four of the major US telecoms trade at or near their highs: Qwest, Verizon, AT&T, and BellSouth. Of course, AT&T and BellSouth are merging.

But, investors looking at how the stocks trade as a multiple of sales will find a different picture. AT&T trades at 2.24 times sales. BellSouth trades at 3.64 times. AT&T must have paid a premium. But, Verizon trades at 1.22 times. And, Qwest at 1.2 times. Qwest, being the smallest of the lot does not have the balance sheet or revenue to compete with cable, WiMax, and VoIP as well as the rest. Or, at least that is the conventional wisdom about why it carries no premium.

The next issue would be debt. But, Verizon has $32 billion in debt and $75 billion in revenue. AT&T has $27 billion in debt, and, with SBC rolled in, a revenue run rate of $60 billion.

That does not leave much to differentiate the companies from a financial standpoint. But, the approach that the companies are taking to the future and potential competition are very different.

Verizon is betting the bank of fiber-to-the-home and the broadband and IPTV edge it might get over the cable guys like Comcast and Time Warner Cable. One of the issues with this bet is that a recent study by tech research giant IDC showed that only 8.5% of people intend to change providers of "bundled services" (TV, broadband, and phone). Of those surveyed 66% said they would not change and 22% weren't sure according to the study. That would indicate that if the cable guys have them, they will keep them, and Verizon has a problem.

Verizon says it will spend $20 billion building its fiber system according to the company's public statments. It also says that the service is now available to six million homes, about 20% of their customers. Of course, that does not mean that the customers are using it.

AT&T and BellSouth have not announced intentions anywhere near as agreesive for upping the ante to get faster wires into their customer's homes. And, that may be why Verizon trades at a discount.

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

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