Last month I advised investors to look for stocks that got nicked by the NASDAQ crash and are seriously undervalued as a result. Looking at AT&T's (NYSE: AT) chart, it exhibits all the marks of that strategy, despite trading on the New York Stock Exchange.
I think AT&T is poised for a long and slow upward trend. Analysts agree: 12 out of 22 analysts polled gave AT&T a Strong Buy rating at the time of writing. All but one gave it at least a Buy rating.
The reason is simple. No other company has invested more heavily in consumer broadband in the last year than AT&T. It acquired two of the largest cable companies and stepped up cable infrastructure investments at an aggressive pace, which will ensure a large network presence. Few markets are poised for more growth than consumer broadband, and few companies are in a better position to take advantage of this growth.
The cable strategy is ingenious, since it leverages a loophole in the 1996 Telecommunications Act. The act states that local phone carriers must open up their networks in order to offer long-distance service. As a long-distance company, AT&T would be subject to the reverse: It could not offer local phone service over conventional infrastructure. (This is why Qwest had to divest itself of its long-distance business in order to merge with US West; US West had not yet satisfied the conditions of the act.)
But AT&T can offer local phone service over cable infrastructure, despite owning monopolies in nearly all markets in which it serves broadband (read local phone) service. As a vocal proponent of open access, I think it's wrong to exploit this loophole. But I don't think it's wrong to advise people to invest in a company that is allowed to get away with it. Right or wrong, AT&T is in a unique position as a local-cable monopolist and long-distance carrier.
What does this mean for consumers? It means convergence of all utilities, except for power and gas, in one provider, which should be a very attractive option. And with its new branding campaign, I expect all-in-one deal adoption to accelerate and AT&T to start reaping what it sowed in cable-infrastructure investments. According to a recent Business Week letter to the editor by AT&T Executive VP Dick Martin, it has already signed up more than 300,000 local phone customers in the last few months, which is a convincing proof of concept.
Finally, there's the wireless arena, which AT&T has not neglected but rather grown at an acceptable level, given the overall expansion of that industry. Wide speculation has it that British Telecom (BT) is in advanced talks with AT&T regarding a merger (which could be consummated by the time you read this). Even if it doesn't land BT, AT&T is a solid play. If it lands BT, this play could be even stronger.
