AT&T a Nice Call for the Long Haul
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The market is still reeling in the buzz created after AT&T (NYSE: T) unveiled its intentions to buy Leap (NASDAQ: LEAP). The move was met with a lot of criticism from pundits, and it raises a lot of questions regarding AT&T's future. As per now, only mere speculations can be made -- nothing conclusive. All the same, the possibilities of the deal working in favor of AT&T cannot be overlooked. Why is this so?
Leap moving toward pre-paid
Coming July, Leap will be the first upstream carrier to offer a pre-paid service package for Apple’s most popular gadget, the iPhone. This dauntless move will test the market’s willingness to fork out higher amounts up front in exchange for low monthly fees. The U.S. smartphone market is swelling at the moment and introducing a new service is likely to create a bandwagon effect.
In my opinion, a good number of consumers are willing to pay more up front. Verdict: this initiative will glean handsome returns.
Leap has really worked double this quarter. If AT&T manages to buy it, all the glory will fall on AT&T. For starters, AT&T exhibits stronger fundamentals and has far stronger financial muscle. Therefore, it has the necessary strength to filter through the obstacles and push Leap’s innovations into the mainstream.
By buying Leap, AT&T will also diversify its operations, extending both a pre-paid and post-paid service to consumers. In this way, it will be able to increase its market share and magnify revenue figures.
The ups and downs in the telecom market
The analysts have shed light on some of the prevalent veers in the telecommunication market. They clearly place profound accents on the wireless iPhone. They go on to state that RIMM is heading the way of the dodo. In simple terms, it is burnt to the ground. On all counts, I agree with them. However, they fail to mention one crucial thing -- the ripples that are facing the smartphone market are acting in favor of carriers.
Why is this so? Regardless of whether consumers are buying iPhones, Android-supported smartphones or even Blackberries (which I highly doubt -- RIMM has shed 87% of its market cap since the beginning of 2011), carriers are not feeling any notable pinch. This is chiefly because they are flexible and adaptable as opposed to their handset manufacturing counterparts. This means that carriers have the advantage of constantly operating in a state of tranquility. This, therefore, rules out questions and allegations that the entire buzz on the AT&T Leap deal may negatively affect AT&T.
These two telecommunication behemoths are AT&T’s most aggressive competitors. Verizon in particular comes out as a bigger competitor as it controls a bigger share of the market.
Looking at Sprint, its recent plans to crank up operations with regards to their network cannot be overlooked. In early May, its plans to fortify a solid 3G network and to extend a peerless 4G LTE experience came to light. This news was received cordially as the market was still joyful over the four released LTE devices. These four devices are just a fraction of the 15 LTE devices that Sprint intends to release this year. In my opinion, AT&T has been compelled to double its efforts so as to secure its position in the rankings. As far as doubling its efforts are concerned, AT&T is doing quite well; the Leap deal couldn’t say less.
Verizon on the other hand has a lot to deal with especially after announcing that it would cut back on its unlimited plans. It did this a year after AT&T. This means that it lags behind and will have to deal with the after effects of its actions at a time when AT&T is cast on a bullish stretch. This announcement was met with a lot of negativity. $30-a-month unlimited data packages will be replaced by a data sharing plan that supposedly operates on a basis of tiers. Verizon was actually compelled to release a statement in a damage control attempt. Interestingly, this statement neither denies nor confirms anything. This spells a lot of uncertainty; something that is greatly loathed by investors.
In the long haul, I would say that AT&T exhibits the potential to deliver. It already has a credible track record with the Nokia Lumia 900. The current dynamics also point in favor of its operations.
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