At&t Mobile Internet Technology

1. Company Background

AT&T Inc. ("ATT"), the 11th of Fortune 500 companies, is an American multinational telecommunications corporation headquartered in Whitacre Tower, downtown Dallas, Texas. ATT is the largest provider both of mobile telephony and of fixed telephony in the United States, and also provides broadband subscription television services.

ATT is the current leader in smartphone adoption, mainly due to Apple's iPhone. Its network allows iPhone 4S download 3 times faster than its competitors. ATT set an aim to be the leader in the mobile internet technology in 2007, and it struck a five-year exclusivity contract with Apple to carry the iPhone. However, its network is becoming strained in that the iPhone users are 4% of AT&T's customers but take up 40% of its bandwidth. To acquire the spectrum and build network capabilities, ATT intended to buy T-Mobile in early 2011, but the acquisition was blocked by the Department of Justice and the Federal Communications Commission. Therefore, ATT had to withdraw its acquisition attempt to avoid further lawsuits, resulting in breakup payments reflected in the $4 billion charge in the fourth quarter of 2011. As stated in its 2011 annual report, ATT is on its way to the 4G LTE, the most advanced technology, and plans to complete its deployment to 80 percent of the U.S. population by the end of 2013.

Verizon Communications Inc. ("Verizon"), the 15th of fortune 500 companies, is a global broadband and telecommunications company headquartered in New York City. Verizon is now the second largest service provider in telecommunications industry.

By contrast with ATT, Verizon's contract with Apples is much bumpier. It started its contract with Apple in February 2011, four years late than ATT. One reason is that Verizon can only make contract with Apple after Apple's contract with AT&T was finished in June 2010. The other reason is that adding the iPhone to Verizon lineup under certain terms may damage its relationship with the popular Google platform. However, Verizon has a bright future on LTE-enabled iPhone 5. Firstly, Verizon's LTE network currently reaches around 230 million people across 337 markets, while ATT is still in the early stages of building its LTE network. Secondly, Verizon is the leader in the spectrum battle with its AWS spectrum acquisition, which will allow Verizon the capacity to meet increased wireless data network traffic demands. Lastly, Verizon already covers 230 million people with its LTE network and is expected to complete its full coverage plans by mid-2013, where ATT is expected to cover only 150 million by the end of 2012, and complete 80% of its network coverage buildup by the end of 2013. Verizon's 2012 10-Q report approved the above theory, declaring that the iPhone 5 launch helped push Verizon's iPhone sales to over 3 million sold in 3Q and its third-quarter earnings rose 21% on a significant rise in contract wireless subscribers.

However, as both ATT and Verizon have announced that they will limit data usage, Apple is making partnerships with some of the smaller wireless carriers, including Sprint Nextel Corporation and Virgin Mobile, to offer unlimited data plan. This is one of the potential risks both of the two companies are facing.

2. Valuation Measures

2.1 Valuation

Common stocks of ATT and Verizon are both listed on the New York Stock Exchange (NYSE), and are components of the 30 stocks that make up the Dow Jones Industrial Average and the Standard & Poor's 500.

Table 2.1 Valuation Measures ATT ATT + Impairment Verizon

Operating Revenues (in millions) $ 126,723 $ 126,723 $ 110,875

Net income contributable to ATT and Verizon (in millions) $ 3,944 $ 6,854 $ 2,404

Weighted-average shares outstanding (in millions) 5,976 5,976 2,833

Basic Earnings per common share $ 0.66 $ 1.15 $ 0.85

Stock Price per share (September 28, 2012) $ 37.99 $ 37.99 $ 45.57

Market Capitalization (in millions) $ 227,028 $ 227,028 $ 129,100

Enterprise Value $ 105,797 $ 105,797 $ 85,908

Trailing P/E 57.56 33.03 53.61

Price/Sales 1.79 1.79 1.16

Price/Book 2.15 2.15 1.50

As calculated in the table 2.1, ATT and Verizon