AT&T to Invest in Cloud Business - Analyst Blog
11 May 2011 - 7:30PM
Zacks
The second-largest U.S. mobile service provider AT&T
Inc. (T) plans to invest $1 billion in network-based
cloud, mobility and network sourcing solutions in 2011.
Telecommunication carriers are rapidly entering the cloud
computing business due to increased competition in the space and
changing consumer habits. This will help operators to differentiate
their products and services and pave the way for strategic
alliances between telecom and IT companies.
AT&T will deploy the cloud computing services to businesses
across the board, from small to big multinational companies. The
company will cover government agencies and institutions as well as
industries such as manufacturing, retail, health care, automotive
and hospitality.
The billion-dollar investment is a chunk of the company’s
estimated $19 billion capital budget for 2011. AT&T showed
keenness to invest in the cloud computing business after its
largest rival Verizon Communications Inc. (VZ)
acquired information technology service company Terremark
Worldwide Inc. (TMRK) last month.
In February, AT&T lost its exclusive hold on Apple
Inc.’s (AAPL) iPhone to Verizon. This resulted in only 3.6
million iPhones activations by AT&T in the recently concluded
quarter. In order to make up for the subscribers lost to Verizon,
AT&T announced its intention to acquire Deutsche Telekom unit,
T-Mobile USA, for $39 billion in March. The entry into cloud
computing is indicative of the company’s efforts to remain
competitive.
AT&T is also pursuing a number of strategies to tap
opportunities in the wireless data market and currently operates
the nation's fastest mobile broadband network. The company is
aggressively deploying the high frequency 850 MHz band across its
markets to boost its 3G network performance. AT&T currently
delivers 4G services using High-Speed Packet Access Plus technology
and plans to roll out Long-Term Evolution technology in mid
2011.
Although the AT&T/T-Mobile merger would lead to extensive
growth in subscribers, revenues as well as profits, it is a
time-taking process and might alter the structure of the overall
telecommunication industry. We believe the inclusion of T-Mobile
operations will position AT&T as the market leader in the U.S.
wireless industry and further bolster its mobile broadband
services, which are currently booming.
Additionally, the company is expanding its wireless and wireline
businesses, which would in turn fuel profitability going forward.
However, the completion of the T-Mobile and AT&T deal contains
a number of risks.
Based on competitive pressure as well as a steep decline in its
traditional fixed-line phone business, we are recommending a
Neutral rating with the Zacks #3 (Hold) Rank on the stock.
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