AT&T Yields 5.6%, But Read This Before You Buy

With wireless and pay-TV markets looking saturated, buying more subscribers via acquisition and taking out costs is a logical strategy to further enhance market share and free cash flow generation. However, we believe T's large move into pay-TV trades near-term synergies for greater long-term strategic uncertainty. With wireless and pay-TV markets looking saturated, buying more subscribers via acquisition and taking out costs is a logical strategy to further enhance market share and free cash flow generation. However, we believe T's large move into pay-TV trades near-term synergies for greater long-term strategic uncertainty.

T and VZ are two giants operating in markets with extremely high barriers to entry. Market saturation, evolving media consumption habits and the rise of non-traditional competitors like Netflix and Google are all working together to pressure incumbent wireless, pay-TV and Internet providers. T has made a big bet on pay-TV and service bundling, two areas that we believe have fairly uncertain futures. VZ has remained focused on its wireless network while placing a relatively smaller bet on mobile video services, a crowded space but one that seems more likely to see substantially higher growth rates than traditional pay-TV going forward. While both companies' strategies will take years to play out, we are more in favor of VZ's approach given what we know today. However, retired investors seeking safe current income would do well holding either stock.

Source: Seeking Alpha

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