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Tickers in this Article: T, VZ, S, CMCSA, CVC, VG, EBAY, TI, BT
AT&T's (NYSE: T) stock is up over 45% in the last year. The markets look forward to cost savings from its merger with BellSouth. It has a cellular business that is as large as Verizon Wireless (NYSE: VZ), and is trying to expand abroad by picked up a controlling interest in Telecom Italia (NYSE: TI).

Wall Street Likes Telecom
There is no doubt that investors like AT&T and other large telecom companies like Verizon and British Telecom (NYSE: BT). They have performed better than the market over the last year and pay healthy dividends. The cash flow from their landline businesses is strong because the infrastructure tends to be a decade or more old and does not require expensive upkeep. Cellular businesses also operate on fairly mature platforms that are being slowly upgraded for 3G. And, cellular subscriber growth has been strong.

AT&T's net income rose 17% to $1.9 billion in the fourth quarter of 2006.

Signs Of Trouble
The headwinds are beginning to hit some of AT&T's businesses. During Q4, it lost 227,000 landline subscribers to VoIP, mostly supplied by cable companies like Comcast (Nasdaq: CMCSA) and Cablevision (NYSE: CVC).

Wireless subscriber counts are still growing, with the total hitting 61million at the end of 2006, up 6.8 million for the year. But, average revenue per subscriber was up only .9% a sign that price pressure from competitors like Sprint (NYSE: S) is beginning to hurt the ability to raise cellular pricing. With over 150 million Americans owning cell phones, the oppotunity to drive new subscriber growth is becoming more difficult.

AT&T is also starting to spend to deploy fiber optic infrastructure to reach consumer households with faster broadband connections. The company feels that it has to spend $4.6 billion to begin this process, although it is much less $23 billion that Verizon is investing.


Cable, WiMax, and WiFi
The most immediate threat to AT&T is the VoIP revolution as voice service is offered over the internet by cable companies and recent start-ups like Vonage (NYSE: VG) and the Skype, now owned by eBay (Nasdaq: EBAY). Some of these services are still free. Others, like Vonage, cost as little at $24 a month for unlimited calling.

The cable companies also have most of the nation's digital TV subscribers, followed by satellite TV companies. AT&T would like to sign up these video customers, but that requires moving these consumers from current suppliers. The cable and satellite firms will likely fight to the death to keep these.

On the broadband front, AT&T's DSL and fiber offerings face new WiMax deployments from Sprint. The Sprint footprint will reach 100 million potential customers in the US. And, several large cities are about to offer WiFi across their entire downtown regions. This form of broadband will also compete with DSL.

AT&T may have huge financial resources, but it also has a lot of competition heading its way.

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