AT&T Sells Centennial Assets

AT&T Inc. (T), the largest U.S. telecom carrier, completed the sale of certain wireless assets of Centennial Communications Corp. to Verizon Wireless, the domestic wireless segment of Verizon Communication (VZ). The deal was part of AT&T’s acquisition of Centennial Communications in 2009.

AT&T acquired regional telecom operator Centennial in November 2009 for $2.8 billion in cash and assumed debt. The acquisition has broadened the company’s coverage in the rural areas of Midwest and Southeast U.S., as well as Puerto Rico and the U.S. Virgin Islands.

Furthermore, AT&T acquired wireless properties from Verizon Communications across 18 states for $2.35 billion in cash in late June 2010. The deal was part of Verizon’s acquisition of Alltel Corp. in 2009. This acquisition also expands the company’s network coverage in rural areas and allows AT&T to offer 3G mobile broadband network services to approximately 1.6 million new subscribers.

The company is pursuing a number of strategies to tap opportunities in the wireless data market. AT&T has already deployed High-Speed Packet Access (HSPA) 7.2 technology based network that offers download speeds of up to 7.2 Mbps, double the existing network speeds. The company targets rolling out HSPA+ to more than 250 million potential subscribers by the end of 2010. AT&T also plans to introduce Long-Term Evolution, a 4G technology, in 2011 that is expected to offer a peak speed of 100 Mbps.

We expect AT&T to position itself as the leading provider offering aggressive promotions of bundled services (voice, video and Internet) to protect its markets from cable operators and other alternative services. Healthy growth in its U-verse video services is helping AT&T to counter increasing competition in the traditional wireline business.

We remain encouraged by AT&T’s ongoing efforts to upgrade its wireless network and increase its acquisition initiatives to expand customer base and coverage zones as the U.S. subscriber population reaches maturity.

Although we believe operational synergies will be realized in future, we maintain a cautious approach due to persistent erosion in wireline voice customer base, signs of a slowdown in post-paid wireless business as well as the ongoing aggressive pricing and promotional war with Verizon.

We are currently maintaining our Neutral recommendation on AT&T with the Zacks #3 Rank (Hold).

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