Big Name and Big Customer Base Aren't Enough for AT&T Wireless
By JAMES PELTZ, MICHAEL HILTZIK
AT&T Wireless (AWE)
(Jim: Don't buy)
(Mike: Don't buy)
Jim: The main distinction of this stock so far, Mike, is that AT&T Wireless was the largest U.S. initial public offering in history, when this stock was issued at $29.50 a share in April and raised more than $10 billion.
Mike: Except this is one of those stocks that really isn't a stock.
Jim: Yeah, it's one of those so-called tracking stocks whereby you don't get any ownership rights, you simply get to bet on the performance of the company.
Mike: And I'm getting a little tired of these. What about you?
Jim: Very much so, if for no other reason than tracking stocks have a decidedly mixed record in terms of performance, which we'll get to in a minute. Anyway, this stock represents the wireless-communications business of AT&T, and there's no question it's a big and fast-growing operation, with annual revenue topping $7 billion.
Mike: I'd like to make a disclosure before we go any further.
Jim: Go ahead.
Mike: I am not an AT&T Wireless customer.
Jim: That's your disclosure?
Mike: No, my disclosure is that I used to be.
Jim: Thanks for letting us in on that little secret. So why did you stop?
Mike: Because I thought the service was expensive, and its customer service and transmission quality on the network both stank. So I went to one of AT&T's rivals.
Jim: You're not alone. AT&T Wireless certainly has had its share of complaints.
Mike: Part of the reason is that AT&T Wireless is not above building its subscriber base faster than it improves the infrastructure to actually handle the traffic.
Jim: But that's a subscriber base that's nothing to sneeze at, something well over 10 million people--and they'll add another million-plus with the deal they announced Monday.
In fact, AT&T Wireless used to be the biggest service by the number of subscribers, though recent mergers have dropped it a couple of notches below rivals such as Verizon Wireless, a joint venture of Vodafone AirTouch and Bell Atlantic.
Now, AT&T Wireless is on a ferocious binge to expand its capacity--what the industry likes to call a "build-out"--to not only handle its existing subscribers better, but to also offer them all sorts of other plums that carry extra prices. Like Internet access.
Mike: Yes, one of the latest is the roll-out of its PocketNet service allowing subscribers to see a stripped-down version of Web sites on their wireless phones.
Jim: That's just great. Now everyone on the freeway will not only be trying to dial a number while they're changing lanes, but now they can check their stock quotes at the same time.
Mike: I know. We'll all have to be driving Humvees to protect ourselves. Point is, everyone expected that when AT&T Wireless unveiled PocketNet, it would charge a few extra bucks a month for it. But the company surprised everyone and rolled out the service's basic version for free, and I think that decision says some interesting things about AT&T Wireless.
Jim: Not to interrupt you, Mike--
Mike: But you are interrupting me.
Jim: I guess I am.
Mike: So why say you're not?
Jim: Let it go. My point is that it's ironic that AT&T Wireless introduced PocketNet's basic service for free, at least initially, even though the company is known for having a big chunk of the high-end users in the industry, that is, callers who spend a lot and have money to burn.
Mike: Business users who spend more per phone, on average, yes. Or to put it another way, spend a lot more time getting busy signals.
Another rap on AT&T Wireless is that its network uses a technology that's somewhat outdated. That makes it harder to expand, and leaves the firm without the capacity for calls and behind in offering higher-end bells and whistles that some of its competitors are offering.
Jim: Hence the build-out.
Mike: Right, plus AT&T Wireless wants to move a lot of customers to phones that can accommodate these new technologies. That's why it's offering PocketNet for free, because the unadvertised ringer in there--excuse the phrase--is that to get PocketNet you have to buy a new phone. And it's not free.
Jim: Raising the question of how many subscribers will be willing to do that. And such skepticism abounds on Wall Street. Get this: The stock has struggled to stay above its IPO price ever since it began trading, despite AT&T's reputation and all the ink the company got by virtue of the IPO being a record-setter. So would you buy the stock now?
Mike: No.
Jim: Why?
Mike: For one thing, I don't like tracking stocks as a rule; some are good and some are bad, but it's hard to predict which will be which. And in this case, AT&T itself isn't setting the investment world on fire, so its wireless stock doesn't do much for me.
Jim: That's an understatement. The stock of AT&T itself has plunged more than 40% just since late March.
Mike: Also, it's going to be awhile before AT&T Wireless starts really exploiting its one clear advantage: its big subscriber base. And finally, there's a ton of competitors out there for wireless service.
Jim: I couldn't agree more, and I wouldn't buy the stock, either. The company has rivals swarming all over it, some of whom have the technology in place to not only give customers a clear phone signal nearly all the time, but also new gizmos like Web access that keep them either in step or ahead of AT&T Wireless. Right now, AT&T Wireless is a work in progress.
Mike: And although the value of AT&T's brand name is often talked up as an advantage, AT&T could easily squander that and sully that brand if it keeps overselling its service.
Its popular Digital One Rate plan--which entices people to use their wireless phones for all their needs--signed up a lot of customers. But all the complaints, especially in congested areas like Los Angeles and New York, make you wonder when AT&T's network will be up to the task of giving them truly reliable service.
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Write or e-mail with a stock you would like to see discussed in this column. Peltz (james.peltz@latimes.com) covers the markets and corporate financial trends. Hiltzik (michael.hiltzik@latimes.com) covers technology and entertainment and is the author of the book "Dealers of Lightning: Xerox PARC and the Dawn of the Computer Age" (HarperBusiness). Either can also be reached at Business Section, 202 W. 1st St., Los Angeles, CA 90012.
You can hear a preview of Peltz and Hiltzik's weekly column Mondays on the KFWB-Los Angeles Times Noon Business Hour on KFWB-AM (980). |
