DATA DILEMMA LOOMS FOR AT&T,s new Wireless Tracking Stock as experts eye TDMA short comings. When it comes to the Wireless Internet AT&T faces big problems.Thursday April 27, 3:19 pm Eastern Time
TheStreet.com - Silicon Valley
Not Everyone's in Awe of AT&T Wireless Tracker
By Ian McDonald and Scott Moritz
Staff Reporters
AWE, shucks.
AT&T's (NYSE: T - news) wireless offering, set to become the U.S.' largest-ever IPO at around $10 billion, looks like a sure thing. News reports have the massive deal, which is being handled by the biggest firms on Wall Street, oversubscribed by a 2-to-1 ratio. The wireless unit boasts giant AT&T's well-trusted brand and should make a perfect fit for a Street that has been hungry for a so-called pure play.
But with the stock due to be priced after the market closes Wednesday and to open Thursday amid much fanfare, not everyone is sold on AT&T Wireless' (NYSE: AWE - news) longer-term prospects. Skeptics say the smart money is being invested elsewhere: Smaller companies, for example, can earn rich takeout premiums in a consolidating industry, an advantage that won't be available to a huge outfit like AT&T. And some investors predict technological weakness will hamstring the wireless unit amid the neckbreaking pace of Internet traffic growth.
Getting Tech
Don Luskin, lead manager of the $36 million OpenFund , has been short AT&T since November and hasn't applied to buy shares of the tracking stock. Luskin says AT&T is bringing an old, inferior network to the market and asking investors to fund its overhaul.
"AT&T's wireless system is technically very challenged," Luskin says. "It's going to take a full rebuild to make it competitive, and that's just a big problem. This is a capital-intensive business to begin with, but it will be even more intensive for this competitor."
Technology for carrying Internet traffic is the biggest problem at AT&T Wireless, say critics who call its network feeble and prone to overloads. Tech guru George Gilder, for instance, gave AT&T Wireless two thumbs down in his monthly newsletter released Monday.
Echoing a point made by other AT&T skeptics, Gilder says the company's network is based on a technology that isn't as robust as competing methods for carrying Internet data, the fastest-growing segment of the wireless market. Gilder says nothing short of an entire network overhaul will provide AT&T with sufficient phone and Internet capability.
AT&T says it is addressing the technological problems.
Falling Behind?
As a result, say the critics, the Internet capability of AT&T's network is a full year behind other national competitors such as Sprint PCS (NYSE: PCS - news) and Verizon , a wireless venture between Bell Atlantic (NYSE: BEL - news) and Vodafone AirTouch (NYSE: VOD - news) . And the cost of upgrading is likely to tap AT&T's vast war chest for many years to come. In fact, AT&T has dedicated $7 billion in proceeds from the IPO, plus a $5 billion credit line, to acquire, upgrade and expand its network. That vast war chest, while an asset for a company in a highly competitive area, has prompted some skeptics to liken the wir! eless unit to a money pit>.
"The data dilemma dooms American TDMA networks," Gilder wrote, adding that AT&T's "only remaining advantages are cash, bulk and an increasingly compromised brand." TDMA, or time division multiple access, is the wireless standard AT&T Wireless uses. The main competitor is CDMA, code division multiple access, a rival techology pushed by Gilder favorite Qualcomm (Nasdaq: QCOM - news; he's long the stock).
"In thrall to a bankrupt technology, all three will waste away," Gilder concluded.
On the Outside
The tech worries and the wide-ranging competition in wireless have some wireless players staying out of the IPO altogether. Seth Kirkham, co-manager of the $32 million Investec Guinness Flight Wireless World (it was launched Feb. 28), says that fund hasn't applied for wireless-arm shares. Instead, the fund is focusing on other upcoming new issues, such as Verizon and Metawave , a wireless-equipment maker that has filed for an IPO and is expected to debut later this spring. (Some of the firm's other portfolios have applied for shares, he says.)
"Smaller competitors with superior technology can sneak in ahead of them," says OpenFund's Luskin. AT&T "is not really effective. That's why I'm comfortable being short."
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More Quotes
and News: AT&T Corp (NYSE:T - news; NYSE:AWE - news)
Bell Atlantic Corp (NYSE:BEL - news)
Qualcomm Inc (NasdaqNM:QCOM - news)
Sprint Corp (NYSE:PCS - news)
Vodafone Airtouch PLC (NYSE:VOD - news)
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