Stocks to Buy: #2 T

T – This is a bet that the big get bigger.
Here’s a quick and dirty overview of the US communication technologies. The heart of the communication is a backbone of linkages owned by ATT, Verizon and Qwest. All telephone, cell phone, and internet traffic currently passes down these pipelines.
Cable companies offer internet, phone and video.
ATT & Verizon offer wireless, phone and internet

Consumers value cell phones and cable highest (phone calls and the internet are now commodities). If AT&T can provide TV, then they have an advantage over cable companies because they also have cell phones. If cable companies can provide wireless, then they can compete with AT&T. AT&T would have to invest massively into new infrastructure – telephone lines today can not provide video capable of competing with cable companies. At the same time, Comcast or Time Warner would have to spend over $50B to acquire Sprint.

AT&T is a big cash machines that has piled on massive debt and is turning around. It is also recession ‘proof’ and offers a dividend. For almost a year I have been talking about the eventuality of cell phones for watching movies and TV (live and stored). T owns the wireless and the core infrastructure.

ATT (T) will begin seeing benefits of the SBC/ATT/Bellsouth/Cingular mergers. AT&T and Cingular used different technologies and that’s why I did not like them. The digestion seems to be proceeding well. A uniform infrastructure will save costs as will firing redundant employees. AT&T also has a 4.3% dividend. Meanwhile Sprint is stumbling. Also, I don’t think the $30B in debt is a problem for a company generating $19B in cash each year.

(I also like Sprint because someone will pick them up. It is interesting that they are partnering with cable companies to bid for new wireless spectrum in the US. If you are a cable company, do you wait for ATT to rollout a competing video technology or do you fill in your own cell phone gap?)