AT&T, Inc. (T) faces charges of $27.5 million under a patent lawsuit filed by Colorado-based Two-Way Media LLC. We believe that the regulatory charges would remain a headwind for the company, which already remains exposed to heavy expenses on network deployment and subsidies over high-end smartphones like Apple Inc. (AAPL) iPhone and Android-based smartphones. However, according to news reports, AT&T plans to move against this verdict and challenge the fine amount imposed by the federal jury in San Antonio.
AT&T’s legal battle with Two-Way Media has been ongoing since 2008 when the latter filed a patent infringement case against Akamai Technologies, Inc. (AKAM) and Limelight Networks, Inc. (LLNW) as well as AT&T. Two-Way Media had five patents pertaining to live streaming technology applied in Internet broadcasting, which were violated by these companies. Two-Way Media has reportedly settled its disputes with the other companies. However, its legal battle with AT&T continues to exist, as the latter's U-verse services allegedly infringed two patents of Two-Way Media.
We believe AT&T’s domestic operations are subject to regulations by the Federal Communications Commission (:FCC) and other federal, state and local agencies. These regulatory regimes frequently restrict the company’s ability to provide certain products or services in designated areas.
In addition, the loss of certain licenses due to infringement and other disputes could have a material effect on the wireless business of the company. In addition, the development of new technologies, such as Internet Protocol-based services, including VoIP and super high-speed broadband and video, could be subject to conflicting regulations between the FCC and various state and local authorities. Such restrictive and conflicting regulations could significantly increase the cost of implementing and introducing new services that aid future developments.
AT&T has a Zacks Rank #3, implying a Hold rating.
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