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AT&T Enters Global Wi-Fi Agreement

Zacks Equity Research

AT&T Inc. (T) announced its collaboration with Global Wi-Fi Network provider, Fon for providing global Wi-Fi roaming facility to its customers. Per the new agreement, AT&T customers will be able to access Fon’s Wi-Fi hotspots while traveling internationally. In exchange, customers using Fon network can connect through over 30,000 AT&T hotspots across the U.S. The agreement covers smartphones, tablets and other Wi-Fi enabled devices.

The new agreement will benefit AT&T customers who are frequent overseas travelers and are charged heavily on data roaming facilities.  As a result, the new deal will not only help in retaining customers but will also attract new, high-value corporate customers  who would find the roaming-charge free data connectivity cost effective. Further, the new agreement entails a competitive advantage over rivals such as like Verizon Communications Inc. (VZ).  

To carve a niche in a mature and highly competitive U.S. telecom market and to fortify its existing position, AT&T is taking several strategic steps. Recently, the company completed the acquisition of Alltel’s wireless operations from Atlantic Tele-Network Inc. (ATNI) for $780 million and is heading toward another big budget takeover of Leap Wireless International Inc. (LEAP) – for $1.2 billion. This deal is currently awaiting regulatory approval.

The company’s attempt to grow inorganically through various acquisitions is primarily due to the kind of pressure it is facing from intense competition and increasing market consolidation in the U.S. telecom industry. In the recent past, the acquisitions of Clearwire Corp. by Sprint and of MetroPCs by T-Mobile US, Inc.’s bear testimony to this theory. 

In a saturated U.S. wireless market, spectrum crunch has become a major issue. Most carriers are finding it increasingly difficult to manage mobile data traffic, which is growing by leaps and bounds. The situation has become even more acute with the growing popularity of iPhone and Android smartphones as well as rising online mobile video streaming, cloud computing and video conferencing services.

While these issues have created several headwinds for telecom operators, large carriers like AT&T are benefiting from the situation given their financial capabilities. On the one hand, the company’s is looking for a lucrative partnership to expand its services and infrastructure without heavy investments on the other hand it is acquiring companies with potential for growth that can also satisfy spectrum demand.  As a result, we foresee AT&T’s growth trajectory to remain consistent despite the macroeconomic subtlety and pricing pressure hurting its near-term financials.

AT&T currently has a Zacks Rank #3 (Hold).

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