Verizon Communications Inc.

Big telecom companies like AT&T and Verizon continue to spend large sums upgrading their networks. That hurts their current earnings. However, these investments help them keep up with rising demand for faster wireless and Internet access, and this expands their long-term growth potential.

Better networks will also help AT&T and Verizon hang on to customers in the face of new competition from Google (see right).

We like the outlook for both stocks, but value-seeking investors may prefer AT&T for its lower p/e ratio and higher dividend yield.

AT&T INC....

Windstream and Frontier serve rural areas and smaller cities, so they face less competition than larger telecom firms like AT&T and Verizon. That should help them maintain their dividends. However, their high debt levels and p/e ratios add risk.

WINDSTREAM CORP....

Pat McKeough responds to many requests for advice on specific stocks and other questions on investment and the economy from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week, an Inner Circle member asked about the largest wireless provider in the world. China Mobile competes with two other Chinese wireless providers, each of which has the advantage of being compatible with Apple iPhones, while China Mobile is not. Pat looks at whether an upgrade of China Mobile’s network and new chip technology will let it hook up with Apple and other popular smartphones and keep its lead in the Chinese market. ...

China Mobile Ltd. (ADR), $55.60, symbol CHL on New York (ADRs outstanding: 4.0 billion; Market cap: $223.6 billion; www.chinamobileltd.com) is China’s leading cellular service provider, with over 726 million customers and 64% of the country’s mobile market. In addition, the company operates the world’s largest cellular network and is the biggest wireless firm in the world by number of subscribers. It also provides cellular services in Hong Kong. China Mobile began trading on the New York and Hong Kong stock exchanges in October 1997. Each American Depositary Receipt represents five China Mobile common shares. Chinese government-owned China Mobile Communications Corp. owns 74.2% of China Mobile....

FRONTIER COMMUNICATIONS CORP. $4.25 (Nasdaq symbol FTR; Income Portfolio, Utilities sector; Shares outstanding: 997.8 million; Market cap: $4.2 billion; Price-to-sales ratio: 0.9; Dividend yield: 9.4%; TSINetwork Rating: Average; www.frontier.com) sells phone, Internet and video services to 3.1 million customers in 27 states.

The company continues to attract high-speed Internet users, but demand for traditional phone services is falling. That cut its overall revenue by 4.9% in the quarter ended March 31, 2013, to $1.2 billion from $1.3 billion a year earlier. Earnings fell 7.0% to $48.8 million from $52.5 million. Due to more shares outstanding, earnings per share were unchanged at $0.05.

Frontier continues to do a good job of integrating local phone systems it purchased from Verizon in 2010. It feels this will save it $100 million in 2013. That should help it pay down its debt of $8.4 billion, which is a high 2.0 times its market cap.
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VERIZON COMMUNICATIONS INC. $50 (New York symbol VZ, Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 2.9 billion; Market cap: $145.0 billion; Price-to-sales ratio: 1.2; Dividend yield: 4.1%; TSINetwork Rating: Average; www.verizon.com) gets 66% of its revenue from its 98.9 million wireless subscribers in the U.S. It also has 22.2 million phone and Internet customers.

Wireless buyout would be expensive

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American Tower, $76.46, symbol AMT on New York (Shares outstanding: 395.1 million; Market cap: $30.1 billion; www.americantower.com), is the world’s largest independent operator of wireless-communications and broadcast towers. The company has a total of 54,323 towers. That includes 22,534 in the U.S, followed by India (10,378), Mexico (5,777), Brazil (4,345), Colombia (3,004), Germany (2,031), Ghana (1,926), South Africa (1,604), Chile (1,181), Uganda (1,043) and Peru (500). American Tower leases its sites to wireless companies. AT&T, Sprint Nextel, Verizon Wireless and T-Mobile supply 74% of the company’s revenue. During the fourth quarter of 2012, American Tower spent $1.2 billion to purchase 627 towers in the U.S. and 2,263 in other countries. The international towers included 2,031 in Germany, 190 in Mexico and 42 in Colombia. So far this year, it has acquired an additional 883 towers in Mexico for $248.5 million....

TRANSCONTINENTAL INC., $12.40, Toronto symbol TCL.A, is the largest commercial printer in Canada and the third-largest in North America. It also publishes newspapers and magazines. The company plans to pay a special dividend of $1.00 a share on April 26, 2013, to shareholders of record on April 5. That’s in addition to its regular quarterly payout of $0.145 a share, for a 4.7% annualized yield. Meanwhile, Transcontinental earned $28.5 million in its fiscal 2013 first quarter, which ended January 31, 2013. That’s up 5.2% from $27.1 million a year earlier. Earnings per share rose 12.1%, to $0.37 from $0.33, on fewer shares outstanding....

ATLANTIC TELE-NETWORK $43.57 (Nasdaq symbol ATNI; TSINetwork Rating: Speculative) (340- 777-8000; www.atni.com; Shares outstanding: 15.6 million; Market cap: $676.7 million; Yield: 2.3%) has agreed to sell its Alltel wireless business to AT&T (symbol T on New York) for cash of $780 million....

p>ATLANTIC TELE-NETWORK $43.57 (Nasdaq symbol ATNI; TSINetwork Rating: Speculative) (340- 777-8000; www.atni.com; Shares outstanding: 15.6 million; Market cap: $676.7 million; Yield: 2.3%) has agreed to sell its Alltel wireless business to AT&T (symbol T on New York) for cash of $780 million. In April 2010, Atlantic bought Alltel from Verizon Wireless for $223 million. AT&T is paying a big premium for Alltel (the sale price amounts to a profit of 250% for Atlantic in under three years) because it not only includes 585,000 subscribers but also considerable wireless spectrum. AT&T needs this spectrum to keep expanding its 4G long-term evolution (LTE) wireless networks. LTE networks are up to five times faster than those in use today, but they use up much more spectrum.

After the sale, Atlantic Tele-Network will still have telecom operations in the U.S. southwest, New England, New York State, Guyana, Bermuda and portions of the Caribbean islands.

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