AT&T (T - Free AT&T Stock Report), the largest telecommunications company in the country, reported mixed results for the December quarter. Share net of $0.55 for the period beat our estimate by $0.02, thanks to a better-than-expected performance from the traditional wireline business, including wider operating margins and fewer access-line losses. But the wireless division, which has been the carrier's main growth engine in recent years, showed some signs of cooling off, prompting some jittery investors to head for the exits, with the stock losing about 3% in early morning trading following the earnings release.

In fact, AT&T's wireless unit added just 400,000 key contract customers during the last quarter of 2010, despite brisk sales of Apple's latest iPhone. (The company has been the iPhone's exclusive carrier since the device first debuted in early 2007.) This was the lowest such tally in years and a figure markedly below what most analysts on Wall Street were anticipating. Moreover, the lackluster subscriber trends come at a time when AT&T will likely be facing heightened pressure from principal rival Verizon (VZ - Free Verizon Stock Report). That's because, as had been rumored for some time, Verizon Wireless will soon be selling its own version of the popular iPhone 4.

In the meantime, AT&T issued fairly cautious guidance for 2011, suggesting that the bottom line would likely grow in the mid-single digits. We are still looking for share net of $2.45 in the year ahead, however, which would represent a decent 7% advance over 2010's earnings mark of $2.30. And we think that this estimate may well prove to be on the light side, especially given the company's ambitious stock-buyback program.

Notably, too, we are not overly worried about the fourth-quarter wireless slowdown or the imminent loss of iPhone exclusivity. While AT&T may lose some iPhone customers to Verizon (no more than 10%, in our view), exclusive deals with other OEMs that are set to launch Android-powered devices should act as an offset. (Android is Google's mobile operating system.) What's more, we expect results across the wireline division to continue improving, owing largely to cost-cutting efforts and the success of U-verse, AT&T's new TV service.

We still like these high-quality Dow shares for conservative, income-oriented accounts. And we think that long-term investors would do well to take advantage of any material share-price weakness here.

About The Company: AT&T, formerly SBC Communications, is one of the world’s largest telecom holding companies and is the largest in the U.S. Its traditional (SBC only) wireline subsidiaries provide services in 13 states, including California, Texas, Illinois, Michigan, Ohio, Missouri, Connecticut, Indiana, Wisconsin, Oklahoma, Kansas, Arkansas, and Nevada. The company also owns Cingular (now AT&T Wireless). It has made a number of acquisitions, including PacTel (April 1997), SNET (October 1998), Ameritech (October 1999), AT&T (November 2005), and BellSouth (December 2006). It operates a total number of consumer revenue connections of 45 million. In 2009, about 26% of its sales came from voice operations and 21% were from the data segment.


At the time of this article's writing, the author did not have positions in any of the companies mentioned.