Why AT&T Will Never Be Great Again

Younger readers may not believe this, but there was a time when AT&T (T) was so powerful that the government had to break it up into pieces.

Yes, the Department of Justice took AT&T's local operations and split it up into seven regional "Baby Bell" companies in 1984.

Now antitrust regulators are taking another look at the telco giant to determine if allowing it to acquire T-Mobile from Deutsche Telekom (DT) will once again make it too big to the detriment of consumers. Skeptics will argue that it's too late for that. There are already plenty of people that aren't happy with AT&T. Maybe all of those Verizon Wireless attack ads finally did the trick.

Ma Bell isn't crying "Uncle!" but its future doesn't look as promising as its storied past.

Phoning It In

AT&T's latest quarter reads like a dream. Earnings climbed to $0.61 a share from an adjusted $0.54 a share a year earlier. The tech bellwether has tacked on 2.1 million wireless subscribers, and it now tops 100 million wireless accounts.

However, every accolade comes with a cynical knock.

Average revenue per postpaid subscriber has gone up on a year-over-year basis for 11 consecutive quarters, but that feels out of touch and greedy. How dare AT&T milk more and more out of its customers.

AT&T checks in with its best free cash flow in two years? Fine. Now tell me why I can't get a signal at a Miami Dolphins game and why my calls drop like flies in New York City.

Sure, AT&T is growing slowly on the wireless front and not so slowly with its U-verse broadband television service. It can't escape the fact that folks are bowing out of traditional landline connections. The end result of all of the ups and downs is that AT&T's revenue of $31.5 billion was actually a slight decline from the $31.6 billion it rang up a year earlier. For all of the growth in wireless and data, the mighty AT&T suffered double-digit revenue declines in its voice, directory, and "other" revenue categories.

Hypocrisy Calls Collect

I'm still burning over AT&T's decision to scrap unlimited data plans for new smartphone customers during the summer of 2010. AT&T decided to move to tiered pricing plans, seemingly as a reaction to customer complaints on its overtaxed network.

Sweet response there, Ma Bell. Instead of improving the network you install tollbooths.

Companies execute pricing moves in their favor all of the time, so it's not entirely fair to blast AT&T over this. The carrier is no longer a telco monopoly. Consumers can vote with their feet if they're not satisfied. However, the reason I bring this up was the deceptive way that AT&T tried to portray the move.

The announcement's headline -- believe it or not -- was this:

AT&T Announces New Lower-Priced Wireless Data Plans To Make Mobile Internet More Affordable To More People

Who did AT&T think it was kidding? Leave it to an old school giant to try to sugarcoat a greedy price hike as a way to make to make wireless more accessible to the needy.

We now know that the headline was dipped in hypocrisy and deep fried. After all, that streak of milking more money out of its subscribers continues, right? More to the point, AT&T's wireless data revenue has climbed 18% over the past year, even though its wireless subscriptions have grown by a more pedestrian 2%.

The shrinking world of AT&T
A year ago, AT&T was the only wireless carrier offering Apple's (AAPL) iPhone. Consumers now have a choice, and that includes Sprint Nextel (S), which proudly sets itself apart from AT&T and market leader Verizon (VZ) by offering unlimited data plans to new customers.

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How excited can investors get over the growth prospects of U-verse? AT&T is doing a good job winning new homes through aggressive pricing, but this is still an industry where "cord cutters" and folks that are tired of paying for packaged bundles of channels that they're not watching. Keep an eye on Google (GOOG) here, as it drapes pockets of Kansas City with lightning-speed Internet and possibly even a U-verse killing Web-served television service.

Analysts that typically provide glowing perspectives of companies feel that AT&T's revenue will grow by just 1.5% this year and decelerate to a mere 1.4% uptick next year.

Dividend-chasing investors will argue that AT&T's 6% yield is too tempting to pass up, but a payout is only as secure as a company's ability to continue paying it in the future. AT&T's areas of weakness will continue to decline, and its pockets of growth are susceptible to competitive forces and consumer-altering trends.

Even if regulators allow AT&T to overpay for the T-Mobile girl, this is a company whose future will be meandering at best.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Google and Apple. Motley Fool newsletter services have recommended buying shares of Apple and Google. Motley Fool newsletter services have recommended creating a bull call spread position in Apple.