AT&T INC. $34 (New York symbol T; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 5.2 billion; Market cap: $176.8 billion; Price-to-sales ratio: 1.3; Dividend yield: 5.5%; TSINetwork Rating: Average; www.att.com) is the largest wireless provider in the U.S., with 120.6 million subscribers. Wireless accounts for 55% of AT&T’s revenue and 75% of its earnings.

The remaining 45% of revenue and 25% of earnings comes from its wireline division, which sells phone services, television packages and high-speed Internet access to 34.4 million customers.

Shift to wireless fuelled sales

Thanks to strong demand for wireless services, AT&T’s revenue rose 6.5%, from $124.4 billion in 2010 to $132.4 billion in 2014.

Earnings fell 3.9%, from $2.29 a share (or a total of $13.6 billion) in 2010 to $2.20 a share (or $13.1 billion) in 2011 but recovered to $2.33 a share (or $13.7 billion) in 2012. Earnings dipped to $13.5 billion in 2013, but per-share earnings rose to $2.50 on fewer shares outstanding. Lower demand for traditional phone service cut earnings to $13.1 billion in 2014, but per-share earnings improved to $2.51.

AT&T recently launched its Next promotion, which lets users upgrade their smartphones annually for a small monthly fee. Thanks to Next, the company added 854,000 subscribers under long-term contracts, net of cancellations, in the December quarter, up 50.9% from a year ago. AT&T is also profiting from its U-Verse fibre-optic digital TV and high-speed Internet service, which ended 2014 with 5.9 million subscribers, up 8.8% from a year earlier.

AT&T spent $21.4 billion on network upgrades in 2014, but it will probably devote just $18.0 million to these improvements in 2015.

New Internet rules could slow growth

The company is cutting network spending because the Obama administration wants to regulate Internet providers as traditional phone utilities under its net neutrality plan. Under this policy, AT&T would have to treat all Internet traffic equally, so it couldn’t charge video-streaming services higher rates for guaranteed access to its networks. AT&T and other Internet providers plan to legally challenge this proposal.

Meanwhile, AT&T continues to expand its TV operations. In May 2014, it agreed to acquire DirecTV (Nasdaq symbol DTV), which has 20.4 million satellite TV customers in the U.S. and 18.1 million in Latin America. DirecTV also owns regional sports networks and other cable channels. If regulators approve, AT&T will pay $48.5 billion (70% stock and 30% cash) when the deal closes in mid-2015.

The U.S. accounts for almost all of AT&T’s revenue and earnings, so DirecTV will give it exposure to the fast-growing Latin American region. As well, the purchase will help it negotiate better deals for content from sports leagues and TV networks.

Moderate p/e and rising dividend

The stock trades at 13.4 times the $2.53 a share that AT&T should earn in 2015 (excluding DirecTV). However, the acquisition would spur its earnings. AT&T also recently increased its dividend by 2.2%. The new annual rate of $1.88 a share yields 5.5%.

AT&T is a buy.