AT&T (NYSE:T) is expected to announce its Q3 earnings on October 2oth. The company had a great last quarter in terms of smartphone sales which was helping drive the data revenue growth for the company. This quarter, we expect it to continue its strong performance in the data revenue growth department that will help it compete against Verizon (NYSE:VZ) and Sprint (NYSE:S) in the telecom market. We will also look for updates on its T-Mobile acquisition plans in the aftermath of the immense opposition it has encountered from both Sprint and the Government. (see AT&T’s Mobile Market Share Stagnates Without T-Mobile Deal)

See our complete analysis for AT&T stock here

Growing U.S. Wireless Data Service Market bodes well for AT&T

The U.S. wireless data services reported revenues of $16.2 billion in Q2 2011, an increase of 5% q-o-q and 22% y-o-y, according to research by telecom analyst Chetan Sharma.^[1] Due to the growth in connected devices like tablets, smartphones and netbooks, AT&T reported more net-adds for the 7th consecutive quarter and accounted for almost 43% of the connected devices market share in the U.S.

We expect the average data revenues per user (ARPU) to continue to climb this quarter as well, benefiting from an increasing penetration of connected devices.

T-Mobile acquisition Outlook

AT&T has been coping with a lot of pressure from both Sprint and the Government as it tries to acquire T-Mobile in a $39 billion deal, that will help the company displace Verizon (NYSE:VZ) as the #1 U.S. wireless carrier. The opponents of this deal feel that it would hurt competition in the U.S. wireless market and ultimately lead to higher prices in nearly all of the major wireless markets.^[2] If the merger doesn’t go through by Sept 2012, AT&T will have to pay T-Mobile parent Deutsche Telekom a penalty of nearly $6 billion in cash and spectrum assets.

With the current situation, it seems AT&T will have a tough time going through with the merger. The wireless carrier desperately wants to acquire additional spectrum to expand capacity, improve service and give the company a competitive edge over Verizon. Hence, we will be looking for the company’s outlook on the future of this deal and also expect the management to give us insights on a backup plan, if any, in case the deal doesn’t happen.

Our $38 price estimate for AT&T stock is about 33% above market price.