AT&T will struggle to increase revenue in 2017 but prepares to improve long-term profitability, says Steve Vachon, research analyst at TBR.
AT&T’s consolidated revenue rose 4.6 percent year-to-year due to the timing of the DirecTV acquisition and increased Business Solutions and International revenue, partially offset by lower Mobility revenue. Though TBR anticipates AT&T will report slight year-to-year revenue declines over the next year, the company will continue to improve profitability by targeting premium customers, emphasizing non-subsidy pricing models and furthering its transition to a software-mediated network via its Domain 2.0 initiative.
Though continuing to trail its Tier 1 rivals in postpaid phone subscriber additions, AT&T is improving wireless margins through its shift to a non-subsidy pricing model and is gradually lowering postpaid churn through its integrated offerings, including DirecTV bundles. AT&T’s new Mobile Advantage plans will help to counter competitors’ unlimited data programs while helping to boost ARPU through its higher price point than prior Mobile Share plans.
AT&T is positioning to sustain revenue growth in the long term through segments including its upcoming DirecTV Now service, expanding Network on Demand enterprise portfolio and fiber network, and proposed Time Warner acquisition.
AT&T seeks to acquire Time Warner for $85.4 billion
With a dominant position in content distribution (with DirecTV, AT&T is the largest pay-TV provider in the world), AT&T is now focused on acquiring content properties, exemplified by its proposed $85.4 billion acquisition of Time Warner announced on Oct. 22. In addition to gaining the ability to deliver Time Warner’s programming to any device, AT&T has greater flexibility to offer stand-alone offerings or a la carte bundles for stations including HBO, CNN and TNT as well as custom sports packages through Turner’s rights to NBA and MLB content. AT&T can also take advantage of Warner Brothers’ content library by offering incentives to its video customers including early access to films and exclusive content.
A chief concern is the acquisition will add to AT&T’s already high debt load, diminishing the carrier’s investment grade credit rating and limiting AT&T’s ability to invest in networks to support increased mobile video streaming that will arise from the acquisition. Another challenge is the growing popularity of exclusive content offered by inexpensive or ad-based OTT providers such as Netflix and YouTube, which lessens the appeal of the Time Warner acquisition. TBR also expects the deal will face heavy resistance from regulators and the success of the transaction will be significantly impacted by the outcome of the upcoming presidential election.
Steve Vachon, research analyst at TBR
