Declining Landline Phone Business Still 15% of AT&T’s Stock

+3.94%
Upside
17.60
Market
18.29
Trefis
T: AT&T logo
T
AT&T

About 15% of AT&T’s (NYSE:T) stock value comes from its traditional landline phone service offered to both business and residential customers, making it the fourth most important business for AT&T’s stock.  In comparison,Verizon’s (NYSE:VZ) fixed line business accounts for only about 8% of the company’s stock and AT&T’s mobile phone voice service constitutes about 43% of AT&T’s stock, making it the most important contributor to our $37 Trefis price estimate for AT&T’s stock.  There could be additional downside to our estimate for AT&T’s stock if the company’s customer base declines faster than we expect.

AT&T’s stock is impacted by competition with service providers like Verizon (NYSE:VZ) and Qwest (NYSE:Q) as well as with VoIP (voice over internet protocol) providers like Comcast (NASDAQ:CMCSA).  The stocks of cable and telecom providers have been negatively impacted over the last two years due to the recessionary environment and high price competition on internet, phone and TV services.  Despite this, our Trefis price estimates for the stocks of both AT&T and Verizon indicate potential upside to current market prices.

We believe that AT&T’s customer base will continue to decline and estimate that there could be 8% additional downside to AT&T’s stock if the company’s customer base declines faster than our expectations. AT&T’s stock has gone up.

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Trefis Analysis for AT&T’s Stock

Declining Customer Base Impacting Stock

Below are the three main factors causing a decline in AT&T’s subscriber base and impacting the company’s stock:

1) Technology solutions like VoIP offer a better alternative to traditional phone lines

VoIP, also known as digital phone service, refers to voice services offered over the internet by cable providers. These services are often less expensive than traditional landlines and offer comparable voice quality.

2) Shift from dial-up to broadband internet has made traditional phone lines redundant in US households

Additional fixed lines used for accessing dial-up internet services are increasingly becoming redundant as broadband access becomes prevalent.  The bundling of VoIP phone service with broadband internet eliminates the need for a traditional phone line.

3) Increasing adoption of mobile phones is also driving the customer shift

Although fixed lines are less prone to dropped calls and network congestion, the convenience and features offered by mobile phones outweigh some of the potential benefits of landlines.  We expect more phone lines  to be disconnected over time as a result of increased mobile phone use.

Traditional Phone Business Still 15% of AT&T’s Stock

We estimate that the landline business constitutes about 15% of AT&T’s value.  This amounts to approximately $33 billion based on our $218 billion estimate for AT&T’s value.

The high value of this business can be primarily attributed to AT&T’s large customer base.  As of 2009, AT&T had a landline customer base of about 28 million residential lines and 21 million business lines.

Potential 8% Downside to AT&T’s Stock

Going forward, we expect number of AT&T’s home lines and business lines to further decline to about 20 million and 17 million respectively by end of our forecast period.

We believe that AT&T will not make conscious efforts to retain its traditional phone business, instead it will phase out its landlines by offering better alternatives like fiber optic based services.  These services offer faster speeds, better reliability and bundling options (broadband, TV and internet).

We estimate that there could a $3 (8% of stock) downside to our $37 Trefis price estimate for AT&T’s stock if landline customer declines were to exceed our forecasts and reach about half of our subscriber estimate by the end of the forecast period.  You can modify our forecasts above to see how AT&T’s stock could be impacted in different decline scenarios.

For additional forecasts and analysis, here is our complete model for AT&T’s stock, Verizon’s stock and Comcast’s stock.