AT&T (NYSE:T), which competes with Verizon (NYSE:VZ) and Sprint (NYSE:S), reported a sharp growth in consumer IP data revenues, driven by increased adoption of its fiber optic network U-Verse. AT&T provides services like TV, digital voice and broadband through U-Verse, and the use of these services has increased IP data consumption. We estimate that the internet and TV business constitutes about 19% of the $38 Trefis price estimate for AT&T’s stock.
For the first time in the past several quarters, AT&T has seen quarterly growth in its consumer wireline revenues and this is mainly attributable to U-Verse subscriber additions.
Below we discuss how U-Verse is driving AT&T’s wireline revenues, which has seen a declining trend since recent years.
U-Verse Drives 32% Year-Over-Year Growth in Consumer IP Data Revenues
AT&T observed a net gain of 231,000 U-Verse subscribers in the first quarter of 2010, taking the total U-verse subscriber base to around 2.3 million. Increasing U-Verse adoption is helping AT&T in the following ways:
- The U-Verse customers tend to subscribe to multi-play bundles due to the bundled cost savings. The availability of higher bandwidth allows transmission of more HD content and faster broadband speeds, and is thus attractive to customers.
- AT&T has observed high broadband and voice attach rates for U-Verse. Typically, more than 75% of U-Verse TV customers also subscribe to U-Verse broadband and voice.
We currently estimate that AT&T will reach a U-Verse TV subscriber base of more than 9 million by the end of Trefis forecast period.
You can modify our forecast below to see how the change in U-Verse TV subscribers can affect AT&T’s stock price.
Rebound In Broadband Subscriber Additions for AT&T
AT&T saw a net gain of 255,000 wireline broadband subscribers for Q1 of 2010, representing one of the best quarterly increases for the company. The additions were primarily driven by the success of U-Verse and improved performance of DSL.
AT&T saw a slowdown in broadband subscriber growth in the recent years due to weak DSL performance. However, with strong support from U-Verse expansion, we expect AT&T’s broadband business will continue to gain customers.
Overall Consumer Wireline Revenues May Get Back On Growth Track
Although AT&T’s consumer IP revenues have grown consistently, its overall consumer wireline revenues have seen a negative growth due to a decline in phone landlines. After several quarters of continuous decline, AT&T posted small growth in overall consumer wireline revenues in the first quarter of 2010.
This implies that U-Verse additions are beginning to offset the decline in revenues due to disconnect in landline phones. If this trend continues, AT&T can get back on track and see growth in its consumer wireline business.
For additional analysis and forecasts, here is our complete model for AT&T’s stock.
