Can AT&T’s Wireless Margins Continue To Expand?

+3.68%
Upside
17.64
Market
18.29
Trefis
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AT&T

AT&T’s Q1 wireless operating margins expanded by 350 basis points year-over-year to 29.4%. [1] The increase was driven partly by lower sales of handsets, which typically tend to weigh on margins. Moreover, the carrier also benefited from increasing adoption of its Next equipment installment plan, which helps cut subsidy expenses and better matches handset revenues with costs. Next and BYOD accounted for 90% of all handset transactions for the quarter, up from about 70% last year. AT&T is also likely benefiting from the attrition of feature phone subscribers (average ARPU of ~ $35), amid a focus on higher-value smartphone users (ARPU of $60+). Smartphones accounted for 87% of AT&T’s total branded phone base in the quarter, versus 82% in the prior year. Overall, we expect margins to improve over the long term, although it’s unlikely that they will grow at a similar pace, since the shift away from the subsidy model and shift to a greater mix of smartphones are likely to be transitory.

T_Margins1

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for AT&T 
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Notes:
  1. AT&T Q1 2016 Financial And Operating Information []