Can AT&T Capitalize On The Growing Wireline Broadband Market?

September 28th, 2016 by Trefis Team
+14.19%
Upside
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AT&T

The growth of the U.S. broadband market has been robust over the last several quarters, driven by the expansion of the housing market, a growing mix of millennial homeowners, as well as the trend of cord cutting and the consequent shift towards streaming video services. About 3.1 million subscribers were added across the industry over 2015 (a five-year high), and the momentum has largely held up though 2016, with about 1.42 million subscribers added over H1. There were roughly 92 million broadband subscribers nationwide as of Q2.

 

However, the performance of AT&T (NYSE:T), the second largest U.S. broadband provider, has been a mixed bag. The carrier lost a total of about 250k subscribers over 2015, despite growth in the broader market, with the number declining further by 137k during the first half of 2016. This is partly because AT&T has been losing legacy DSL subscribers faster than it has been adding subscribers for its new-generation fiber-based IP broadband services. Moreover, the strong performance of cable-based providers such as Comcast (1.36 million net adds in 2015), who offer faster speeds compared to DSL, with a relatively wide reach has also hurt the carrier. That said, AT&T should be able to stabilize its business, as it improves its fiber footprint.

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We have a $48 price estimate for AT&T, which is about 15% ahead of the current market price.

See our complete analysis for AT&T and Comcast

However, despite the subscriber declines, AT&T’s broadband revenues have been rising, driven by ARPU growth. For instance, IP broadband ARPU for the entertainment division rose from levels of around $44 per month in 2014 to over $49 during Q2 2016, as users opted for higher-speed plans. AT&T could further improve the speed of its broadband networks, as it has been increasingly directing its pay TV customers away from its U-Verse IP based TV service to its DirecTV satellite TV service, in a move that could help to free up bandwidth.

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