Signs of Mobile Saturation & Increasing Competition for AT&T

AT&T’s (NYSE:T) Q1 2011 earnings release showed signs of mobile subscriber saturation and increased industry-wide competition. Our price estimate for AT&T stock currently stands at $38.08, roughly 25% ahead of market price. AT&T’s main competitors in the mobile and landline business include Verizon (NYSE:VZ) and Sprint (NYSE:S).

Mobile Subscribers Continue to Join AT&T, But There Is Slowdown

In Q4 2010, AT&T added about 2.8 million net subscribers to its network. ^[1] Compared to this, the net subscribers additions for Q1 2011 dropped to around 2 million. ^[2] This is not surprising since Q4 tends to be a seasonally strong quarter and subscriber additions typically see a sequential drop in Q1.

However, if we exclude connected device additions (like e-readers, security systems and fleet management systems), the picture looks a bit worse. It turns out that AT&T added about 0.7 million mobile subscribers in Q1 2011 (including postpaid, prepaid and reseller) vs. 1.3 million in Q4 2010. This is a significant decline, even after adjusting for seasonality. What’s more interesting is that if we compare this figure to Q1 of 2010, AT&T actually experienced a decline in mobile subscriber additions on a year-over-year basis. In Q1 2010, the company had added about 0.8 million mobile subscribers (excluding connected devices).

What does this suggest? It might be getting a bit more difficult for AT&T to add regular subscribers given general mobile market saturation and heightened competitions from Verizon and Sprint. While the availability of the iPhone on Verizon’s network does add a new threat, early results show minimal impact to AT&T. As the mobile market continues to saturate, growth will likely come from connected devices like tablets and other gadgets.

Overall, we expect the trend of mobile saturation and increased competition to weigh on AT&T’s market share gains going forward. You can modify the trend line in the interactive chart above to see how various scenarios affect the company’s stock value.

See our complete analysis of AT&T’s stock here

1. AT&T Investor Briefing Document, Q4 2010, Available on AT&T’s website [↩]
2. AT&T Investor Briefing Document, Q1 2011, Available on AT&T’s website [↩]