AT&T (T) will win more TV subscribers from Comcast (CMCSA), Time Warner Cable (TWC)
AT&T (NYSE:T) and Verizon (NYSE:VZ) are increasingly succeeding at efforts to compete in the TV business with cable companies like Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC) as well as satellite operators like DirecTV (NASDAQ:DTV) and Dish Networks (NASDAQ:DISH).
We have updated the Trefis price estimate for AT&T’s stock from $34.79 to $35.09 based in part on our expectations that AT&T’s TV business will grow significantly over the next few years. We estimate that about 19% of AT&T’s stock value is attributable to its internet and TV business making this the second largest contributor of value to AT&T after its mobile phone business.
In a previous article, we discussed how AT&T’s mobile phone business is increasingly dependent on data (mobile internet, text). Below we highlight the opportunity for AT&T in the TV business and how it can impact AT&T’s stock.
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AT&T’s U-Verse TV subscribers will grow >3X
AT&T indicated in its recent earnings announcement that its u-verse TV subscriber base doubled in 2009 to more than 2 million subscribers, implying about 1.9% market share amongst the 103 million US households that paid for TV services in 2009. In comparison, AT&T’s competitors had much higher pay TV market share in 2009: Comcast (22%), DirecTV (17%), Dish Network (14%), Time Warner Cable (12%).
We expect that AT&T’s u-verse TV subscribers will continue to increase and reach 9 million by the end of our forecast period fueled by its strong triple-play offering combining TV, internet and phone. Our forecast of 9 million u-verse TV subscribers implies about 8% market share amongst the 112 million US households expected to be paid TV subscribers by that period. Based on this, we estimate that AT&T’s u-verse TV revenues will grow to $6.4 billion by the end of the forecast period.
You can modify our forecast for AT&T u-verse TV subscribers below to see how AT&T’s stock would be impacted in different growth scenarios.
How Will AT&T Market Share Grow?
Past Wins Came from Satellite (DirecTV, Dish)
Many initial subscribers to u-verse were customers switching away from satellite service (DirecTV, Dish). Before entering the TV market, telecom companies like AT&T and Verizon would partner with satellite operators to provide synthetic bundles where TV service from the satellite provider was packaged with internet and phone service from the telecom company.
Synthetic bundles helped both sets of companies better compete with triple-play (TV-Internet-Phone) services offered by cable companies. With the introduction of TV services, telecoms have been able to win over some of the former customers of these synthetic bundles.
Future Wins Will Come From Comcast and Time Warner Cable
As AT&T continues to roll out coverage of its u-verse TV offering, cable companies like Comcast and Time Warner Cable will experience additional pay TV subscriber market share pressure. Both AT&T and Verizon offer fiber optic internet service that is faster than cable internet. This can have consequences for Comcast and Time Warner Cable market share as customers opt for TV-Internet bundles from AT&T and Verizon as a result of the faster internet service.
We estimate that 58% of Comcast’s value comes from the combination of its Digital Cable and Broadband Internet business. You can modify our forecast below for Comcast’s pay TV market share to see how the Trefis price estimate for Comcast would be impacted by declining share.
You can also access our pay TV market share forecast for AT&T’s competitors using the links below: