A Look At Some Of AT&T’s Smaller, Fast-Growing Businesses

by Trefis Team
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AT&T’s (NYSE:T) core U.S. wireless business accounts for over 50% of the company’s value, per our estimates. However, the business has been contending with slowing growth, amid saturation in the U.S. wireless market and growing competition from the likes of T-Mobile and Sprint. We project that the carrier’s wireless operations will grow at a CAGR of just around 3% through 2024. That said, AT&T does have several other smaller, faster-growing businesses that could provide upside over the long run. In this note, we examine some of these businesses and why they are important to AT&T. We have created an interactive analysis which you can use to test the sensitivity in our price estimate for AT&T to changes in the various drivers for these businesses.

We have a $42 price estimate for AT&T, which is about 15% ahead of the current market price.

See our complete analysis for AT&T here

AT&T’s Mexican Wireless Operations: AT&T entered the Mexican wireless market in 2015 by purchasing wireless operator Iusacell and the wireless assets of Nextel Mexico for a total of about $4.4 billion. The Mexican market is attractive to the company, on account of scope for ARPU growth, with higher data attach rates and consumption, as well as a regulatory environment that favors smaller players over market leader America Movil. The carrier has pledged to invest as much as $3 billion to upgrade its network, improving LTE coverage to reach about 100 million users by 2018.

IP Broadband Business: The broadband market has been growing in the United States, 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. While AT&T’s performance has been somewhat mixed compared to big cable companies such as Comcast, which have gained market share on account of rising speeds, AT&T’s IP-based broadband operations have helped it to mitigate the impact.

Strategic Services: The division includes AT&T’s advanced business solutions such as packet services, network integration, cloud services, VPN and other IP-based products. The business is becoming important to AT&T as enterprise customers are increasingly being courted by rivals in the IT industry. The products offered by the strategic business services unit could allow carriers to keep high-value business customers and upsell them from older products to newer ones.

DirecTV Now: DirecTV Now marks AT&T’s entry into the growing streaming TV market. With AT&T’s linear TV products such as U-Verse and DirecTV facing customer attrition, the carrier is reportedly looking to make streaming its primary video platform in the next three to five years. Growth has been fairly robust so far, with the service reporting about 1 million subscribers as of December. While the ARPU for the service are likely to be much lower compared to its linear TV offerings (less than 50% of DirecTV’s, per our estimates) the upfront costs are also lower.

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