How Does AT&T Benefit From Its Partnership With Magic Leap?

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Wireless behemoth AT&T (NYSE:T) has made an undisclosed investment into mixed-reality startup Magic Leap and will serve as the exclusive carrier for the consumer edition of the company’s first mixed-reality glasses, dubbed the Magic Leap One, which are expected to hit the market this summer. While AT&T’s involvement in the launch of the much-hyped product may stoke comparisons with its role as the exclusive U.S. carrier of the original iPhone over a decade ago, we believe that the near to medium term impact on AT&T will not be especially meaningful.

We have created an interactive dashboard analysis which outlines our expectations for AT&T (excluding Time Warner) over 2018.

What Does Magic Leap Do? 

Magic Leap is a Florida based startup that has been developing a mixed reality headset, which essentially overlays virtual objects on to the real world while enabling users to perform computing tasks. The company’s highly secretive nature, its list of high profile investors (Alibaba, Google, and JPMorgan among others) and its high-quality promotional videos have helped it create a lot of buzz in the tech community. The startup has now raised $2.3 billion in venture capital and carries a valuation of over $6 billion, per Bloomberg. While there are other spatial computing products and platforms, including Microsoft’s HoloLens, there appear to be some key differences in the hardware. Magic Leap has developed a proprietary technology that projects an image directly onto the user’s retina, allowing for higher resolution images while also offering better depth of field. The company’s headsets also appear to be smaller than its rivals. That said, despite its highly secretive nature, the company may have set expectations too high. Magic Leap’s initial promotional videos (released in 2015) featured highly detailed graphics and imagery superimposed in the real world. However, it was later revealed that they were not created by the company’s glasses, but by a special effects company. Magic Leap’s recent demos indicate that the actual user experience on the Magic Leap One headset could be less sophisticated and immersive.

How Does AT&T Benefit From The Deal?

AT&T is betting big on 5G technology, with plans to launch its 5G wireless service in 12 cities by the end of 2018. While 5G technology offers speeds that are several times faster than 4G, the applications that could leverage such high data speeds have remained somewhat unclear. It’s possible that high-bandwidth applications – such as spatial computing and augmented reality– offered by Magic Leap could effectively leverage this high-speed connectivity. Magic Leap has also been emphasizing content from third-parties for its new product, and this could align with AT&T’s interests, considering the company’s big push into the media space, with its acquisition of Time Warner. Earlier this year, Magic Leap signed a deal with the NBA and its broadcast partner Turner (now owned by AT&T) and there could be more avenues for AT&T to expand its content sales. There could be longer-term benefits from a learning and strategy perspective as well. It’s possible (though how likely is certainly disputable) that computing could eventually shift from devices such as smartphones and PCs to an always-on wearables format, and AT&T’s early involvement with Magic Leap could help it better understand this space.

That said, we don’t expect the new device to have a material impact on AT&T’s performance in the near-to-medium term, in the way that the original iPhone did. The target market for the Magic Leap is likely to be much smaller to begin with, and it’s likely that the device will only find favor with highly tech-savvy early adopters and not the general public. Moreover, the device is likely to be pricey, considering its high-end specifications including its Nvidia Tegra X2 processor and proprietary display technology, limiting its uptake. Additionally, it’s not clear whether the Magic Leap will release a version of the headset which works only over Wi-Fi networks. While AT&T is the “exclusive wireless distributor” for a multi-year period, it still means that a WiFi-only version of the product (which may be more popular) could eventually launch via other channels.

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