Analyst: AT&T's postpaid phone losses to widen to 1.6M in 2016 as bundling strategy faces challenges

AT&T's plans to leverage the DirecTV acquisition will be tested in multiple ways
Tools

AT&T's (NYSE:T) plan to capitalize on its acquisition of DirecTV through a mobile video service and other integrated offerings may be more challenging than it appears, according to Walter Piecyk of BTIG Research.

In a research note to investors, Piecyk recognized clear opportunities for AT&T to leverage its new asset: DirecTV has 15 million customers who don't use AT&T for wireless services and 3 million who have access to U-verse but use another ISP. And AT&T's newfound status as the largest pay TV provider in the U.S. should provide leverage for the carrier to negotiate the best prices for content, particularly for OTT and mobile rights.

But consumers aren't likely to switch carriers for a few dollars a month when churn rates are at historical lows, Piecyk predicted. While bundling may help AT&T poach some of the customers on Verizon's data-sharing plans, it's unlikely to lure users with less expensive services from T-Mobile and Sprint.

"We are hesitant to factor in that integrated service opportunity into our models until we can see more tangible evidence of execution and given the initial reliance on price discounts rather than service integration," Piecyk wrote. "As a result, we expect post-paid phone losses to widen from 1.4 million in 2015 to 1.6 million 2016 and further to 1.7 million in 2017, providing a challenge for AT&T to grow revenue and profitability in its wireless business. We suspect these subscriber estimates could be a fundamental driver of our EBITDA and EPS estimates being below consensus."

Piecyk said BTIG remained neutral on AT&T stock, however.

Meanwhile, a new report from Strategy Analytics noted the increasing interest among carriers worldwide in distributing video and other content. In addition to AT&T's planned mobile video service, Verizon (NYSE: VZ) is pursuing a video strategy with Go90, and T-Mobile (NYSE:TMUS) is hoping to lure customers with Binge On.

Aside from the ringtone craze from a decade ago, U.S. operators don't have an impressive track record in content distribution. But carriers in other markets have been successful recently, Strategy Analytics observed. And U.S. operators should take some lessons from them.

"We believe there are important lessons to be learned by examining the mobile content initiatives of operators in other markets," Strategy Analytics SVP David Kerr said in a prepared statement. "Meeting the needs of local content distributors and app developers to reach mobile users, while simultaneously addressing consumer demand for local or regional content, has helped Asian operators build and maintain a position in mobile content distribution as device ownership has shifted from feature to smartphones."

For more: 
- see this BTIG post (reg. req.)

Related articles:
Slowing growth of mobile video could spell trouble for AT&T, Verizon
Verizon's Go90 shows the company can take a risk - but the reward isn't guaranteed
AT&T's Stephenson says new mobile video service will begin 'turning heads' in January
Taking a deep dive into Verizon's Go90 mobile first video service