Wells Fargo Securities lowered its first-quarter estimates for AT&T’s wireless gains, blaming increased competitiveness on longer handset upgrade cycles. But AT&T's vision of expanding into digital media is a good move, according to the firm.
The firm reduced its projection for AT&T’s postpaid net additions from 400,000 to 125,000 for the quarter, and estimated the carrier will lose 300,000 postpaid phone customers during the period, down from its previous estimate of 125,000 net additions. Wells Fargo also predicted AT&T will post $14.7 billion in wireless service revenue during the quarter, lowering its previous estimate of $15.2 billion.
“We have made slight changes to our estimates given the tougher wireless competitive environment, namely driven by (Verizon’s and AT&T’s) shift to unlimited data plans,” Senior Analyst Jennifer Fritzsche wrote in a note to investors. “We note we remain below the Street in terms of Q1 2017 equipment revenue – we believe this is an appropriate place to be here. Recall, in early March, AT&T CFO John Stephens called out lower equipment revenue in the quarter given customers are holding on to their devices for a longer period of time.”
But while AT&T’s first-quarter wireless business may fall short of expectations, its ambitious plan to expand into digital media and advertising is sound, Fritzsche said. The nation’s second-largest mobile network operator plans to spend $85.4 billion to acquire Time Warner in a move that includes HBO, CNN, TNT and TBS, as well as Warner Bros. Pictures and Warner Bros. TV Studios operation. And it continues to build momentum with DirecTV Now, a cross-platform video offering launched in the wake of its acquisition of the satellite TV provider.
“We continue to favor AT&T’s longer-term strategy,” she wrote. “While the business is clearly evolving in a dramatic way (with the Time Warner announced merger), we are believers in the collaboration between distribution and the content side … While the wireless industry remains extremely competitive, the move toward a further diversification of revenue we see as a positive longer term.”