Verizon could falter to AT&T's DirecTV: analysts

AT&T's John Stankey speaks at the launch announcement of DirecTV Now on Nov. 28, 2016. Image: AT&T / YouTube
John Stankey, CEO of AT&T Entertainment Group, introduces DirecTV Now

AT&T’s launch of DirecTV Now may force Verizon to be bolder as it moves into media, analysts say—but only if AT&T can find a way to tap a mobile video market that has thus far been elusive for carriers.

The country’s second-largest mobile network operator launched its highly anticipated virtual pay-TV platform today, offering four programming tiers starting at $35 a month for roughly 60 channels. In addition to creating a new revenue stream, AT&T clearly hopes to grow its base of wireless subscribers by giving them zero-rated content through the service, enabling them to watch on mobile devices without incurring data charges.

The move may not have a huge impact on T-Mobile and Sprint, Jennifer Fritzsche of Wells Fargo Securities wrote, because the nation’s two smaller major carriers continue to successfully differentiate their offerings largely on price. But it could prompt Verizon to be more aggressive in its pursuit of digital media.

“For Verizon the ‘narrative’ had admittedly gotten to be a harder one” than for T-Mobile and Sprint, Fritzsche wrote this week in a research note. “With the Yahoo deal somewhat in flux, we would not be surprised if AT&T’s recent moves push Verizon toward a more transformational path/potential acquisition. AT&T clearly has a compelling story as to how to upsell the high-end mobile user.”

Indeed, while Verizon’s media ambitions have become clear through its acquisition of AOL and pending deal for Yahoo – among many other moves – its strategy is clearly more modest than AT&T’s. That gives Verizon the advantage of being able to monitor consumption trends in a fast-moving market, as Barclays noted earlier this week, but it gives AT&T the chance to take advantage of a head start in mobile video.

Mobile video consumption is clearly on the rise, but whether carriers can tap that trend and generate real revenues is far from clear. T-Mobile successfully leveraged zero-rated video through its popular Binge On offering, but carrier-backed mobile video efforts have generally been dismal failures, as CCS Insight noted.

“Mobile television is not particularly new, but in Europe and the U.S., it has had more stops than starts,” Raghu Gopal of CCS wrote this morning. “Services have emerged based on specifications, such as MediaFlo, DVB-H and LTE Broadcast, but market interest has been soft, often caused by limited content choice and immature technologies and devices.”

There’s also the question of whether modern wireless networks are up to the task of supporting significant increases in data traffic. AT&T has forged impressive content deals for DirecTV Now, and the carrier will surely back the effort with a major marketing push. If it can consistently deliver a quality user experience to ever-increasing numbers of mobile video customers for DirecTV Now, Verizon will likely feel compelled to respond in a big way.

“AT&T executives have certainly calculated the potential stress on its network, but it will be interesting to see how the telecom operator juggles technologies to maximize its airwaves,” CCS’s Gopal wrote. “AT&T will have to maintain service quality for existing subscribers while gaining new data-intensive users. Nonetheless, DirecTV Now could be an attractive offer for consumers. It may also help the operator prevent churn and take some subscribers from all three major wireless operators in the U.S. If the service proves a hit, AT&T's main rival, Verizon, will need to expand its video content to compete.”