AT&T (NYSE: T) is building a mobile advertising business alongside the cross-platform video services it is working on via its acquisition of DirecTV, analysts at Wells Fargo Securities confirmed. Further, AT&T is also considering a mobile-only video service.
The nation's second-largest carrier has made no secret of its plans to bring a variety of video offerings to market based largely on the assets it acquired with DirecTV. And it is already hoping to leverage its ownership of two major audiences with the recent launch of unlimited data plans only for subscribers of the satellite TV service. Indeed, more than 500,000 users have already signed on to AT&T's new unlimited plans.
But AT&T's strategy appears to be even more aggressive than advertised.
"AT&T described 2016 as a 'rolling thunder' type of year as it moves forward in its integration of DTV," Wells Fargo analysts said in a research note. "The plan is to secure the base and attract new customers with the bundled TV Everywhere/wireless product… but also create new products for new customer segments."
Added Wells Fargo: "AT&T did not rule out doing a wireless only video product. For the first time, we heard AT&T mention doing work on (the) mobile advertising side. We believe there is much more work being done here than is being messaged publically."
AT&T announced in November that it had begun trials of an integrated advertising campaign across TVs and mobile devices. The trial enables marketers to reach the same consumers with the same messages across screens, and is powered by AT&T AdWorks and Opera Mediaworks.
The carrier's confidence notwithstanding, mobile video is still an uncertain market. While consumption of video on smartphones and tablets is clearly on the rise, recent data from Ooyala indicates growth slowed during the third quarter of 2015. Meanwhile, competition will ramp up quickly, with Facebook making plans to take on AT&T and Verizon, which is hoping to find an audience with its Go90 service.
Wells Fargo also predicted that AT&T's transition away from subsidized handsets to equipment installment plans will help stabilize its wireless margins in 2016 -- particularly in the fourth quarter -- and those margins will also be boosted by its ability to deploy and maintain both mobile and TV services though a "single truck roll." The analysts also expect AT&T's mobile operations in Mexico to show positive EBITDA next year and positive earnings per share in 2018.
Finally, Wells Fargo said AT&T's move to virtualized networks should help ease both its capital expenditures and operating costs over the next several years. "As we look at what the world could look like for AT&T by 2020 with SDN and its IP transition, it could look a whole lot different…. There will be much more intelligence in the network which should allow customers more efficiencies in their own respective businesses. For both the wireline and wireless network, we would expect speeds to be much faster -- an obvious benefit to customers. From AT&T's standpoint this intelligence in the network should be a significant boon to its current cost structure."
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