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AT&T (T) to Shut Down U-Verse and Shift Users to DIRECTV

Zacks Equity Research

Per a recent FierceCable report, U.S. telecom behemoth AT&T Inc. T is planning to completely phase out its long-standing U-verse brand by May 30. The brand consists of fiber-based triple-play video (TV), voice (telephony) and high-speed broadband (Internet) offerings. This move is in line with AT&T’s strategy to discontinue the service. The service has faced blackout in 23 states since Mar 15.

Accordingly, AT&T plans to shift some U-verse customers to satellite TV service provider DIRECTV, while some will be transferred to its over the top (OTT) online streaming service, DirecTV Now. By venturing into the OTT space, AT&T joined the likes of DISH Network Corp’s DISH Internet TV service - Sling TV and Sony Corporation’s SNE Playstation Vue, respectively.

Notably, AT&T earned $13,206 million revenue in the Entertainment Group Segment, up 1.6% year over year (post the DIRECTV acquisition). Of the total, Video entertainment revenues were $9,567 million, up 3.5%. As of Dec 31, 2016, total Satellite connections tallied 21,012,000 and U-verse connections were 4,253,000. AT&T lost 262,000 U-verse customers but gained 235,000 satellite TV customers.This proves the company’s strategic shift from its U-verse customers to the DIRECTV brand to be a positive one. In fact, this move bodes well with the weakening performing of U-verse brand compared to the improved business of DIRECTV. Moving ahead, this in turn is expected to free up very important bandwidth on its fiber-optic network, which AT&T can utilize to offer higher data transmission speeds to its high-speed broadband users.

The company officials have already started informing customers about the shutdown of the service. Moreover, the U-verse multi-screen app is also likely to get removed from Microsoft Corporation’s MSFT Xbox One and Windows mobile platforms. 

However, the final call is yet to be confirmed by the company.

Over the past three months, shares of AT&T lost 2.6% as compared with the Zacks categorized Wireless National industry's 4.3% decline. This was mainly led by the company's operations in a saturated wireless market, where spectrum crunch is a major concern. Additionally, persistent losses in access lines, mounting operating expenses, losses incurred from promotional offers, stringent regulatory norms and union issues act as major dampeners for the company’s growth prospects.

AT&T currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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