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What's Going on with AT&T's (T) U-verse Service? (revised)

Zacks Equity Research

Media reports suggest that U.S. telecom behemoth AT&T Inc. T is planning to end support for parts of its long-standing U-verse brand by the end of May. 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 focus on streaming development application development on core platforms.

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. The U-verse move is expected to involve ending support for U-verse streaming via the XBOX ONE, Windows and U-verse.com applications.

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.

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.

(We are reissuing this article to correct a mistake. The original article, issued earlier today, March 29, 2017, should no longer be relied upon.)


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