AT&T Preview: Unlimited Plans, DirecTV Now In Focus

AT&T (NYSE:T), the second largest U.S. wireless carrier and largest pay TV provider, is expected to publish its Q1 2017 earnings on April 25, reporting on an interesting quarter that saw the company re-introduce unlimited wireless data plans to its mainstream customers, while also scaling-up its new DirecTV Now streaming TV service. Below, we take a look at some of the key factors we will be tracking when the carrier publishes earnings.

We have a $44 price estimate for AT&T, which is slightly ahead of the current market price.

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Postpaid Subscriber Trends In Focus As AT&T Unveils Unlimited Plans

We expect AT&T’s U.S. mobility revenues to trend lower on a year-over-year basis amid recent postpaid phone subscriber losses (total postpaid phone base was down by 1.8% year-over-year as of December 2016) amid the loss of feature phone subscribers and potentially lower equipment revenues, stemming from fewer handset upgrades and an increase in the number of subscribers who bring their own device. However, there is a possibility that the carrier could see its postpaid phone losses reduce during Q1, as it introduced two new unlimited plans that are targeted at mainstream customers, unlike its previous unlimited offerings, which were limited to its pay TV subscribers.  (related: How AT&T’s Two New Unlimited Plans Stack Up To Competitors) AT&T’s prepaid operations should also continue to see some growth, driven primarily by its value-priced Cricket brand.

Mexico Wireless Operations

AT&T’s Mexican wireless business has been faring well over the last several quarters, driven by its expanding coverage, aggressive pricing and government regulations that favor smaller carriers such as AT&T over America Movil, the dominant player in the Mexican market. Over 2016, AT&T grew its Mexican wireless subscriber base from just about 8.7 million to roughly 12 million. There may be scope for further growth in the near-term, both in terms of new connections and data attach rates, as mobile connection penetration in Mexico for 2016 was projected at 90.3% of the population, per eMarketer, versus over 100% in many other Latin American markets.

Pay TV Business: DirecTV Now In Focus

We will also be closely watching the performance of AT&T’s entertainment division. The company has been transitioning its pay TV subscriber base towards its satellite-based DirecTV product, which has lower content costs compared to its U-Verse IPTV offering, allowing it to potentially improve margins. Q1 2017 will also mark the first full quarter of availability of AT&T’s over-the-top (OTT) streaming TV service, DirecTV Now, which launched towards the end of November 2016. The service saw a reasonably strong uptake, adding over 200k paid subscribers over the first month, driven partly by promotional pricing and launch offers. However, AT&T has wound down the promotions, and it will be interesting to see how the product performs, particularly in light of mounting competition from the likes of Google’s YouTube TV. (related: Should AT&T Be Worried As Google Unveils YouTube TV?)

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