AT&T Gains U-Verse TV Subscribers in Q3, Competiton Increases

AT&T (NYSE:T) continues to see subscriber growth for U-Verse, its triple play service that includes digital television, home-phone service, and high speed Internet. In its recent Q3 2011 results, AT&T reported a net addition of 176,000 U‑verse TV subscribers, taking the total count to 3.6 million. ^[1] However the subscriber growth has declined both on a quarterly and yearly basis which resurrects the hotly debated issue of  “cord-cutting”, with pay-TV operators blaming video streaming players such as Netflix (NASDAQ:NFLX) for subscriber losses. While Netflix has its own problems to deal with for now, AT&T and other pay-TV operators such as Comcast (NASDAQ:CMCSA) and Verizon (NYSE:VZ) have a new breed of competition in the form of Amazon’s(NASDAQ:AMZN) Prime service and Dish Network’s (NASDAQ:DISH) Blockbuster.

Meanwhile, AT&T continues to see average revenue per user (ARPU) growth for its U-Verse customers as demand for bundled packages remains robust and attach rates for Internet enabled devices such as the Xbox, the iPhone and the iPad are high.

See our complete analysis for AT&T’s stock here.

Net Subscriber Gains for Q3, But Subscriber Growth Weakening

AT&T’s net U-Verse TV subscriber additions declined from 202,000 in Q2 (and 236,000 in Q3 2010) to 176,000 in Q3 2011. ^[2] These results, coupled with a report from research firm SNL Kagan that pay-TV operators lost 458,000 subscribers in the first half of 2011 to end at 100 million, revives the argument about cord-cutting. ^[3] While it is certainly a relevant issue, the trend is improving compared to 2010 which saw much steeper declines.

Increased Competition, While U-Verse ARPU Grows

AT&T and other pay-TV operators should get some respite from the fact that Netflix is experiencing significant subscriber churn, but they also have increased competition from players like Amazon Prime and Dish’s Blockbuster that are making aggressive moves in the booming video streaming market.

AT&T’s U-Verse is attractive to customers as it offers a bundled service of phone (mobile/landline), broadband Internet, and TV at discounted prices, with the capability of connecting most of the Internet-enabled, handheld devices. AT&T saw its ARPU for U-Verse triple-play customers increase 5.7% y-o-y to $170 in Q3 2011. ^[1]

While we estimate that the number of U-Verse TV subscribers will increase from 4.9 million in 2012 to 11 million by the end of the Trefis forecast period, Trefis members expect an increase from 5.6 million to 12.5 million during the same period. Should this occur there could be a slight upside – less than 5% – to our current price estimate.

We currently have a price estimate of $38 for AT&T’s stock, about 30% above the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. AT&T Announces Q3 2011 Results, Press Release, Oct 20, 2011 [↩] [↩]
2. AT&T Added Fewer U-verse TV Subscribers in Third Quarter, Hollywood Reporter, Oct 20, 2011 [↩]
3. Analysts Size Up Third-Quarter Pay TV Subscriber Trends, Hollywood Reporter, Oct 19, 2011 [↩]