Editor’s note: Eric Costa is an analyst with Technology Business Research.
HAMPTON, N.H. - AT&T (NYSE: T) will drive long-term revenue and subscriber growth beyond traditional voice and data services
with an aggressive push into the Internet of Things (IoT) market over the next five years
AT&T is one of the leading operators in the U.S. market in revenue growth and postpaid and connected device adoption. As traditional mobile services’ revenue growth and saturation slow, AT&T targets new services that will leverage its nationwide LTE network. AT&T will execute the remainder of Project VIP to improve its network quality, increase Mobile Share plan adoption to drive data revenue and ARPA growth and increase its presence in the connected device market to capitalize on the new revenue stream in 2015.
TBR believes AT&T will achieve its revenue and subscriber growth goals by focusing on three key areas over the next five years.
The networks, which are at the heart of all of AT&T’s business segments, will remain a primary focus.
Project VIP will expand the LTE coverage and density as well as improve the fiber and U-verse footprints. AT&T is targeting 99% LTE penetration with increased speeds and fiber capabilities to the majority of the company’s footprint, with speeds around 1Gbps by 2020. These enhancements will provide AT&T the backbone to offer new data services and drive revenue growth over the next decade.
Platforms are the second key focus area, whether it is in postpaid, prepaid or connected devices.
AT&T will continue to expand its portfolio of offerings in each segment to drive subscriber growth. The connected device market will expand rapidly over the next few years as new data capabilities and services are developed around connected home, connected car and IoT in general.
Finally, AT&T will focus on expanding its partner ecosystem to drive increased possibilities over the next five years and capture revenue opportunities. Licensing will play a larger role in AT&T’s strategies as it gains more momentum in the Digital Life space. AT&T has a licensing agreement in Europe with Telefonica, and TBR expects the company to form additional partnerships of the next few years.
At AT&T’s 2014 Consumer Industry Analyst Conference in Atlanta, the company laid out its vision for long-term growth:
- Expand the wireless and wireline network coverage and density to offer the industry’s fastest speeds by 2020.
- Enhance the partner ecosystem in multiple areas including NetBond, AT&T cloud in general and emerging markets such as connected car and connected home.
- Increase focus on and investment in key IoT areas including connected car, healthcare, tracking, fleet management, wearables and industrial IoT.
- Grow wireline segment revenue through fiber and U-verse expansion and by launching GigaPower in additional markets.
Each of these areas will incorporate AT&T’s widespread LTE network coverage and drive subscriber and revenue growth for the operator over the next five years.
Impact and Opportunities
AT&T is looking to embed its services in as many aspects of consumers’ lives as possible. The future of the wireless industry will expand into many new verticals aside from smartphones and tablets. The smartphone market continues to creep toward saturation and will open the door for data services to become the new growth drivers.
AT&T is furthest along in developing the first wave of these new services, and its innovative platforms and large partner base position it to maintain its lead in these verticals over the next few years. With each new service, AT&T builds additional capabilities into existing
and new products, and it will use its scale to create a critical mass that will drive service adoption through 2020.
AT&T’s time-to-market advantage in developing enhanced data services such as Digital Life, connected car and U-verse GigaPower will allow the operator to gain a significant advantage over Verizon, Sprint and T-Mobile as they play catch-up in these verticals over the next couple years. This coupled with the company’s growing LTE network will allow AT&T to expand into growth areas and find opportunities in adjacent businesses that make sense for the operator. AT&T will capitalize on its LTE network and leadership in connected devices and grow the partner ecosystem to address new potential markets and continue to grow connections and revenue through 2020.
AT&T remained one of the leaders in the postpaid market in 3Q14, though it continues to face fierce competition from Verizon and T-Mobile. Verizon has controlled the top position in the postpaid market in recent quarters due to its lead in LTE coverage, Share Everything plans and lead in tablet adoption.
However, AT&T’s initial LTE build has almost caught up to Verizon’s LTE footprint, and once Project VIP is complete in 2015, AT&T will have an even more robust LTE footprint in all major markets. AT&T will continue to rely on its Mobile Share plans and Next device financing service to drive growth in smartphones and tablets over the next few years, but TBR expects changes and tweaks to these plans to continue as the ongoing U.S. price war increases pressure on the Tier 1 operators to provide competitive
AT&T and Verizon will remain the two postpaid giants in 2015 despite continued competition from T-Mobile’s Simple Choice plans and Sprint’s December move that directly undercuts AT&T and Verizon shared data plans.
AT&T’s prepaid segment went through a large overhaul over the past year, mostly due to the acquisition of Leap Wireless. AT&T operates its prepaid business under a single unified Cricket Wireless brand. The operator has seen steady prepaid subscriber losses over the past few quarters, primarily due to Leap Wireless customers switching carriers during the transition onto AT&T’s network. The future of the prepaid business is looking up for AT&T, as the Cricket brand is beginning to gain traction in the market.
The operator will rely on aggressive pricing, its nationwide LTE network and a loyalty program to drive an increase in prepaid revenue and subscribers in 2015. However, the focus on prepaid will continue to take a backseat to the postpaid and connected device markets, not only at AT&T but also throughout the U.S. industry, as many of the new postpaid offerings attract and convert former prepaid users.
AT&T’s Digital Life platform remains one of the leading security and home automation services available in 2014. The platform will continue to gain momentum over the next few years as the service reaches new markets and the average consumer begins to accept and consume more data. With home security and automation, AT&T sees an opportunity to capture and grow the very divided and segmented home security and automation market. However, this is only the first phase of the Digital Life strategy.
The Digital Life platform will create revenue opportunities for AT&T over the next five years. The company will evolve its strategy of home automation and security to more of a managed and enhanced services platform by 2020. Options like voice control, predictive analytics and many new verticals that are currently not available will drive high connected device revenue growth over the next decade.
Market expansion will also spark rapid growth in Digital Life. The platform covers about 82 markets and 82 million POPs. The operator’s LTE footprint expansion to new markets will result in customer adoption and revenue growth.
AT&T believes its connected car initiative is a key growth area for the company over the next five years. The operator hopes to be a leader in this market with around 10 million connected cars by 2017. The operator will also incorporate its Digital Life solutions into the connected car so the entire ecosystem is connected on the same network. AT&T is a leader in this space, with seven of the top 15 major car manufacturers as connected car partners. AT&T will continue to target new partnerships as the connected car market begins to expand rapidly over the next two years.
AT&T continues to make headwinds with its U-verse business and consistently outpaces its rival Verizon FiOS service in the IPTV and IPBB markets. The long-term growth in the wireline segment will come from the U-verse GigaPower service that launched in 2013 and is available in five markets. The GigaPower service will expand to 14 new markets and will bring with it the fastest IPBB speeds available on the market. An additional eight markets are being targeted for potential future deployments.