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What to Expect from AT&T in 2017

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Part 11
What to Expect from AT&T in 2017 PART 11 OF 13

Why AT&T Is Focusing on DIRECTV Customer Acquisitions

AT&T’s US pay-TV customers continued to fall

In the previous part of this series, we discussed AT&T’s (T) over-the-top (or OTT) DIRECTV Now service, which was launched in November 2016. In 4Q16, AT&T gained 235,000 satellite video subscribers, but lost 262,000 U-Verse video subscribers, a net loss of US pay-TV subscribers for the company. Over the last few quarters, AT&T has been experiencing subscriber losses in the US pay-TV market. AT&T attributed this trend in customer acquisitions in the video component to its focus on satellite TV customers after its acquisition of DIRECTV.

Why AT&amp;T Is Focusing on DIRECTV Customer Acquisitions

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Content costs

In terms of profitability, satellite TV customers are more attractive to the company than U-verse customers. AT&T’s U-verse is a fiber-based service for voice, Internet, and video. It’s similar to Verizon’s (VZ) FiOS. Both FiOS and AT&T’s U-verse can be compared to offerings of cable players such as Time Warner Cable and Comcast (CMCSA).

The introduction of AT&T’s OTT video service in 4Q16 would help AT&T offset the subscriber losses that it’s experiencing in the US pay-TV market. AT&T’s acquisition of Time Warner (TWX) should also help AT&T differentiate the product, as it allows for much tighter integration.

Additionally, AT&T is allowing the U-verse subscriber base to erode over time as customers transition to the satellite platform or churn to other products. This transition will eventually free up the data capacity on the wired network in former U-verse video areas, which can be repurposed to increase broadband speeds with little incremental capex. Also, this transition could simplify the sales process by avoiding the confusion of having two video products in areas where U-verse TV is currently offered.

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