AT&T’s new OTT service
In 4Q16, AT&T (T) plans to initiate the three OTT or over-the-top services: DIRECTV (DTV) NOW, DIRECTV Preview, and DIRECTV Mobile. The market that AT&T is targeting for its OTT services is expected to expand in the medium term.
According to a report by eMarketer, non-pay TV households in the US are expected to increase to ~28.1 million in 2019 from ~20.8 million in 2015. These new services should put more pressure on AT&T’s wireless network capacity, which the telecom company expects to handle.
Krish Prabhu, AT&T’s Chief Technology officer and Present of AT&T Labs, spoke about this at the recent Cowen and Company Technology, Media, & Telecom Conference. Prabhu stated that “as an integrated carrier, our current assessment is depending on the take rate, if this take rate is wild and it creates a stress on the network from a capacity and throughput standpoint, we definitely have the tools to upgrade the network. But for now, our assessment is that network will handle the extra stress.”
Referring to the AWS-3 and WCS spectrums, he noted that “we have 40 megahertz…that we could deploy nationwide, largely nationwide,” adding about the wireline side that AT&T’s “aggressive fiber strategy…allows us to take fiber to cell sites…to take fiber to buildings as well as homes.”
Expected incremental data traffic on US mobile networks
The top four US wireless companies are Verizon (VZ), AT&T, T-Mobile (TMUS), and Sprint (S). In the medium term, the expectation for growth in data traffic over mobile networks in the US is significant. As you can see in the above graph—and as Cisco’s (CSCO) VNI forecasts—data traffic should grow at an average annual rate of ~42% during the 2015–2020 period.
Instead of taking direct exposure to the stocks in the US telecom industry, you might consider getting diversified exposure to the space by investing in the SPDR S&P 500 ETF (SPY). SPY held a total of ~2.7% in AT&T (T), Verizon (VZ), CenturyLink (CTL), Frontier Communications (FTR), and Level 3 Communications (LVLT) at the end of May 2016.