AT&T’s network capacity and its upcoming OTT offering
Beginning in 4Q16, AT&T (T) plans to start its new OTT (over-the-top) services: DIRECTV (DTV) NOW, DIRECTV Preview, and DIRECTV Mobile. The target market for these OTT services is expected to expand in the medium term in the US. According to a report by eMarketer, in the US, non-pay TV households are expected to rise from ~22.4 million in 2016 to ~28.1 million in 2019. The new OTT services should put more pressure on the telecom company’s wireless network capacity, which AT&T expects to be able to handle.
Regarding AT&T’s ability to manage the capacity requirements from DIRECTV’s new OTT offerings, William Lloyd Smith, the telecom company’s president of technology operations, highlighted, “I don’t lay awake at night, worrying about that. Yeah, there are a lot more demands coming into the business, but there is nothing new about that; we will live through many, many cases of new applications, new waves causing increases in consumption. I feel very good about where we are. The density of our network is very strong.” He spoke about this at the recent Wells Fargo Convergence & Connectivity Symposium.
Expected mobile data traffic in the US
As we can see in the above chart and according to Cisco’s (CSCO) VNI forecasts, mobile data traffic in the US should increase at an average annual rate of ~42% in the 2015–2020 period.
Instead of direct exposure to US telecom players, you can consider getting diversified exposure to the space by investing in the SPDR S&P 500 ETF (SPY). The ETF 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.