AT&T-DIRECTV and HBO deal
On August 29, FierceCable reported that Time Warner (TWX) HBO had entered into a deal with AT&T (T)-DIRECTV. According to the terms of the deal, Time Warner’s HBO will be available on AT&T-DIRECTV’s soon-to-be-launched OTT (over-the-top) service, DIRECTV Now. AT&T’s U-verse and DIRECTV will also carry Time Warner’s HBO and Cinemax on their pay-TV platforms. According to the FierceCable report, AT&T-DIRECTV have already signed up the Walt Disney Company’s (DIS) programming and Disney’s ESPN for DIRECTV Now.
Time Warner stated at the company’s earnings call earlier that it’s looking at monetizing its content in different ways, and considering the rising popularity of OTT platforms, the company is targeting them too. In 4Q16, AT&T (T) plans to initiate three OTT 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 from ~20.8 million in 2015 to ~28.1 million in 2019. These new services should put more pressure on AT&T’s wireless network capacity, which the telecom company expects to be able to handle.
Wireless peer comparison
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 show, data traffic should grow at an average annual rate of ~42% during the 2015–2020 period.
AT&T makes up ~1.3% of the SPDR S&P 500 ETF (SPY). SPY has an exposure of 3.7% to the computer sector.