Understanding AT&T’s Focus on DIRECTV Customer Acquisitions

In 3Q16, AT&T (T) gained 323,000 satellite video subscribers but lost 326,000 U-Verse video subscribers—a net loss of US pay-TV subscribers for the company. In the past few quarters, AT&T has been experiencing subscriber losses in the US pay-TV market.

AT&T has been focusing on growing its satellite TV base after its acquisition of DIRECTV. On a net basis, the company lost U-verse video subscribers and gained satellite customers even in 3Q16. AT&T attributed this trend in customer acquisitions in the video component to its focus on satellite TV customers.

DIRECTV’s content and hardware cost are lower than that of U-verse. As a result, 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 is 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 over-the-top video plans in 4Q16 would help AT&T offset the subscriber losses that it’s been 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.

Continue to the next part for a look at AT&T’s value proposition in the US telecom market.