) announced an extension of its four-year contract worth $15
million with Swedish company ASSA Abloy on Monday. Under the
renewed agreement, AT&T will connect its global virtual
private network across 400 ASSA ABLOY locations in 70 countries
as rolls out a single IT system globally.
The news did not have much of an impact on the market. The
share price of AT&T did not show much change with prices
closing 38 cents below the opening on Monday trading.
We believe the AT&T contract renewal will enable it to
uplift its market share in virtual private network services and
pave way for further developments distinct from the mature market
of voice and data. AT&T remains challenged by
aggressive pricing plans of direct competitors such as
) iPhones and other smartphones.
While iPhones are riding on a strong growth momentum, high
marketing and subsidy costs associated with the product are
restricting earnings. AT&T is currently paying a hefty
subsidy of approximately $300 per phone to Apple, which is
dilutive to the company's earnings.
The company is also experiencing subscriber loss in the
prepaid segment for both tablets and GoPhone. In addition, the
company is facing cost headwinds as price-sensitive customers
seek low-end 2G feature phones.
Further, discounts on its pricing plans could hurt near-term
earnings. Smaller wireless carriers also offer cost effective
voice and data plans. This may hurt AT&T's wireless business
and challenge subscriber retention. As a result, it becomes
mandatory for the company to either seek greener pastures
organically or through mergers and acquisitions.
AT&T currently holds a Zacks Rank #3 (Hold).
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