), which competes primarily with Verizon (
) and Sprint (
) in the mobile business, owes 45% of its estimated value to its
mobile plans & phones division by our estimates. This
division essentially derives its revenues from 4 key business
sub-segments. These include postpaid voice, prepaid voice, data and
sales of handsets. Below we present two charts that
demonstrate the revenue contribution of these sub-segments today
and how these could look in the future. While forecasting too far
in the future is tricky, we hope to identify how certain trends can
contribute to the stock in the medium to long term.
Our current price estimate for AT&T is
Key Trends Behind the Change
Explosion in consumption of mobile data
This is driven by increasing adoption of smartphones that make it
easy to access the internet as well as encourage the use of
applications that increase data usage. To complement this, there
has been a general trend of increased internet usage driven by
better speeds, coverage, popularity of social networking sites and
increased availability of media content. Additionally connected
devices like e-readers, alarms, GPS systems, etc. further add to
mobile data consumption.
The competition has been intense in the mobile industry and there
(average revenue per user) declines over the past few years, though
this has been offset by increased data ARPU. Players like Sprint
have been looking to expand its subscriber base by offering
attractive voice pricing, which has resulted in AT&T and
Verizon moderating their own prices as well. We expect price
competition to continue and for voice revenue growth to moderate
while data revenue grows.
Tiered data pricing could potentially alter this picture. Due to
data caps, many data users might be tempted to go for lower priced
plans, thus slowing down data revenue growth relative to our
expectations. Regardless of data growth, we expect postpaid voice
to remain the highest share of the pie and to remain the core
offering of these mobile operators.
Do you think the picture could be different?
We invite you to our platform to reflect your opinion by
changing future estimates and letting others know.
You can see
the complete $37.84 Trefis price estimate for
AT&T's stock here.