), which competes primarily with Verizon (
) and Sprint (
) in the mobile business, is continuing to add subscribers at a
meaningful rate, despite the company's large existing subscriber
base. AT&T added 2.6 million net subscribers in Q3 2010,
taking its total to 92.8 million subscribers.
We now expect AT&T to have more than 95 million subscribers
by end of 2010, amounting to a
mobile market share of more than 33%.
These gains have been driven in part by smartphones like the iPhone
as well as other "connected devices" such as e-readers, tablets
(iPad), netbooks, GPS devices and other gadgets that need to
transfer data over AT&T's network. Rising use of
connected devices can broaden AT&T's addressable market and
deliver upside to the stock.
Connected devices driving subscriber additions
Of the 2.6 million net subscribers AT&T added in Q3 2010,
about 1.2 million (45%) were attributable to connected
devices. Although the average revenue per user (ARPU) for
connected devices is lower compared to mobile phones, connected
devices tend to have higher margins.
Possible impact of more connected devices
We have noted that AT&T has been adding roughly a million
connected devices each quarter to its network. More precisely,
AT&T added about 1.1 million, 0.9 million and 1.2 million
connected devices in Q1, Q2 and Q3 of 2010 respectively to its
network. If these devices continue to increase at a rapid rate,
AT&T can continue to witness high
growth. A higher share of about 37% by end of forecast period can
create about 4% upside for AT&T. You can modify our forecast
above to see how mobile market share can impact AT&T's
Since these devices have lower data ARPUs compared to mobile
phone subscribers (although higher margins), we feel the upside due
to higher market share could be limited due to lower than average
cash flows from these devices. Nevertheless, connected devices are
one of the important growth drivers for AT&T.
You can see
the complete $37.84 Trefis price estimate for
AT&T's stock here.