Tablets, Netbooks & Other Gadgets Driving AT&T

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AT&T ( T ), which competes primarily with Verizon ( VZ ) and Sprint ( S ) 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 market share 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 stock.

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.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: S , T , VZ

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