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AT&T Long-Term Prospects Bright, Competition on the Rise

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On Feb 4, we issued an updated research report on U.S. telecom behemoth AT&T, Inc.T .

AT&T reported weak financial results in fourth-quarter 2015 with both the top and the bottom line lagging the Zacks Consensus Estimate. The company's dismal earnings performance can be primarily attributed to disappointing postpaid wireless subscriber addition of 526,000, down 38.4% year over year.

However, prospects of better earnings and revenues over the long haul from the DIRECTV purchase are bright. From 2016 to 2018, AT&T expects consolidated revenue growth to be in line with GDP growth or higher while adjusted earnings per share growth is projected in the mid-single digit range.

With its combination of U-Verse - DIRECTV's satellite TV -- and an all-fiber GigaPower Internet service, AT&T now has the operational flexibility to provide traditional cable TV service as well as mobile video streaming service to users.

Further, AT&T is considering producing or acquiring content for its video services, including its Internet TV, which is due for launch shortly. The company plans to target customers who are not covered under traditional pay-TV services. An estimated 30 million households in the U.S do not subscribe to pay-TV services.

Thus, with an eye on developing content suited to the taste of millennials, AT&T has inked various channel distribution deals to beef up its channel portfolio. Moreover, DIRECTV has been involved in producing certain TV series for its viewers.

Meanwhile, launch of Wi-Fi calling feature, regular dividend hikes, and initiatives in the Internet of Things (IoT) and connected cars space bode well. Further, the company stands to benefit hugely from its investments in the Mexican telecom market.

However, AT&T has decided to raise the prices of its voice and U-verse video services because of rising operating costs, especially in programming and service delivery, as well as increasing content costs. This may impact subscriber retention in the near term

Additionally, a saturated wireless market, spectrum crunch and regulatory risks remain potent headwinds. Moreover, intensifying competition in the U.S. wireless market from peers like Verizon Communications Inc. VZ , T-Mobile US, Inc. TMUS and Sprint Corp. S is another major concern.

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AT&T INC (T): Free Stock Analysis Report

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T-MOBILE US INC (TMUS): Free Stock Analysis Report

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


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

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