AT&T Inc. (T, Financial) has announced an investment of nearly $2.8 Billion in next three years to enhance local networks in Florida. The company owns one of the strongest 4G LTE (Long Term Evolution) signal and it provides 4G LTE network to over 300 Million Americans. AT&T already has an extensive Wi-Fi network covering 34000 hot spots in the US and more than 1 Million hot spots globally through roaming agreements. Let us take a look at the tall growth plans AT&T is working out.
Strategizing to the Top
The Company is awaiting approval on AT&T – Direct TV (DTV, Financial) merger from regulators. Once the approval falls through the merged entity will redefine the video entertainment industry by delivering content to consumers across multiple screens like mobiles, TVs, Laptops, in-car entertainment and even aircrafts.
The company also plans to enhance its deployment of wired line and wireless high speed internet hubs to cover additional 15 million customer locations in 48 states which mostly consist of underserved rural areas.
Last year AT&T GigaPower started delivering ultra-high speed internet service (up to 1 gigabit per second) in 25 US markets which includes Austin, Dallas, Fort Worth, Kansas City, Raleigh-Durham and Winston-Salem. The Company is aiming to extend the GigaPower network to additional 11 locations in US this year.
The technology is fast moving towards connected devices and AT&T’s connected devices count surged ahead by 21% to 19.8 million in 2014. The company is already in the race for 5G allocation which is expected to happen only in 2018.
The company has found its way in the top 50 most admired companies of 2015, listed in Fortune.
Management guidance
In its filing with Securities and Exchange Commission on March 10, 2015 AT&T disclosed its expectations for the first quarter of this year. The company announced that it expects to add roughly 4, 00,000 post-paid customers in the first quarter this year, which is lower than the 625,000 post paid connections in corresponding quarter last year. But it expects the post paid churn to improve in the remaining quarters. Yet analysts believe that the improved churn may get offset by weak wireless margins. AT&T expects to add more smartphone users to its network this quarter but lose out on feature phone users at the same time.
AT&T’s shift to software defined networking (SDN) would allow it to cut on the capital expenditure as a percentage of service revenue over time. It has estimated the capital expenditure in 2015 to be around $18 billion down from $21 billion in 2014 as the company has managed to finish Project Velocity IP network upgrades faster than expected. AT&T expects its long term CAPEX to be roughly around 15% of its revenues with a scope of gradual reduction due to migration to SDN technology. Besides saving on capital expenditure, AT&T expects SDN to also boost revenues due to faster deployment of new services through this platform. The company expects SDN to cover 75% of its network capabilities by 2020. AT&T expects the margins to improve throughout 2015 and for its wireless service; margins are expected to grow this year on a year-over-year basis. AT&T posted 45.4% EBITDA in the first quarter of 2014.
Stock movement
The stock price has more or less remained stable in past one year, varying within the range of $32 to $37. The stock is currently trading at price levels similar to the same period last year of $32. AT&T stock is slightly down year-to-date. The stock offers an EPS of $1.20. Analysts estimate the stock to delivery revenues to the tune of $33 billion for this quarter with an estimated sales growth of 1.7%. The estimates for upcoming quarters suggest an incremental growth. The annual revenues are also expected to be higher than last year.
Conclusion
The industry is very dynamic and is constantly evolving and adapting to the latest technological demands of the customers who desire to have an integrated and inclusive approach by the network carriers. AT&T has been in the forefront when it comes to adapting to new technology and changing consumer demands. Currently the Company is undergoing another transition phase. It is investing resources in technological advancements which may not reflect favourably on the numbers at present but it will certainly create a portfolio of products which will generate incremental revenues in the future. The stock has a good potential and most analysts recommend a ‘Hold’ to ‘Buy’ guidance.
