AT&T May Be Headed to Europe, Emerging Markets

Initiatives that can take AT&T into its next growth phase

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Aug 14, 2016
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In a recent article called "Verizon’s Bid for Ad Supremacy," I wrote about how Verizon (VZ, Financial) is creating a huge gap between the company and AT&T (T, Financial) by building an extensive content and media empire.

Apart from the additional revenue stream that this brings to Verizon’s table, it also gives the company a long-term edge over their chief rival. How? Because the company won't just be a carrier that delivers content for consumption, but also one that controls the entire content supply chain from the point of creation to consumption.

The question we need to ask now is: What does AT&T have in its armory to convince users to choose it over what now looks like an invincible enemy?

AT&T’s firepower

AT&T’s mission is to connect people with their world, everywhere they live, work and play, and do it better than anyone else. So far it has stayed well within that realm of providing connectivity by building network assets, and even the launch of its fiber network GigaPower was part of that vision.

A further extension of that vision now comes in the form of the acquisition of DirecTV, the second biggest pay TV provider in the U.S., last year. With video consumption on the rise across world, this significant acquisition will add muscle to its connectivity efforts.

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“[The] acquisition of DirecTV would give AT&T a national footprint in pay television at a time when the telecom company sees video delivery as core to its future. An acquisition would allow AT&T to offer bundles of wireless and TV services, and could give AT&T new ways to deliver video to its mobile and broadband customers.”

- WSJ

“We plan to serve every segment of the video market — from customers who want a premium video experience over TV, Internet and mobile, to people who want only to watch entertainment over the Internet or only on a mobile device.”

- AT&T

What the DirecTV acquisition is doing is opening up choices for AT&T users as well as the acquired company’s user base. The entire user pool will now benefit from more cross-platform content delivered on AT&T’s robust networks.

When you add the rapid proliferation of its GigaPower network across the country, what we have is a high-potential paid video channel for advertisers to flock to. These advertisers know that once they sign on, they get access to AT&T’s entire network of 130 million users. That’s not an easy offer to refuse when you’re pitching to one of the highest-spending market segments in the world.

What will really drive AT&T revenues forward?

The second weapon in AT&T’s armory is its international segment. In 2015, international revenues accounted for a mere 3% of the company's total operating segment revenues through its wireless services in Mexico and entertainment services in Latin America. The company still has a long way to go in increasing its international exposure, and that’s exactly where the opportunity lies as well.

The lack of a robust market for mobile applications and other services overseas means there’s opportunity for growth, AT&T Chief Executive Officer Randall Stephenson said.

The evolution of the mobile Internet experience in the U.S. over the past six years helped turn Apple Inc. from a computer-focused company into a powerhouse with $170 billion in sales, he said. Europe has yet to fully benefit from that transformation, Stephenson said.

“Why has this thing not really taken off to the degree that it has in the U.S.?” he said. “That market is going to evolve in Europe. I think it’s going to evolve very quickly.”

- Bloomberg

Now, while I’m not at all in agreement with AT&T’s CEO about the lack of potential overseas for mobile apps and services, I do agree that the opportunity is there. But Europe has always been a bit of a headache for American companies because of various regulatory nuances that continue to stump companies like Microsoft (MSFT, Financial) and Amazon (AMZN, Financial).

What the company needs to do is look beyond Europe into emerging markets that offer tremendous growth potential. For now, however, it’s clear that Europe is what the company is after. It’s not going to be a walk in the park, but it does open up a field of growth well into the next decade.

Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.

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