The competition is intense when it comes to the US carriers – Verizon, AT&T, T-Mobile, and Sprint – and they add more pressure on themselves with new plans, unlimited data, and paying to buy out user contracts from a competitor to get your business. This competition is starting to show up in their bottom line and Wells Fargo just decreased their prediction of Q1 2017 earnings of AT&T’s wireless division from $15.2 billion down to $14.7 billion. The number one cause was increased competition, but as high-end smartphones go up in price, many users are keeping their device longer, which decreases hardware sales that have a marked effect on profits. Wells Fargo also decreased AT&T’s postpaid additions from 400,000 new customers down to 125,000 – this 300,000 decrease has a huge impact on the net revenue figure.
Senior Analyst Jennifer Fritzsche wrote to investors that Verizon and AT&T’s shift into the unlimited data plans is hurting the overall profits. Even with the downward estimates of AT&T’s wireless revenue, Wells Fargo is giving them high marks for diversifying into digital media and advertising. AT&T is planning to acquire Time Warner for $85.4 billion and that will include heavy hitters HBO, CNN, TNT, and TBS, as well as Warner Bros. Pictures and Warner Bros. TV Studio. AT&T is also growing DIRECTV that they purchased in the summer of 2015 that allows AT&T to offer cross-platform video to their wireless customers. AT&T was just awarded a federal contract to build a separate network for first responders called FirstNet. The contract will be over a period of 25 years and estimated to cost $40 billion over that time period. This 'side-job' is a huge win for AT&T and will help them in the long term.
Wells Fargo, while lowering AT&T's first quarter wireless revenue, were very optimistic in their opinion that AT&T is doing the right thing by diversifying. Fritzche said "the move toward a further diversification of revenue we see as a positive longer term.” When a company diversifies, if one division has a bad quarter, the other division, vested in other fields, can help pick the company up as a whole. While AT&T must stay competitive with the likes of T-Mobile and Verizon and may not gain as much in revenue due to the intense competition and users holding on too their devices longer, DIRECTV helps bring revenue from other sources. DIRECTV also helps AT&T sell smartphones because of the great package deals they can offer. AT&T will take a financial hit from buying Time Warner, but will prove in the long run to be a great business decision.