AT&T Inc. (NYSE:T) Tends To Take Multiple Steps To Ramp Cash Earning Capabilities & Control Cost

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AT&T Inc. (NYSE:T) was a massive mover during Friday’s trading session surging higher by 3.2% on heavy volumes which were 1.52 times the average turnover. The stock has taken support at levels of $33.11 and formed a bullish engulfing pattern, which is being seen as a huge positive. AT&T currently trades above all moving averages. The MACD oscillator is showing signs of an intermediate bullish reversal. The RSI indicator has given a fresh buy signal, which is considered to be a huge positive. Traders believe the stock would find resistance on the upside at levels of $111.01 in the near term.

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  1. Cross-Selling opportunities in the market are likely to increase with time.
  2. Asset monetization can be an efficient way to enhance the cash generation capabilities
  3. All set to launch a new integrated technology platform as part of video strategy to make the content accessible easily.

The ever increasing competition in the market has prompted AT&T Inc. (NYSE:T) to take multiple steps to enhance its cash earning capabilities and control the cost.

AT&T is into multiple businesses and evolving structural demand dynamics like mobile competition, maturation in smartphone adoption, unbundling, etc.  are affecting them badly. This shift in the working atmosphere has prompted the company to try different tools and maintain a steady earnings outlook.

Management’s Approach Towards Cost Synergies

The AT&T management has done well to achieve $2.5B run rate in the DTV cost synergies with the help of content cost saving, overhead reduction, and subscriber management. The recently concluded Viacom deal of AT&T is one of the shreds of evidence of how well it utilized joint leverage.

DIRECTV platform of AT&T is comparatively cheaper than U-Verse. In other words, how well can AT&T shift subscribers onto DIRECTV would give it the cost benefit due to lesser content cost. As of now, the monthly churn of DIRECTV is about 2% (25% annual). If the current subscriber base is considered to be 6 million, the company has to backfill the base by about 1.5 million subscribers annually to maintain profitable position without losing the overall customer base.

Even if the company can manage to transition 25% of the subscribers to DIRECTV, it can easily save up to  $100 million per annum.

Growth In Video Subscription And Cross-Selling Opportunities

AT&T expects the cross-selling opportunities and video subscription requests to grow exponentially in the coming months. As of now, the company has about 22 million wireless subscribers and 15 million DTV subscribers, but the number of people who have subscribed to both the services are not much.

At present, it can’t do much about it due to lack of suitable infrastructure in place. As soon as it has teams that are trained in the installation of both the services coupled with the pricing offers that users can’t deny, AT&T will start to execute cross-selling initiatives at full flow.

In addition to this, it’s also confident about the growth in video subscription. Even though there have been some headwinds around the cord cutting, AT&T is confident that improved service quality and distribution from over 5000 sale-points will help it enhance the number of video subscriptions in the coming time.

Past few quarters have thrown a host of challenges for the company in the form of regulatory issues, fierce competition, legal issues, etc. The primary goal for the management team is to get back A credit rating. It’s willing to do anything to achieve this level, including putting any cash in excess of capex and dividend to work in taking net leverage to beyond 1.8x level. It can also look forward to executing share repurchase program to strengthen the impact put by this step.

How Soon Will It Launch Integrated Video Product?

During a sell-side event that took place in the second half of September 2015, AT&T had announced that the next 24-36 months would prove to be very crucial as it would transition its video services to an advanced platform. AT&T also plans to introduce a consumer-centric and integrated product in 2016 and come up with a fully integrated and world-class technology platform by 2017.

Bottom Line

AT&T is facing competition from other market leaders like Verizon, T-Mobiles, Sprint, etc. due to which its revenue, as well as customer base, have impaired.

The management seeks to improve its services and cut-down cost through the transition of customers, hoping that these steps will help it get rid of market competition and volatile market conditions. However, the efficacy of its efforts to ramp up the earning capabilities will depend on how well its video product and integrated video platform captivate customers once they are launched.

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