AT&T, Inc. (T) announced an extension of its four-year contract worth $15 million with Swedish company ASSA Abloy on Monday. Under the renewed agreement, AT&T will connect its global virtual private network across 400 ASSA ABLOY locations in 70 countries as rolls out a single IT system globally.
The news did not have much of an impact on the market. The share price of AT&T did not show much change with prices closing 38 cents below the opening on Monday trading.
We believe the AT&T contract renewal will enable it to uplift its market share in virtual private network services and pave way for further developments distinct from the mature market of voice and data. AT&T remains challenged by aggressive pricing plans of direct competitors such as Verizon (VZ) and Sprint Corp. (S) for Apple Inc. (AAPL) iPhones and other smartphones.
While iPhones are riding on a strong growth momentum, high marketing and subsidy costs associated with the product are restricting earnings. AT&T is currently paying a hefty subsidy of approximately $300 per phone to Apple, which is dilutive to the company’s earnings.
The company is also experiencing subscriber loss in the prepaid segment for both tablets and GoPhone. In addition, the company is facing cost headwinds as price-sensitive customers seek low-end 2G feature phones.
Further, discounts on its pricing plans could hurt near-term earnings. Smaller wireless carriers also offer cost effective voice and data plans. This may hurt AT&T’s wireless business and challenge subscriber retention. As a result, it becomes mandatory for the company to either seek greener pastures organically or through mergers and acquisitions.
AT&T currently holds a Zacks Rank #3 (Hold).
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