AT&T Inc.’s T customers should now brace themselves for a hike in their voice and U-verse video service rates, as the company has decided to increase the prices of these services with effect from 2016. Almost all the TV packages are poised to see prices going up by $2 per month. The voice plans too, are expected to be dearer by a minimum of $2 per month.
Reason for the Hike
Rising operating costs, especially in programming and service delivery, as well as increasing content costs are the main factors cited by AT&T for the increment in prices. In the third quarter of 2015, total operating expenses of AT&T came in at $33,168 million, up 21.3% year over year. Moreover, the company recently expressed its intent to produce exclusive content for its video services to match rivals like Verizon Communications Inc. VZ, Netlix Inc. NFLX and T-Mobile US Inc. TMUS, which recently teamed up with Hulu LLC.
Recent Pacts
The company deems it essential to develop tailor-made, on-demand content aimed toward the growing young adult population (the Millennials), who comprise the largest chunk of the TV viewer base at present. To this end, AT&T has signed a joint venture with the Chernin Group to form Otter Media. In addition, the company has inked channel distribution deals with Viacom Inc. and A+E networks to beef up its channel portfolio. Moreover, DIRECTV has been involved in producing certain TV series for AT&T viewers. Moreover, the company has regularly invested toward improving customer experience in its wireless LTE networks. These collaborations, although forward looking, have scaled up costs for the company, thereby squeezing its margins.
The Bottom Line
The telecom industry is maturing with multiple players vying for a relatively handful of subscribers. AT&T remains challenged by aggressive pricing plans of direct competitors such as Verizon and Sprint Corp. Moreover, smaller wireless carriers also offer cost effective voice and data plans. This may negatively influence subscriber retention in the near term. Meanwhile, the company recently expanded operations in Mexico in a bid to diversify its market. Massive growth potential and a low wireless penetration rate in the country hint at positive prospects for AT&T. But will it be able to match growth expectations in the near term? We leave the answer to time, for now.
AT&T Inc. (T) currently carries a Zacks Rank #2 (Buy).
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