Mega carriers like Verizon (VZ) and AT&T (T) have big challenges finding growth now that the U.S. smartphone market is so saturated. What options does that leave for profit growth? Well, while other companies are trying to come up with new ideas, AT&T has announced an interesting plan that could provide a new revenue stream for the company.
The plan is known as Sponsored Data. AT&T will provide advertising opportunities for companies to pay for the downloads of content, such as videos. For example: Suppose a smartphone user wants to download a trailer of a new movie. In this case, the movie studio will pay for that data usage. An icon will also show up on the content, indicating that it’s free.
Already, AT&T is getting some traction with the program. To this end, it has three pilot partners, which include Aquoto (an ad system), Kony Solutions (a business app developer) and United Health (UNH).
For AT&T, Sponsored Data has the potential to solve some nagging problems. First of all, it allows the company to continue to offer affordable subscription plans. This is far from easy, especially with the growth of video (which hogs up massive amounts of data).
AT&T can also get a piece of the rapidly growing mobile ad market. As seen with companies like Facebook (FB) and Twitter (TWTR), mobile is a lucrative business. In fact, AT&T could leverage its ad program into other parts of its business — say for its own apps.
Although, as should be no surprise, AT&T is already coming under fire. A big concern is that Sponsored Data will allow mega Internet operators, like Yahoo (YHOO), Google (GOOG), Facebook and Amazon (AMZN), to crowd out smaller operators. The result could be less choice for users.
Then again, smartphone users who are on a subscription plan are usually sensitive to those plans and wary about anything that might alter them. So a program like Sponsored Data may ultimately be acceptable for many customers.
But Sponsored Data isn’t the only thing that AT&T is pushing to find new revenue sources — another one is the Digital Life platform. It allows for in-car data services and automated home services, which could provide a nice boost.
Now it’s far from clear whether these investments will catch on. But it is encouraging that AT&T is taking some prudent risks. More importantly, the company has a history of bundling new products, which have gotten an increasingly bigger share of consumers’ wallets.
So with mobile becoming ubiquitous — and showing no signs slowing down — it looks like AT&T is making the right moves to capitalize on the opportunity.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.