By the Trefis Team

AT&T Inc. (NYSE: T), which competes with Verizon Communications Inc. (NYSE: VZ) and Sprint Nextel Corporation  (NYSE: S), reported a sharp growth in consumer IP data revenues driven by increased adoption of its fiber optic network U-Verse. AT&T provides services like TV, digital voice and broadband through U-Verse, and the use of these services has increased IP data consumption.

We estimate that the internet and TV business constitutes about 19% of the $38 Trefis price estimate for AT&T’s stock.

For the first time in the past several quarters, AT&T has seen quarterly growth in its consumer wireline revenues and this is mainly attributable to U-Verse subscriber additions. Below we discuss how U-Verse is driving AT&T’s wireline revenues, which has seen a declining trend since recent years.

• U-Verse Drives 32% Year-Over-Year Growth in Consumer IP Data Revenues. AT&T observed a net gain of 231,000 U-Verse subscribers in the first quarter of 2010, taking the total U-verse subscriber base to around 2.3 million. Increasing U-Verse adoption is helping AT&T in the following ways: First, the U-Verse customers tend to subscribe to multi-play bundles due to the bundled cost savings. The availability of higher bandwidth allows transmission of more HD content and faster broadband speeds, and is thus attractive to customers. Second, AT&T has observed high broadband and voice attach rates for U-Verse. Typically, more than 75% of U-Verse TV customers also subscribe to U-Verse broadband and voice. We currently estimate that AT&T will reach a U-Verse TV subscriber base of more than 9 million by the end of Trefis forecast period.
• Rebound In Broadband Subscriber Additions for AT&T. AT&T saw a net gain of 255,000 wireline broadband subscribers for Q1 of 2010, representing one of the best quarterly increases for the company. The additions were primarily driven by the success of U-Verse and improved performance of DSL. AT&T saw a slowdown in broadband subscriber growth in the recent years due to weak DSL performance. However, with strong support from U-Verse expansion, we expect AT&T’s broadband business will continue to gain customers.
• Overall Consumer Wireline Revenues May Get Back On Growth Track. Although AT&T’s consumer IP revenues have grown consistently, its overall consumer wireline revenues have seen a negative growth due to a decline in phone landlines. After several quarters of continuous decline, AT&T posted small growth in overall consumer wireline revenues in the first quarter of 2010. This implies that U-Verse additions are beginning to offset the decline in revenues due to disconnect in landline phones. If this trend continues, AT&T can get back on track and see growth in its consumer wireline business.

For additional analysis and forecasts, visit Trefis.com.

Led by MIT engineers and former Wall Street professionals, the Trefis team builds a model for each company’s stock price based on the relative importance of products that comprise a company’s stock price.

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