There’s a report circulating from The Times of India that AT&T Inc. (T) is looking to re-enter India’s telecom market after leaving the country in 2005.
A lot has changed over the last 10 years, and India has become a developed country with rapid economic growth and a surge in middle class income.
Given AT&T’s growth strategy, which includes moving into Mexico and Latin America through acquisitions, coupled with its history in the country, there is a good chance that this report becomes a reality. If so, T stock has a good shot to double!
India has a population of 1.25 billion people, more than double the North American continent! And although India has historically been a poor country, it is now the fastest-growing smartphone market in the world.
In fact, India smartphone sales are projected to go from 149 million in 2016 to 174 million in 2017, according to Strategy Analytics. And over the next 10 years, the number of middle class consumers will rise significantly as businesses penetrate the region. Therefore, along with a growth in income, smartphone sales should continue to surge.
With AT&T having history in the region and an understanding of its network and infrastructure, as well as a growth strategy that centers around expansion into new territories, it seems like a good fit that AT&T would head back to India.
Ironically, it would be competing with its previous joint venture, Idea Cellular, which — along with Bharti Airtel — is the country’s biggest service provider.
AT&T’s Likely Strategy
Having said that, the report suggests that AT&T will enter India as a mobile virtual network operator, which means it leases the network of an existing wireless service provider, but offers its own service plan(s). While AT&T may go this route initially, it is hard to imagine the company would settle with the networks of Indian telecoms … not when there are large bands of spectrum scheduled for auction in the second half of this year.
India’s current wireless market leaders have accumulated large debt positions over many years, which may limit their involvement or willingness to outbid AT&T for high quality bands of spectrum. When you consider the subscriber growth implications that entering India could have for AT&T, it is likely that the wireless company would be very aggressive with bids, and would aim to steal market share by building a network that is superior to all other competitors in the country.
Big Implications for T Stock
However, AT&T does not need to grab a large share of the Indian wireless market for it to have a big impact on T stock. Currently, AT&T’s wireless network covers 400 million consumers, 100 million more than Verizon Communications Inc. (VZ), a premium it bought by moving into Mexico. That gives AT&T a bigger playing field to find new subscribers, something that has become difficult in recent memory.
So while AT&T’s task of finding new subscribers is easier with the addition of Mexico, and soon Latin America, it could really set itself apart by covering another 1.25 billion in India. Furthermore, even if AT&T targeted just 25% of India’s population initially, it would still be a significant gain for its coverage network — a 75% increase.
All things considered, T stock has performed well in 2016, but it still trades at roughly 13x fiscal year 2017 earnings per share. That’s about the same multiple as Verizon and half the premium of T-Mobile US Inc (TMUS).
If AT&T were to enter India, and achieve rapid subscriber growth, data consumption growth and video growth with DirectTV, there’s little doubt that T stock would achieve huge gains as multiples expand.
Theoretically, if AT&T can grab just 10% of the Indian market over time, effectively doubling its subscriber base, then it is only logical to suggest that shares of T stock double behind the accelerated growth rate, multiple expansions and improved outlook.
If AT&T can enter India like it has Mexico, covering all of its population and offering network speeds and reliability that is second to none, investors can’t discount the likelihood of it becoming a leader in the region. If that happens, T stock could be one of the best investments of the next decade.
In other words, AT&T investors should be pushing for a move into India.
As of this writing, Brian Nichols was long AT&T.
