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AT&T (NYSE:T) competes with Verizon (NYSE:VZ) to offer high bandwidth fiber-optic TV and internet services that rival or beat similar services offered by cable companies (Comcast (NASDAQ:CMCSA), Time Warner Cable (NYSE:TWC)). We believe AT&T’s U-verse fiber-optic services will be an increasingly important part of the company’s internet and TV business. We estimate that there could be a greater than 5% downside to the $37 Trefis price estimate for AT&T’s stock if our growth forecast for U-verse does not materialize.

Internet & TV is 19% of AT&T’s stock

AT&T’s internet & TV business includes U-verse TV, U-verse internet, DSL internet and satellite internet services. We estimate that this part of AT&T constitutes about 19% of the company’s stock, or about $41 billion of AT&T’s value.

U-verse services generate just more than 30% of the revenues for AT&T’s internet and TV business and we believe that this proportion will increase to about 65% by end of our forecast period.

U-verse subscribers to increase more than fourfold by end of our forecast period

U-verse is in initial roll out phase and is expected to gain market share rapidly. We estimate that AT&T currently has more than 2 million U-verse TV subscribers and about 1.8 million U-verse internet subscribers.

We expect these figures to continue to rise rapidly and exceed 8 million by end of our forecast period. This high growth can be attributed to the following factors:

1. Subscriber base will increase as coverage widens

The U-verse service is only accessible in limited regions for now and subscriber counts will increase as AT&T widens the coverage for U-verse.

2. Bundling will encourage adoption

U-verse is sold as a bundled service with TV, internet and phone service combined. The bundled price results in costs savings for consumers and will act as an incentive for faster adoption of U-verse.

Downside of Lower U-verse Subscribers

However, if subscriber growth were to slowdown to a point where AT&T’s total U-verse subscriber base only tripled by end of our forecast period, it could lead to a downside of more than 5% (or $2) for our AT&T estimate. You can modify our forecasts above to how the Trefis estimate for AT&T’s stock would change in different subscriber growth scenarios.

For additional analysis and forecasts, here is our complete model for AT&T’s stock.

Disclosure: No positions

Source: Fiber, U-verse and AT&T's Stock Price