Seeking Alpha
Large-cap, event-driven, value
Profile| Send Message|
( followers)  

Service-providers/mobile-carriers in the U.S. are increasingly facing the problem of "very little subscriber growth in the industry", as there is hardly any-one in the country who needs mobile phone and doesn't have one. Due to this, the service-providers like AT&T (NYSE:T) are looking towards the new growth markets/opportunities. Connected-car is one of such markets.

For those who are not familiar with the connected-car concept:

A connected-car is a car equipped with the factory-fitted mobile connectivity, which allows automakers to integrate cutting-edge technologies in the controls and in-dash display of cars (either through build-in embedded systems or through smart phone). The connectivity can be used to deliver solutions such as performance-monitoring, maintenance-screening, remote-tracking, smartphone integration, in-car entertainment services, and informatics services. The user can access these services through speech recognition, touch-interface and hands-free technologies.

The connectivity can be achieved through embedded systems and also through smartphone based connectivity systems. Embedded systems are totally integrated in the car to provide the connectivity without any external device. Smartphone based connectivity system first needs a smartphone to be connected to the car. Auto-manufactures, technology providers (hardware and software), developers, and connectivity providers (Service-providers/mobile-carriers) are the integral parts of the connected-car ecosystem.

Market size:

The connected-car market is expected to grow at a rapid pace due to the growing number of services that can be delivered/accessed through the connected cars (related to safety, security, infotainment, navigation, etc.). Marketsandmarkets.com forecasts that more than 50% of cars sold worldwide in 2018 will be connected, and the total connected car shipments will reach 59.86 million, representing a compounded annual growth rate of 41.2% (from 2013 to 2018). The market will present direct revenue channels from content, applications and services. The global connected car market will be worth $98.42 billion in 2018.

The company already provides mobile internet access in vehicles, through a proprietary, global SIM platform, which makes it possible for automotive makers to achieve wireless connectivity through a single carrier. Recently, to play a bigger role in the market, the company announced two new initiatives that include the 5,000-square foot AT&T Drive studio and a modular automotive platform, AT&T Drive.

AT&T Drive studio:

The basic purpose of the studio is to explore, develop and exhibit the technologies related to the connected-car ecosystem. The studio will work as a convergence platform between the connected-car ecosystem partners, auto manufactures, technology providers and developers. The studio includes working garage bays, a full showroom to exhibit the latest innovations, a speech lab, etc. The studio will allow the company to build and demonstrate the effectiveness of its solutions to customers from the same place.

As mentioned by the company:

"We're also going to use this facility to extend our relationship with the developer community and drive new applications and services focused specifically on the car and their end users."

AT&T Drive:

The platform offers multiple services, ranging from connectivity and billing solutions to data analytics and infotainment. It will allow the customers to choose the connected-car solutions that best meet their needs. The platform is highly customizable and allows the customers to add their own solutions and innovations.

Listed below are the reasons that should lead the company towards the success in the connected-car market.

Realistic approach:

As a connectivity provider, the company's role in the connected-car market is very limited. The company understands that if it wants to transform its role from just a connectivity provider to a successful connected-car solution provider then it needs to offer the solutions that are best. That is why the company is approaching the market with a platform which is open for everyone (auto manufactures, developers and technology provides). The open platform will allow the company to offer the world-class car-connectivity solutions to the auto manufactures without any bias towards any particular technology. The company's approach should allow it to establish a strong presence in the market.

Reach and infrastructure:

Due to the efforts made by the company during the last few years, today, the company has an extensive 4G coverage (see the chart below). The company's vast reach and newly deployed LTE infrastructure will provide a fast and reliable connectivity (a key requirement for the connected-car market) and should work as a big advantage for the company.

(click to enlarge) (Source: Company's website)

High margins:

The market is a huge opportunity for AT&T, as the market is a kind of extension of its existing businesses and can be served through its existing infrastructure. This will allow the company to generate high margins even on a small scale, due to minimal capital expenditures and low operating costs.

Long-term benefits:

Until now, the connected-car market is limited to the services, such as location tracking, security, and smartphone integration. But in the future, the market may well experience the proliferation of the services/applications that are specifically meant for the connected-car market, due to the reasons mentioned below:

  • Rising developers' and technology-providers' attention, which will lead to more innovative products, applications, and functions.
  • The rising penetration of the embedded systems, which means that in future the connected cars will increasingly work as self-dependent connected units (without the need of smartphones).

The company's presence in the market through the embedded systems will allow it to capture the fast evolving business opportunities (in-car entertainment services, informatics services, etc.) in the connected-car ecosystem in a better way.

All in all, the company is moving ahead in a multibillion-dollar, rapidly growing market with realistic and effective approach. There is every reason for the company to feel confident and excited about its possibilities in the connected-car market ,where it competes with the companies like Google (NASDAQ:GOOG), Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Blackberry (NASDAQ:BBRY) and many others.

Disclaimer: Investments in stock markets carry significant risk, stock prices can rise or fall without any understandable or fundamental reasons. Enter only if one has the appetite to take risk and heart to withstand the volatile nature of the stock markets.

This article reflects the personal views of the author about the company and one must consult its financial adviser before making any decision.

Source: AT&T: A Realistic And Effective Approach Towards Connected-Car Market.