AT&T’s (NYSE:T) recent acquisition of T-Mobile for $39 billion adds a new weapon to the company’s arsenal, providing additional spectrum that will enable 4G LTE deployment to more customers. The move heats up competition with providers like Verizon (NYSE:VZ) and Sprint (NYSE:S).  Sprint’s CEO has actually raised concerns that the merger between AT&T and T-Mobile would stifle competition and put too much power into the hands of AT&T and Verizon, the two leading telecom players in the U.S.
The total number of U.S. mobile phone subscribers has grown from 195 million in 2005 to around 300 million today. However, we anticipate the growth rate to moderate going forward, as wireless penetration (as a percent of total U.S. population) saturates.
Since, increased market penetration and competition will make it difficult for telecom players to raise mobile subscription pricing, AT&T and other providers are shifting focus to connected devices like smartphones, tablets and netbooks to drive growth.
While we anticipate that the U.S. mobile phone subscriber count will approach 372 million by the end of our forecast period, Trefis members anticipate higher growth towards 400 million. The Trefis member forecast implies 5% upside to our AT&T stock price estimate.
We currently have a price estimate of $35.80 for AT&T’s stock, about 15% above market price.
Market Saturation & Competition Will Keep Prices Suppressed
As of December-end 2010, wireless penetration stood at 96%,  suggesting saturation of the mobile phone market. This implies that mobile phone subscription growth will be less driven by market penetration in the years ahead, and will begin to trend in line with population growth. In addition, the telecom space is intensely competitive with a number of national and regional players. Service providers have been able to keep costs in check with the improvement in technology and widening of subscriber base.
Connected Devices to Drive Growth
AT&T’s subscriber additions from connected devices like smartphones, tablets, netbooks, and GPS devices is rising. AT&T reported wireless net adds of 2.8 million in Q4 2010, of which 1.5 million came from connected devices. This suggests continuous expansion in wireless growth areas for AT&T. The company also saw its best ever annual total wireless additions, an increase of 8.9 million for 2010. 
The acquisition of T-Mobile comes at the right time for AT&T, when the mobile broadband landscape is exploding. Through T-Mobile, AT&T can get additional spectrum for deploying 4G LTE to an additional 46.5 million U.S. consumers.  Since connected devices rely primarily on data services, the deployment of 4G LTE becomes more relevant and timely for AT&T.
Trefis Community Forecast
Trefis members forecast that U.S. mobile phone subscribers will increase from 287 million in 2010 to around 401 million by the end of our forecast period, compared with the baseline Trefis estimate of an increase to 372 million during the same period. The member estimates imply an upside of 5% to our $35.80 price estimate for AT&T’s stock.
- see: The Race for 4G: AT&T Buys T-Mobile
- Wireless Quick Facts, CTIA
- AT&T Reports Record 2.8 Million Wireless Net Adds in Fourth Quarter, Jan 27, 2011
- AT&T To Acquire T-MOBILE USA From Deutsche Telekom, AT&T Press Release, March 20, 2011
Disclosure: No positions