Presents a summary of AT&T's future technology outlook and its transition from a telecom company into an application service provider. Also details ATT's technology investments vis-à-vis its competitors.

1. 1
AT&T INC. Technology Investment Outlook: FY 2016 – 2017
AT&T’s vision is to move from being a telecom service provider to become the first
integrated solutions provider in the US. The combination of local and long-haul fiber, data
centers and a nationwide LTE network gives it an advantage in mobile data services over
its competitors. The company has two pronged strategy to build its network capacity and
increase its product portfolio especially when revenues from traditional voice services
continue to decline and customers switch to wireless or VoIP services.
Building blocks, technology changes and expanding network assets
The company has invested in network upgrade and bandwidth expansion to support
bandwidth demand from upcoming solutions in virtual reality, virtual private network, video
streaming, cloud, big data and Internet of things (IoT) solutions.
 AT&T is collaborating with Ericsson and Intel to work on 5G starting 2Q16 with
technologies such as millimeter waves, network function virtualization (NFV) and
software-defined networking (SDN) among the key inputs. SDN strategy was
announced in 2014 to virtualize 75% of network by 2020. The company is expected to
virtualize 30% by 2016, to support 5G and lower the data delivery costs.
 Secured spectrum footprint in the government auction, providing it the network
capacity for TV Everywhere plans, challenging traditional Pay TV operators in the US.
AT&T currently has approximately ~40MHz of WCS spectrum it can deploy.
 GigaPower footprint expansion by Fiber to the building (FTTB) and Fiber to the home
(FTTH), to over 1mn customer locations in 2015 and will continue to expand network.
 LTE replacing 2G expected to increase from 355mn point of presence (POPs) in
North America in 2015 to 385mn by end of 2016. It will also invest ~US$3bn on
expansion plan to expand LTE coverage to ~100m POPs in Mexico by 2018.
Looking to expand its video portfolio after acquisition of Direct TV. AT&T’s video
expansion strategy to integrate with its existing portfolio presents an opportunity to
increase topline numbers. According to Nielsen research in 2015, ~130mn people were
watching videos on mobile devices in the US. Acquisition of Direct TV and Quickplay
Media, Inc. will help leverage portfolio of programming and streaming platforms and add
to the existing U-verse service. Also, this will offer enhanced experience to its existing
customers. AT&T smartphone subscribers have ~2x higher ARPU than feature phone
customers, proving increased smartphone penetration to benefit content streaming.
Internet of things (IoT) continues to be a major initiative for AT&T. The carrier currently
has over 26m devices connected including over 5.8m cars connected its network.
127.4 128.8 132.4
146.8
162.3
19.73 21.23 21.43 20.02 21.49
$0
$50
$100
$150
$200
2012 2013 2014 2015 LTM Jun
2016
Revenue Capital Expenditure
Business
Solutions
44%
Entertainment
Group
31%
Consumer
Mobility
21%
International
4%
64.8
71.3 73.2
121.0 119.6
$0
$20
$40
$60
$80
$100
$120
$140
2012 2013 2014 2015 Jun-16
Net Debt ($bn)
AT&T
31%
Verizon
44%
Sprint
13%
T Mobile
12%
Integrated
Solutions
Introduce
5G
FTTB/
FTTH
SDN/
NFV
Direct TV
Internet
of Things
2G to
LTE
Spectrum
Footprint
Revenue share for the big four telecom
firms in the US
Net Debt Position for AT&T ($bn)
Revenue Segment for AT&T – LTM Jun16
Revenue Vs Capital Expenditure for AT&T ($bn)
Source: Q4 2015 Earnings Conference Call Jan 2016 (LINK); Q1 2016 earnings call (LINK); 5G Roadmap (LINK); Nielsen (LINK)
Finished deployment for Project
Velocity IP in FY14
AT&T Technology Investment Focus

2. 2
Industry investment focus – testing the Application Service Provider model
Telecom service providers in general have investment focus towards up-gradation and
expansion of network capacity and start deployment of 5G in medium term in the US. All
companies are looking for new revenue opportunities as the legacy communications
business is experiencing slowdown. Operators are developing new ecosystems in video
and the IoT by leveraging their network and scaling existing platforms.
While Verizon acquired AOL in FY15 with an investment rationale to expand in digital
video-over-wireless connection, AT&T’s acquisition of DirecTV and Quickplay Media, Inc.
along with combination of local and long-haul fiber and LTE expansion offers an
advantage in data services.
Verizon has been investing on prepositioning for the 5G technology (started testing in end
of FY15) and has invested in AWS-3 spectrum, partially funded by leasing its
communication tower rights to American Tower in FY15.
Sprint started roll out of LTE plus in the US in 2015 and is also collaborating with partners
and other companies on the 5G opportunity. The company is well-positioned for 5G with
spectrum holdings of over 160 MHz of 2.5 spectrum on average across the top 100 US
markets, giving Sprint more high band capacity than any other carrier in the US. The
company is focused towards network densification and has majority of its capital
expenditure invested on its network for FY16.
Cable operators becoming aggressive in Pay TV segment, OTT is a threat
Traditional cable providers such as Comcast are relying on X1 platform to compete with
the OTT (over-the-top) services. As a direct competition from QuickPlay (AT&T), go90
(Verizon) and Netflix, the company is investing on its X1 platform. However partial
availability of cloud on the platform, slow roll out and high fee are factors that are making
users to drift away from Comcast services. In FY15 capital expenditure for Comcast in
cable communication segment was primarily focused on customer premises equipment,
including X1 and wireless gateways, increased investment in network infrastructure to
increase network capacity, as well as continued investment to expand Business Services.
AT&T’s strategy to become an integrated solutions provider in the US has primarily
been driven by a shift in the business model from being a legacy telecom communication
company. Its recent investment in platforms, technologies and acquisitions has a vision to
expand its platform, venture into application services and integrate its solutions across
platforms. The company is well placed in terms of its technology investment strategy of
network densification and FTTH / FTTB deployment, and has started to leverage the
improved bandwidth by enhancing its video platform, investing in IoT and integrating its
B2B solutions. Telecom companies globally are following similar strategy to move to
become an application service provider, who will be an important link in the technology
value chain being adopted by different industries and integrated into their products and
solutions.
FY12 FY13 FY14 FY15
AT&T 15.5% 16.5% 16.2% 13.6%
Verizon 14.0% 13.8% 13.5% 13.5%
Sprint 12.1% 22.8% 17.4% 21.7%
T Mobile 14.7% 16.4% 14.5% 14.0%
Comcast 7.9% 8.4% 8.9% 9.4%
Time Warner14.5% 14.5% 18.0% 18.8%
Vodafone 13.9% 16.5% 21.8% 21.0%
Telefonica 16.5% 15.8% 20.0% 20.3%
15.5%
16.5% 16.2%
13.6%14.0%
13.8%
13.5% 13.5%
12.1%
22.8%
17.4%
21.7%
14.7%
16.4%
14.5%
14.0%
10%
12%
14%
16%
18%
20%
22%
24%
FY12 FY13 FY14 FY15
AT&T Verizon Sprint T Mobile Average
15.5%
16.5%
16.2%
13.6%
7.9%
8.4%
8.9%
9.4%
14.5% 14.5%
18.0%
18.8%
4%
6%
8%
10%
12%
14%
16%
18%
20%
FY12 FY13 FY14 FY15
AT&T Comcast Time Warner Average
15.5%
16.2%
13.6%13.9%
16.5%
21.8%
21.0%
16.5%
15.8%
20.0% 20.3%
12%
14%
16%
18%
20%
22%
24%
FY12 FY13 FY14 FY15
AT&T Vodafone Telefonica Average
Capital Expenditure as % of Revenue: Telecom
Capital Expenditure as % of Revenue
Capital Expenditure as % of Revenue: Pay TV
Capital Expenditure as % of Revenue:
International
Source: Verizon acquisition of AOL (LINK); Verizon offloading tower rights (LINK); Comcast earnings call Q415 (LINK); Sprint (LINK); Verizon (LINK ).

3. 3
Risks/ weaknesses to service providers approach
AT&T investment in technology and strategy to integrate its solutions has potential to leverage the upside to all its
business segments. However, the company’s primary challenge is to complete its SDN network and fiber expansion
according to the planned timelines.
Also, the planned FCC spectrum auction in 2016 and its allocation will be a key to its deployment strategy for its Direct TV
content for next two to four years. The nature of FCC’s incentive auction means spectrum will only get sold if TV stations
decide to give up their rights to airwaves they currently hold. Therefore it might not be possible to estimate how much
spectrum will actually be available for the carriers.
Vendor opportunities are expected to arise primarily in the fiber and 5G deployment. AT&T already has contracts
for many of its required products and services with terms of two to five years and therefore vendor opportunities may be
limited. However introduction of next generation hardware to compete with cable's recent initiatives like Xfinity and
Spectrum are expected to create demand for new generation set-tops, routers, and interface to be deployed by 2018.
Also, planned deployment of 5G in medium term presents opportunities for both hardware and IT service companies.
AT&T is already collaborating with Ericsson and Intel to work its 5G deployment. The company has moved away from
using specialized, proprietary hardware that was tightly coupled with vendor software and is instead focused on using
virtualized software on less-expensive commodity hardware.
Expansion of Fiber-to-the-Home coverage will create continued demand for Gigabit-capable Passive Optical Networks
(GPON) equipment and Ethernet Aggregation equipment from suppliers. The company plans to increase the footprint to
2mn customers by end of 2016 from 1mn in the end of 2015.
Source: Q4 2015 Earnings Conference Call Jan 2016 (LINK); Q1 2016 earnings call (LINK).