Should you invest in AT&T Inc. (NYSE:T)? It’s no surprise that the telecom industry has registered a slowdown in recent years. The smartphone market has reached its saturation point and it’s harder for companies to generate growth by adding new customers. Moreover, tough competition means that it’s harder for telecom companies to retain customers. This is why there have been many mergers and acquisitions in the telecom space. In 2015, there were over 250 deals in the telecom space, preceded by over 300 deals in 2014.
There are several reasons for the increase in M&A activity in the telecom industry. A merger between two telecom companies can allow them to avoid overlapping in certain areas and save money on infrastructure, such as cell towers. In addition, these mergers consolidate their customer bases and allow the companies to enter new markets. Moreover, mergers allow companies to cut customer acquisition costs and provide broader services that can increase customer satisfaction rates and prevent them from leaving for competitors.
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Despite many reports of slowdown in the telecom space, accounting and consultancy firm Deloitte expects some growth in the mobile industry this year. According to a report, content and Internet of Things will be two areas in which telecom companies should focus on for the next couple of years, as technology allowing customers to control their homes and cars is becoming more available. Companies should also consider implementing fifth generation (5G) mobile networks, with upgrades potentially costing billions of dollars. Deloitte expects mass-market 5G coverage by 2020.
However, aside from developments in the telecom industry, companies are also expanding to other areas in order to deliver higher return on investment to shareholders. In this way, Verizon Communications Inc. (NYSE:VZ) acquired AOL in 2015 and is currently in the process of buying Yahoo! Inc. (NASDAQ:YHOO)’s core internet business, which will allow it to tap into the online advertising segment. In AT&T Inc. (NYSE:T)’s case, it is currently in the process of buying Time Warner Inc (NYSE:TWX) in order to get into the content business. The deal is awaiting regulatory approval, with concerns circulating that the Trump administration might oppose the deal. CNN, which is owned by Time Warner, was accused on several occasions by Trump and people close to him of “unfairly” covering the president and his campaign, and of being “fake news”.
Nevertheless, if the merger between AT&T Inc. (NYSE:T) and Time Warner Inc (NYSE:TWX) gets the green light, experts on the Street are talking about the possibility of similar deals, as other big telecom companies like Sprint Corp (NYSE:S) and Verizon would be interested in matching AT&T in the content space. In this regard, Netflix, Inc. (NASDAQ:NFLX) was rumored as a possible takeover target.
On the next page, we will take a closer look at what smart money investors think about AT&T and explain why it is important.