AT&T's Sneaky Plan to Improve Its Network Capacity

By Markets Fool.com


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"Starting in early 2017, AT&T will roll out a free and convenient, data-saving feature to customers." At least that's what a press release announcing AT&T's (NYSE: T) Stream Saver says.

Stream Saver will reduce the quality of streaming video on subscribers' phones to 480p (DVD quality) to use less data than typical high-definition streams. Unlike T-Mobile's (NASDAQ: TMUS) Binge On promotion, however, AT&T will still count the data used to stream the video toward customers' data caps. Users can turn Stream Saver on and off.

AT&T says it's doing this for its customers, but it stands to benefit its business significantly more. When T-Mobile rolled out Binge On -- which allows streaming that doesn't count toward your data cap -- it reduced the amount of data congestion on its network even as the amount of streaming video went up. AT&T stands to see a similar benefit, and it's not even giving away free data.

How Binge On benefited T-Mobile

Binge On has been hugely successful for T-Mobile. Not only did it continue to differentiate the third-place wireless carrier from its competitors, it provided significant efficiencies for its network.

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During the company's first-quarter earnings call earlier this year, management told analysts that subscribers were streaming about twice as much video with Binge On as before. But thanks to throttling the video quality down to 480p, data congestion on T-Mobile's network declined by more than 10%.

That allowed T-Mobile to provide better service to all of its customers, maintaining high data speeds even during peak hours. Combined with continued improvements to its network, it's now able to offer its T-Mobile One service plan, which includes unlimited data with similar caveats to Binge On.

AT&T stands to benefit just as much

While customers don't have much incentive to keep AT&T's Stream Saver active, AT&T is betting that most customers won't change their data settings once it's turned on by AT&T. What's more, since the data used from video streaming still counts against users' data caps, they're unlikely to change their behavior as drastically as T-Mobile subscribers.

So, where T-Mobile experienced twice as much video streaming and a 10% gain in network efficiencies, AT&T could experience even better improvements in network efficiency since users are unlikely to stream twice as much. That could be offset by those users -- like unlimited data plan customers -- that opt out of Stream Saver. But those users will likely represent a small portion of customers.

AT&T needs it more than T-Mobile

AT&T needs to free up bandwidth on its network more than T-Mobile. Not only does T-Mobile have more spectrum per subscriber than AT&T, it's quickly converting most of its spectrum to work on its LTE network while AT&T lags behind.

What's more, T-Mobile is planning to spend up to $10 billion in the ongoing incentive spectrum auction. AT&T's recent string of big acquisitions means it will likely have to cut back on spectrum acquisition plans. As such, its position with subscribers only stands to get worse. (Granted, AT&T is consistently bleeding phone subscribers, but that's not exactly the best way to improve its spectrum per subscriber.)

Additionally, AT&T is expecting a huge increase in video streaming in the next few months after it launches DIRECTV Now. The over-the-top streaming bundle will include around 100 live channels, and AT&T won't count streaming data from the DIRECTVNow app against users' data caps.

The policy has come under fire from the FCC, which is investigating whether it violates so-called net neutrality. Unlike T-Mobile's Binge On (which is also controversial), AT&T will only exempt data used by DIRECTVNow, and not any other streaming services.

With an impending surge in video streaming and a lower expected haul from the incentive spectrum auction, AT&T is looking for ways to save bandwidth. Stream Saver should accomplish that, but AT&T is betting its customers either won't notice the difference or won't care. Considering it's completely optional, it's not a huge risk for AT&T, but the rewards could be significant given its current bandwidth limitations.

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