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AT&T Inc. (T - Analyst Report), the second-largest U.S. mobile service provider, successfully renewed a long-term contract with AMC Networks Inc. (AMCX - Snapshot Report) following the expiration of the existing contract on June 20.
The deal will continue to show hit channels like "Mad Men" and "The Walking Dead" apart from other channels like AMC, IFC, Sundance Channel and WE TV on AT&T’s U-verse Pay TV system. AT&T’s U-verse TV subscribers reached 4 million at the end of the first quarter, with the net addition of 200,000 customers on continued high-speed Internet attach rates.
AT&T was in negotiation with AMC for the past few days to renew the agreement. AMC was demanding a huge rate hike for the telecast of its channels on the company’s U-verse TV. Finally, the deal was reached on reasonable terms, though the deal price has not yet been disclosed.
Meanwhile, AT&T’s major TV service competitor, Dish Network Corp. (DISH - Analyst Report) dropped the AMC channels from its Pay TV service due to higher rates after the contract expired on June 30. The second-largest satellite TV provider behind DirectTV (DTV - Analyst Report) has replaced channels like AMC, IFC, Sundance Channel and WE TV, with HDNet Movies, Style and HDNet. Dish TV carries around 14 million subscribers.
We see these as positive moves for AT&T as it is now the major carrier of AMC channels. The offering will boost more data revenues and average monthly revenue per user in the wireline segment. It will further help to counter increasing competition from cable and satellite service providers such as Dish and DirectTV.
With this, AT&T foresees revenue returning to growth and margins becoming stable this year. We believe healthy growth from the company’s U-verse video (U-verse TV and bundled satellite) services will lead to the expansion of U-verse network deployment to more customers going forward.
We are maintaining our long-term Neutral recommendation on AT&T. The company retains the Zacks # 3 (Hold) Rank for the short term (1–3 months).
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