AT&T's 38 market FTTH expansion could boost Dycom's revenues, says Wells Fargo

AT&T's (NYSE: T) ambitious new goal to bring its growing 1 Gbps FTTH service to an additional 38 metro markets could be a positive revenue opportunity for construction suppliers like Dycom.  

Already up and running in 18 metro markets, when it completes this latest build the service provider will double the amount of metro areas it serves with 1 Gbps FTTH services to a total of 56.

Following the launch of the service in Austin, Texas, in 2014, AT&T's GigaPower network has expanded to more than 1 million locations.

Jennifer Fritzsche, senior analyst for Wells Fargo, said in a research note that Dycom is in a good position to get a large portion of this build since it already provides construction services in a number of states where AT&T plans to extend service.

"We estimate that DY has existing contracts with AT&T in 10 of the 20 new expansion states, which cover 22 of the 38 new metro areas," Fritzsche said. "We continue to believe that the AT&T GigaPower deployment remains one of DY's largest opportunities, with AT&T's commitment to build fiber to 14MM locations within 4 years of the DTV closing in July 2015."

Dycom is one of the largest construction providers serving the wireline telecom industry segment, and AT&T is Dycom's largest customer, a trend that was well reflected in its first quarter 2016 earnings.

Dycom reported that AT&T made up 19.1 percent, or $126 million, of its first quarter 2016 revenue.

During the quarter, revenue from AT&T grew 15.4 percent organically year-over-year. It renewed a contract with AT&T for construction and maintenance agreements in North Carolina, South Carolina, Georgia and Florida. For the full year of 2015, AT&T generated $420.6 million in total revenue.

Fritzsche said that as AT&T ramps up the service to an additional 13 million locations during the upcoming years, it's going to have to work with local contractors owned by Dycom and others to assist with completing the build.

Given the size and scope of the FTTH expansions, AT&T has said that it will use a number of methods to achieve its goals. This includes extending fiber from its existing fiber-to-the-node infrastructure for its U-verse broadband service to make those network builds fiber-to-the-premises (FTTP) capable.

"With only 1MM locations currently connected to high-speed fiber, AT&T will need to connect 13MM locations with gigabit fiber over the next 3.5 years, which implies a significant ramp in construction activity," Fritzsche said. "We believe DY -- which is 5x larger than its closest competitor -- is well-positioned to capture a significant portion of that build-out."

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