Carriers Roundup: AT&T, Verizon, Sprint, T-Mobile

The wireless race is heating up: AT&T acquired two companies in a week earlier this month, Verizon got the green light for its Alltel acquisition and T-Mobile launched the Android phone with Google. Let’s take a look at the recent performances of the major wireless carriers, AT&T, Verizon, Sprint and T-Mobile.

On October 22, AT&T Inc. (NYSE:T), the leading carrier with annual revenue of $119 billion, reported third quarter results that were below analyst expectations. Revenue was up 4% to $31.3 billion driven by the growth in wireless revenues and wireline IP data revenues. Net income was $3.2 billion or $0.55 per share, up from $3.1 billion or $0.50 per share in Q307. Adjusted EPS was $0.67 versus the $0.71 consensus.

By segment, wireless revenue grew 15.4% to $12.6 billion and wireless service revenue grew 14.3% to $11.3 billion. Data revenue grew 50.5% to $2.7 billion. Retail postpaid subscriber ARPU was $58.99, up 2.6%. AT&T activated 2.4 million iPhones in the quarter with 40% new customers (a consistent percentage). Net additions were 2 million, taking its customer base to 74.9 million. Churn was 1.7%, flat with last year. As we saw in our last post, AT&T has a huge subsidy bill, about $900 million this quarter, that has reduced its EPS by $0.10, in line with its expectations last quarter. However, over the 2-year contract, the high revenue iPhone customers will likely more than compensate for the huge subsidy.

Wireline revenue grew 0.3% to $11.5 billion. IP data revenue, accounting for 44% of total revenue, grew 16.2% driven by expansion in U-verse services. Wireline gained 232,000 U-verse subscribers in the quarter. Broadband subscribers totaled 14.8 million, up 7.4%.

Year-to-date free cash flow was $7.9 billion and for the full year AT&T expects it to be $14 billion.

Apart from customer additions from the iPhone, AT&T has other aces up its sleeve. Early in the month, it introduced the BlackBerry Bold exclusively on its network. It also acquired rural cell phone carrier Centennial Communications for $944 million, an acquisition that will add 1.1 million customers. It also acquired WiFi hotspot operator Wayport for $275 million. AT&T provides free WiFi connections to all of its iPhone and BlackBerry customers, and this acquisition will help the company add 3,000 WiFi hotspots to its network.

The stock is currently trading around $25 with a market cap of around $149 billion. On October 10, it hit a 52-week low of $20.90.

On October 27, Verizon Communications (NYSE: VZ), the No.2 carrier with annual revenue of $93 billion, reported its third quarter results. Revenue was up 4.1% to $24.7 billion above analyst estimates of $24.5 billion. Net income was up 31% to $1.67 billion or $0.59 per share.

In the wireless unit, revenues were up 12.5% to $12.7 billion. Service revenue was $10.9 billion of which data revenues, accounting for 25.5% of the total, increased 42.5% to $2.8 billion. Total service ARPU was $52.18 with data ARPU growing 28.3% to $13.3.

Verizon completed its acquisition of Rural Cellular in August. Including 630,000 customers from Rural Cellular, Verizon had net customer additions of 2.1 million, taking its total customer base to 70.8 million (up 11.3%). The $28 billion Alltel acquisition would see Verizon become the No.1 carrier with a customer base of more than 83 million.

In contrast to the trend of the past four quarters, this quarter Verizon’s churn rate went up, to 1.33% from 1.12% last quarter and 1.27% last year. The 3G iPhone seems to be finally threatening the loyalty of Verizon customers.

In the wireline unit, revenues were down 1.7% to $12.2 billion. Wireline data revenues, accounting for 42.9% of total Wireline revenues, increased 14.6% to $5.2 billion. Verizon had 233,000 net new FiOS TV customers and 225,000 net new FiOS Internet customers. It now has 1.6 million FIOS TV customers and 2.2 million FiOS Internet customers with the overall FiOS ARPU about $130 per month. Broadband and video revenues were up 45% to $1.1 billion. Total broadband connections were 8.5 million, up 9.1%.

Verizon has just released RIM’s Storm (earlier called Thunder), priced competitively with the 3G iPhone at $200 with a 2-year contract. Despite this hot release, Verizon expects Christmas spending to be lighter and expects EPS for the full fiscal 2008 to grow 8% below analyst expectations. The stock is currently trading around $27 with market cap of about $76 billion. It hit a 52-week low of $23.07 on October 10.

While AT&T and Verizon saw growth in their wireless revenue and customer base, Sprint reported dismal results and subscriber losses. On November 7, Sprint Nextel Corp. (NYSE: S) which had annual revenue of $40 billion in 2007 reported Q308 results that missed analyst estimates. Last quarter, the company beat analyst estimates and seemed to be on a turnaround under new CEO Dan Hesse. However, the poor economy together with the popularity of the 3G iPhone seem to have made such a recovery much tougher.

Q3 revenue was down 12% to $8.82 billion versus analyst estimates of $8.85 billion. Net loss was $326 million or $0.11 per share versus net income of $64 million or $0.02 per share last year. Adjusted EPS was $0.00 per share versus analyst estimates of $0.03 per share.

Sprint generated $1.1 billion of free cash flow in the quarter. It paid $2 billion of its debt and ended the quarter with $4.1 billion in cash. It announced a revised agreement with its lenders under which it has reduced its revolving credit facility from $6 billion to $4.5 billion.

Sprint lost 1.3 million customers in the quarter versus 901,000 last quarter and has just 50.5 million subscribers, down 6.4%. Churn was up to 2.15% from 2% last quarter. ARPU, however, was stable at $56. Wireless revenue was down 13% to $7.5 billion. Wireline revenues were down 2% to $1.6 billion with Internet revenues growing 37% y-o-y and 5% q-o-q. Internet revenues now account for about 35% of wireline revenues versus 25% last year.

Sprint expects that fourth quarter churn will be flat with Q3 levels and that ARPU will decline slightly. It also expects to generate positive free cash flow. The stock is currently trading around a dismal $2 with a market cap of about $5 billion.

The No.4 carrier, T-Mobile USA was slightly better off: it added 670,000 net new customers, though net additions are down 22% y-o-y. The company now has 32.1 million customers. Churn increased from 1.9% in Q2 to 2.4% while ARPU was stable at $52.

On November 6, T-Mobile’s parent company Deutsche Telekom AG (NYSE:DT) with annual revenue of $92 billion, reported a strong rise in profits due to a lower tax bill. Net profit tripled from €256 million to €895 million ($1.2 billion). Revenue declined 1.5% to €15.5 billion ($20 billion) due to currency fluctuations.

T-Mobile Deutschland, the exclusive carrier for the iPhone in Germany, added 271,000 new subscribers in Q3, up a phenomenal 82%. Year-to-date, the company added 685,000 new subscribers, up 19%.

T-Mobile USA reported revenue of $5.51 billion, up 2.7%. On October 22, it launched the T-Mobile G1 with Google. The G1 is the first phone on Android, Google’s software stack for mobile devices. If the G1 proves successful, we can expect T-Mobile’s fortunes to change considerably.

DT is currently trading around $13 with market cap around $58 billion. It hit its 52-week low of $14.12 on September 29.