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Wireless Carrier Roundup

Posted on Friday, Nov 13th 2009

There has been a buzz of activity in the wireless market with several Android phones being launched, including the Droid by Motorola on Verizon. Since the launch of the iPhone, AT&T has been increasing its subscriber base and Verizon has managed to keep up with the competition. However, Sprint and T-Mobile are finding it hard to hold on to their customers, and the gap between them and the top two has been increasing at an alarming rate.

On October 22, AT&T (NYSE:T), the leading wireless carrier in the United States with annual revenue of $124 billion, reported third quarter results that beat estimates. Q3 revenue was down 1.2% y-o-y and up 0.4% q-o-q to $30.9 billion. Net income was $3.2 billion or $0.54 per share versus $3.8 billion or $0.55 per share last year. Analysts expected earnings of $0.50 per share. Q2 analysis is available here.

AT&T activated 3.2 million iPhones in the quarter, and its subscriber base increased by 2 million in the quarter to 81.6 million, versus 74.9 million last year. Post-paid churn improved from 1.22% last year to 1.17%, but increased from 1.09% last quarter. Average revenue per user (ARPU) increased 3.8% to $61.23, and data revenue grew 33.6% to $3.6 billion.

Wireless service revenues grew 10% to $12.4 billion while wireline revenues declined 7.1% to $16.3 billion. AT&T added 240,000 U-verse TV subscribers to reach a subscriber base of 1.8 million. It also added 252,000 broadband connections in the quarter.

Free cash flow was $5.5 billion and the company reduced its debt by $4.1 billion; since mid-year 2008, it has reduced debt net of cash on hand by $12 billion. The total headcount declined by nearly 4,000 in the quarter and 18,000 year-to-date.

AT&T has completed the acquisition of Centennial Communications Corp (CYCL), the eighth largest U.S. wireless carrier by number of subscribers, which would add 893,000 new subscribers to its network.

For the full year 2009, it expects revenue to be slightly below 2008 results, mainly due to economic pressures on sales to business customers. AT&T is currently trading around $26 with market cap of about $156 billion.

AT&T has more than 26 million integrated devices in service. It is also targeting emerging devices such as e-readers from Amazon and Barnes & Noble; netbooks from Dell, Acer, and Lenovo; and the new Nokia booklet 3G.

AT&T said that it has improved its 3G network with 3G dropped calls are down 12% and 3G blocked calls down 30%. The company’s composite quality index up is 25% over the past 10 months. Regarding 4G, AT&T said it will begin testing the Long-Term Evolution (LTE) network in its labs next year and will begin deployment in 2011. AT&T’s poor network coverage was the target of Verizon’s ads for the new Motorola Droid.

On October 26, Verizon, with annual revenue of $97.4 billion reported its third quarter results. Q3 revenue grew 10.2% to $27.3 billion, including revenue from the Alltel acquisition in January 2009. Net income was $1.18 billion or $0.41 per share versus $1.67 billion $0.59 per share last year. Non-GAAP earnings were $0.60 per share, meeting Wall Street estimates of $0.60 per share on revenue of $27.19 billion. Q2 analysis is available here.

Wireless revenue grew 24.4% to $15.8 billion with data revenue growing 48.1% to $4.1 billion. Verizon added 1.2 million customers in the quarter (versus AT&T’s 2 million), and its total number of subscribers increased 25.7% to 89 million.

Wireline revenue declined 4.8% to $11.6 billion. Verizon added 191,000 net new FiOS TV customers, and the total number of customers increased 67.7% to 2.7 million. The company also added 198,000 FiOS Internet customers, taking the total number of FiOS Internet customers to 3.3 million, up 49.2% [y-o-y]. Verizon reduced the number of wireline customers  [? Was headcount] by 4,000 in the third quarter and plans to cut 4,000 more jobs in the fourth quarter.

Total headcount was down 5,000 from the end of last quarter. Free cash flow was $10.7 billion. Net debt at the end of the third quarter was $61.6 billion, down $2.5 billion from Q2.?Verizon believes that the 4G technology evolution with LTE is a huge growth opportunity, and it is on schedule for commercial introduction of LTE next year.

Verizon continued to roll out new devices, including the HTC Touch Pro2, Samsung Rogue, Nokia 7705 Twist, BlackBerry Storm 2, and Motorola Droid. Verizon has reportedly spent $100 million on the advertising for Droid, and analysts expect the company to sell 1 million to 1.2 million Droids in the fourth quarter. The stock is currently trading around $30 with market cap of about $86 billion.

On October 29, Sprint Nextel Corp. (NYSE:S) reported third quarter results that missed estimates. Q3 revenue was down 9% to $8 billion while net loss widened 47% to $478 million or $0.17 per share versus loss of $326 million or $0.11 per share last year. Analysts expected loss of $0.15 per share. Q2 analysis is available here.

Sprint generated $664.0 million of free cash flow and ended the third quarter with $5.9 billion in cash. It has no remaining significant maturities in 2009 and $1.7 billion in debt will be maturing in 2010.

Sprint is acquiring Virgin Mobile USA (VM) to strengthen its presence in the fast-growing prepaid market. The company recently also announced plans to buy its wireless affiliate iPCS Inc (IPCS) for $831 million, which will expand Sprint’s service territories and offer cost synergies.

Wireline revenues were down 10% y-o-y and 1% q-o-q to $1.4 billion as voice and data declines offset the 5% growth in Internet revenue.

Wireless service revenue declined 8% y-o-y and 2% q-o-q to $6.3 billion due to loss of subscribers. The total number of customers at Sprint was 48.3 million, down from 48.8 million last quarter and 50.5 million last year. Total wireless customers declined by approximately 545,000 versus 257,000 last quarter. Postpaid churn increased to 2.17% from 2.15% last year and 2.05% in Q2 as Sprint lost 801,000 post-paid customers. Postpaid ARPU was stable at $56, due to continued growth in fixed-rate bundled plans such as Simply Everything.

Sprint launched the “Any Mobile, Anytime” plan in early September, which offers unlimited mobile-to-mobile calling to any wireless number on any U.S. wireless carrier. During the quarter, the company added the BlackBerry Tour, Samsung Reclaim, HTC Touch Pro 2, and Samsung Instinct HD to its device lineup. In October, it launched HTC Hero, Samsung Intrepid, and Motorola Debut and plans to make the Samsung Moment and the Palm Pixi available before the holidays. Despite having the Palm Pre and the Tour on its network, Sprint hasn’t been able to capitalize on them. Another ace that Sprint has up its sleeve is its 4G network. It will be introducing 3G/4G dual-mode smartphones next year, and it remains to be seen if it gains the first–to-market advantage. The stock is currently trading around $3 with market cap of about $9 billion. It had hit a 52-week high of $5.94 on May 20.

On November 5, T-Mobile reported its third quarter results. Like Sprint, it lost customers – 77,000 versus 670,000 net additions last year and 325,000 net additions last quarter. Its subscriber base stands at 33.4 million, up from 32.1 million last year but down from 33.5 million the last quarter. Churn was 2.4%, up from 2.2% last quarter and consistent with the last year. ARPU was $47, down from $48 last quarter and $52 last year. Total revenue was $5.38 billion, down from $5.51 billion last year. Net income was $417 million, down from $425 million last quarter and $442 million last year. Q2 analysis is available here. T-Mobile was the first carrier to launch Android phones last year, and this month it started selling Motorola’s Android phone, CLIQ, for $199.99. Analysts expect it to sell 400,000 units in the fourth quarter.

Deutsche Telekom AG (NYSE:DT), the parent company of T-Mobile, reported third quarter revenue of €16.3 billion ($24.1 billion), up by 5%. Net income increased 7% to €959 million ($1.42 billion) compared to €895 million last year as it cut costs to offset falling demand. Analysts had estimated a profit of 830 million euros. T-Mobile Deutschland, the exclusive carrier for the iPhone in Germany, reported that its contract customers increased by 17.1 million driven by huge demand for the iPhone.

Revenue from Germany declined 2% to €6.5 billion ($9.6 billion), Europe declined 13% to €2.6 billion ($3.8 billion), while Southern and Eastern Europe revenue increased 107% to €2.6 billion ($3.8 billion).

Deutsche Telekom has invested about $3 billion this year to expand its 3G network in the United States since there is a surge in the use of data-intensive smartphones. T-Mobile USA’s network covered 167 million people at the end of Q3. The company expects its 3G network to reach 200 million people by the end of the year and 220 million to 230 million people when completed.

Deutsche Telekom was cautious about 2010 due to the weakness in the U.S. dollar, “uncertain economic recovery” in major eastern European markets and the “unknown size and impact” of unemployment in Germany. The stock is currently trading around $14 with market cap of $62 billion. It hit a 52-week low of $10.71 on May 1.

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