Wireless Carriers In The 4G Race

The 4G race should pick up steam this year with Sprint (NYSE:S) and Verizon (NYSE:VZ) accelerating their handset development efforts. Sprint and its joint venture Clearwire are betting on WiMax while Verizon, AT&T (NYSE:T), and T-Mobile are investing in the Long-Term Evolution (LTE) technology for 4G. Let’s take a closer look. 4G, or the fourth generation of cellular wireless standards, is a successor to the 3G technology. While 3G offers data rates up to 2Mbps, a 4G system should offer at least 100Mbps data rate. This would enable faster access to mobile video and fuel the trend for online video.

Sprint, which has seen customer numbers dwindle over the past few years, is hoping that its 4G WiMAX/CDMA service will revitalize growth. Its WiMax service provided by Clearwire is already available in 27 U.S. cities via WiMax data cards and dongles, and this year, Sprint will add similar services in Boston, Denver, Kansas City, Houston, Minneapolis, New York, San Francisco, and Washington, DC. HTC, which is bringing out a WiMax handset for Sprint, already developed a WiMax handset for Russia’s Scartel WiMax network in 2008. Other investors in Clearwire’s WiMax 4G technology include Intel, Comcast, Time Warner, and Bright House Networks. With Intel as part of the WiMax camp, IDC reckons that this year more portable PCs will ship with WiMax embedded than with 3G.

On the other hand, Verizon expects its initial commercial launch to cover 25 to 30 markets by the end of this year. It expects to double the number of its LTE markets to between 50 and 60 by the end of 2011 and then add LTE to its entire 3G footprint – about 94% of its sites – by the end of 2013.

Verizon in January reported a 10.7% increase in annual revenue to $107.8 billion and 10% growth in Q4 revenue to $27.1 billion. However, the company also reported a loss of $653 million due to a $3 billion charge for workforce reductions. It added 2.2 million subscribers and ended the year with a subscriber base of 87.5 million. It continued to have the lowest churn in the industry at 1.06%.

Sprint seems to have the first-mover advantage in the 4G race, but will this be enough to make customer numbers turn around? In its recent fourth quarter results, Sprint managed to limit its customer losses to 148,000 versus 545,000 in the third quarter. The total number of customers was 48.1 million, down from 48.3 million last quarter. Postpaid churn decreased to 2.11% from 2.17% last quarter and 2.16% last year as Sprint lost 504,000 postpaid customers. Prepaid churn improved to 5.56% from 8.20% last year and 6.65% in Q3 due to the Virgin Mobile acquisition as well as subscriber additions to its Boost Mobile plan.

Sprint reported Q4 revenue of $7.9 billion, down 7% y-o-y and net loss of $980 million. Full-year 2009 revenue was $32.3 billion, down 9%, and net loss was $2.4 billion. Sprint ended the year with more than $3.9 billion in cash and $37 billion in liabilities. The company recently announced plans to repay its debt, of which about $5.2 billion is due in the next 30 months. It expects that both postpaid and total subscriber losses will improve in 2010 compared to 2009. The stock is currently trading around $3.5 with market cap of about $10 billion. It hit a 52-week high of $5.94 in May of last year.

AT&T reported 2009 revenue of $123 billion and net income of $12.5 billion. Q4 revenue was $30.9 billion and net income was $3 billion. The total subscriber base in 2009 was 85.1 million, and the company added 2.7 million subscribers in the fourth quarter. Postpaid churn improved from 1.2% last year to 1.19% but increased from 1.17% last quarter.

The company activated 3.1 million iPhones in the quarter, of which about a third were new to AT&T. Apple’s latest product, the iPad, is also available on AT&T’s 3G network but at an additional cost. AT&T’s CEO believes more people will opt for the cheaper WiFi models. The poor speed of AT&T’s 3G network has borne the brunt of  criticism leveled by Verizon’s Droid ad campaign. AT&T has been working on improving its network, but unlike Verizon and Sprint, it is not accelerating its LTE plans. AT&T’s LTE network be deployed in two markets for testing, and commercial deployment will begin in 2011.

Like AT&T, T-Mobile is not hurrying to deploy LTE. It is instead focusing on launching its HSPA+ network in select U.S. markets. LTE is based on the UMTS/HSPA family of standards. HSPA+ is a 3G technology but is a stepping stone to LTE. T-Mobile Hungary has started LTE trials ahead of a commercial launch. T-Mobile USA is the fourth-largest carrier in the United States with 33.8 million customers. It added 371,000 customers in the fourth quarter compared to customer losses of 77,000 in Q3 and 621,000 additions last year. Q4 revenue was $5.41 billion, down from $5.72 billion last year. Net income was $306 million, down from $483 million last year.

AT&T with market cap of about $149 billion, is currently trading around $25 after hitting a 52-week high of $28.73 on January 5. Verizon, with market cap of $84 billion, is trading around $30 and its 52-week range is $26.10-$34.13.