4G And Smartphones Drive Carrier Markets

Last quarter, we saw how the four leading carriers were placed in the 4G race. Last week, Sprint (NYSE:S) released HTC Evo 4G on its high-speed WiMax network, and its launch day sales were three times that of the Palm Pre and the Samsung Instinct, its previous best sellers. Meanwhile, AT&T (NYSE:T), whose weak 3G network is overloaded by the heavy data usage by the iPhone and iPad recently did away with its unlimited plans. Let’s take a closer look.

New York Times technology reporters Claire Cain Miller and Brad Stone wonder if the limited plans from AT&T will also limit the use of applications by iPhone users. Users might worry about exceeding their data limit and might not use applications as much as before. Over the past two years, applications have been the backbone of the success of the iPhone as people are encouraged by the unlimited plans to try out new applications even if they are data intensive. Chris Ziegler of Engadget reports that even Verizon (NYSE:VZ) is looking at non-unlimited plans for its 4G network. A shift to the 4G technology should actually halve the costs of delivering data as users consume more of it. Verizon should try to get more users for its 4G network by offering unlimited plans at least initially.

Sprint, which is the first carrier to launch a 4G device, seems to be enjoying the first mover advantage with EVO sales between 300,000 and 600,000 units. Will it change the company’s fortunes? With annual revenue of $32.3 billion, Sprint has been struggling with losses ever since its merger with Nextel, and it has invested heavily in the WiMax network. Sprint reported first quarter revenue of $8.1 billion, down 2% but up 3% q-o-q, its first sequential increase in nearly three years. Net loss was $865 million or $0.29 per share, and it ended the quarter with about $4.4 billion in cash. It continued to lose subscribers, but losses have come down to 75,000 from 148,000 the previous quarter. The stock is currently trading around $4.59 with market cap of about $13.68 billion. Its 52-week range is $2.78–$5.78.

Verizon plans to launch the 4G long-term evolution (LTE) network in 25 to 30 markets by the end of this year. Wall Street Journal reported back in March that Apple is working on a CDMA phone leading to speculation that the CDMA carrier would be Verizon.

It reported first quarter revenue of $26.9 billion, up 1.2%. After a loss of $653 million last quarter, it swung back to a profit of $0.4 billion versus a profit of $1.6 billion last year. The company added 1.5 million net subscribers excluding acquisitions and adjustments in the quarter to reach a subscriber base of 92.8 million. It tied with AT&T for the lowest churn in the industry at 1.07%. Its annual revenue was $107.8 billion in 2009, and its market cap is about $78.24 billion. The stock is currently trading around $27.68 after hitting a 52-week low of $26.49 on May 6.

AT&T, with annual revenue of $123 billion, reported first quarter revenue of $30.6 billion, up 0.3%. Net income was $2.5 billion or $0.42 per share compared to $3.1 billion or $0.53 per share last year. The company added 1.9 million net subscribers in the quarter, taking its subscriber base to 87 million. Its postpaid churn improved from 1.15% last year to reach a company best-ever rate of 1.07%. The number of postpaid 3G integrated devices on AT&T’s network increased by 3.3 million in the first quarter, including 2.7 million iPhones. Early this month, Apple announced that it sold two million iPads in two months and that it reached the first million in 28 days.The  iPad was launched exclusively on the AT&T network in the US two months back and started global sales last weekend.

IBM (NYSE:IBM) recently acquired Sterling Commerce from AT&T for about $1.4 billion in cash. IBM will be combining Sterling Commerce and its 2,500 employees with its WebSphere middleware unit. The deal is expected to close in the second half of the year, and AT&T will get a pretax gain of $750 million. AT&T is trading around $24.97 with market cap of about $147.55 billion. Its 52-week range is $23.19–$28.73.

Neither AT&T nor T-Mobile are hurrying to deploy 4G. AT&T will start commercial deployment of LTE in 2011 while T-Mobile recently upgraded to a faster 3Gnetwork, HSPA+. T-Mobile USA lost 77,000 customers in the first quarter compared to 415,000 additions last year and ended the quarter with 33.7 million customers. Q1 revenue was $5.28 billion, down from $5.40 billion last year. Net income was $362 million, up from $322 million last year.

According to IDC, LTE will continue to gain momentum and surpass the total spent on WiMax deployments by the end of 2011. The researcher says LTE still has challenges, but marketing muscle from key players such as Verizon and AT&T and next-generation smartphones will push it to be the 4G standard.

The big battle, though, is the iPhone/iPad turf war. This week, Apple launched the iPhone 4 but not with Verizon. Matt Buchanan of Gizmodo says the AT&T’s generous offer that lets users upgrade immediately before their two-year contract lapses looks suspicious. He says that AT&T is probably holding on to its customers before they get lured away by a Verizon iPhone, which might be just six months away. Or perhaps Apple is waiting for Verizon to deploy 4G before it launches a phone on Verizon.

The disappointment of the no-show of a Verizone iPhone or a 4G iPhone coupled with AT&T’s limited plans might just turn things around in favor for Sprint. The HTC Android phone is apparently a beauty . . . does it have a chance of giving Sprint a new lease on life?