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The 4G Race

Posted on Wednesday, Dec 8th 2010

Apple started selling the iPad on Verizon on October 28. This makes the Verizon iPhone more of a reality. The Verizon CDMA iPhone was expected in early 2011, but there hasn’t yet been any official confirmation. Meanwhile, Verizon has rolled out its LTE 4G network in 38 cities. Sprint has already launched its WiMax 4G network, which is available in 60 cities, and the company is seeing strong demand for its Samsung Epic and HTC EVO 4G devices. Let’s take a closer look.
The 4G Race
Roger Cheng of the Wall Street Journal reports that even though Sprint and Verizon have rolled out their 4G networks, the speeds are not up to 4G standards. Even T-Mobile is claiming that its HSPA+ network offers 4G speeds. What is 4G? 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 further fuel the demand for online video. Video conferences on your mobile phone may just become the norm.

Verizon’s 4G network, which is based on technology called long-term evolution (LTE), can deliver between 1 and 12 mbps of data. T-Mobile’s HSPA+ network can download data at 5 to 8mbps, while Sprint’s WiMax network can deliver speed of 3 to 6 mbps. AT&T is rolling out HSPA+ network and plans to move to LTE next year.

Recent Financials of the Wireless Carriers
Verizon (NYSE:VZ), with annual revenue of $107.8 billion, reported third quarter revenue of $26.5 billion, down 2.9%. Net income was $0.31 per share compared to $0.41 per share last year and a loss of $0.07 per share last quarter. Its net debt was $47.8 million at the end of the quarter. The company added 0.997 million net subscribers to reach a subscriber base of 93.2 million, and wireless revenue increased 6% y-o-y. It continues to have the lowest churn in the industry at 1.07%. Verizon is trading around $33 with market cap of about $93 billion. Its 52-week range is $25.99–$34.13.

Chart forVerizon Communications Inc. (VZ)

AT&T (NYSE:T), with annual revenue of $123 billion, reported third quarter revenue of $31.6 billion, up 2.8% y-o-y. Net income was $12.3 billion or $2.08 per share compared to $3.2 billion or $0.54 per share last year. The company added 2.6 million subscribers to reach 92.8 million in service, and wireless revenue increased 10.5% to $13.7 billion. Postpaid churn was 1.14%. AT&T is trading around $28 with market cap of about $168 billion. It hit a 52-week high of $28.73 on January 5.

Chart forAT&T, Inc. (T)

Sprint (NYSE:S) with annual revenue of $32.3 billion, reported third quarter revenue of $8.152 billion, up 1%. Net loss was $911 million or $0.30 per share, and the company ended the quarter with about $4.7 billion in cash. It gained 664,000 net subscribers in the quarter to reach a total subscriber base of 48.8 million subscribers driven by strong demand for HTC EVO 4G and the Samsung Epic 4G. Churn was 1.93% vs.1.85% last quarter and 2.13% last year. It is trading around $4.20 with market cap of about $12.6 billion. It hit a 52-week high of $5.31 on May 25.

Chart forSprint Nextel Corp. (S)

T-Mobile USA, which was the first to launch the Android OS, reported third quarter revenue of $5.35 billion, down slightly from $5.38 billion last year. Net income was $320 million, down from $417 million last year. The company added 137,000 customers in the quarter, compared to a loss of 77,000 customers last year and 93,000 last quarter. Its total subscriber base stands at 33.8 million. Churn was 2.4%, up from 2.2% last quarter and consistent with last year.

Verizon iPhone
Apple launched the iPad on the AT&T network in April and has sold more than 7.5 million iPads. In October, it started selling the Wi-Fi iPad model on Verizon. This development adds more credibility to the possibility of the iPhone coming to the Verizon network. Analyst Shaw Wu with Kaufman Bros. notes:

We are hearing that (Verizon) does not want iPhone, the hottest selling smartphone, available on T-Mobile USA and/or Sprint and may be willing to pay for exclusivity to itself and AT&T [ . . .] For these reasons, (Verizon) could be more willing to give in to Apple’s terms.

He earlier noted that the Verizone iPhone might be delayed if Apple chooses to go with Sprint or T-Mobile. While Android phones got off to a good start, their growth has started to lag, while the iPhone continues to be a hot seller. In the recent quarter, Apple sold 14.1 million iPhones, and Verizon is keen to limit the phone’s exclusivity to AT&T and Verizon. Android phones such as Samsung Galaxy and HTC EVO are available on all networks. While this is good for Android sales, it doesn’t give the carrier the advantage of attracting or retaining subscribers. Therefore, Verizon paying Apple to stop it from going to Sprint or T-Mobile makes sense. Even the Samsung Galaxy tablet is available on all four carriers and recently reported sale of more than 1 million units. If Apple also starts selling the iPhone or the iPad on all carriers, its sales figures could be mind blowing. Will Apple forego such an advantage and limit itself to Verizon and AT&T? Verizon is a big carrier with 93.2 million subscribers, and a recent survey says more than half of them, including me, want an iPhone. Going with just Verizon and AT&T, the two leading carriers, is not too bad, either.

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