Entries in AT&T:T (23)


Wireless Connection Growth Accelerating; Up 10% YoY

3Q11 Connections: Wireless Connections

After three years of averaging about 6% annual growth rates (in 2008, 2009 and 2010), the wireless industry in 2011 has seen its connections growth accelerate to the fastest rate since 2006, thanks at least in part to the growing popularity of data-only devices like tablets. Through 3Q11, wireless connection growth for the public companies (which comprise the vast majority of the industry nationwide) was 10%. Back in 2005-2006 we measured growth of just under 13% (12.8% for each year); by 2007 increasing handset penetration made for a growth rate that slowed to 9.1%.

But as we’ve been writing for numerous quarters, the divide between the ‘haves’ and the ‘have nots’ continued to widen in the most recent quarter. The top-three carriers—Verizon Wireless, AT&T and Sprint Nextel—accounted for virtually all of the growth among the 13 public companies in our sample. Just 3% of the total 4.95m net new connections in the quarter came from other carriers. Notably, AT&T-target T-Mobile has lost customers year-to-date, despite a 126k net gain in 3Q11. AT&T, Verizon Wireless and Sprint posted annual growth rates of 8.6%, 15.6% and 9.4%, respectively, through 3Q11.

AT&T led in terms of net adds in the period, due at least in part to its heavily discounted iPhone 3 promotion, which offered the older model handset for just $50. In its current holiday promos, AT&T is offering that model for $0.99, which could lead to continued strong results in the fourth quarter.

Verizon Wireless saw its net growth decline substantially when compared with the prior two quarters; the nation’s largest provider added 1.4m new customers, down from 2.3m in 2Q11 and well off the 9.9m net adds it posted in 1Q11 when it introduced the iPhone for the first time.

#3 Sprint managed to improve its net adds marginally in the quarter, although it continues to draw most of its growth from lower-value prepaid subscribers while Verizon and AT&T dominate in terms of postpaid subscriber growth.

Among the smaller operators, Hawaiian Telcom’s fledgling wireless operations posted the highest increase on a percentage basis, but Shenandoah Telecom, MetroPCS and Leap Wireless were relatively impressive, with 19.2%, 16.4% and 13.1% annual growth rates, respectively. Shenandoah has benefitted this year from its reworked arrangement with Sprint which allowed it to take control of the Virgin Mobile and Boost Mobile subscribers in its markets. Shentel’s prepaid customer base has grown by 75% over the trailing twelve months.

On the down side, Cincinnati Bell, NTELOS, GCI, and United States Cellular were all net losers in the latest quarter. Also to keep in mind, the number of wholesale/resale customers in the sample fell by more than 1m customers in the second quarter due to CenturyLink’s acquisition of Qwest. CenturyLink continues to resell Verizon Wireless service, but does not report its subscriber totals. Those subscribers are, however, already included in the Verizon Wireless reported figure.



DirecTV and AT&T Narrow the Gap for Top Spots in Video, Wireless

3Q11 Connections: Ten Largest Providers

The top providers by connections in all categories remained the same in 3Q11: AT&T (NYSE:T) in wireline voice, Verizon (NYSE:VZ) in wireless and Comcast (Nasdaq:CMCSA) in video. In wireless and video however, the second place finishers narrowed the subscriber leads in 3Q11, outgaining the top dogs for the quarter.

While AT&T has had a difficult month on the T-Mobile front, the #2 wireless provider outperformed Verizon in 3Q11. It added 2.1m wireless connections in the quarter--surpassing the 100m mark--and outgained Verizon by 700k connections. Overall, the top ten wireless providers added a combined 4.9m connections in the quarter, while the top ten wireline voice providers lost nearly 2m voice lines.

In the video top ten, it was DirecTV (Nasdaq:DTV) making a charge at #1 Comcast in 3Q11. Benefiting from the move to offer its flagship NFL Sunday Ticket package for free, the leading satellite provider added a net 327k U.S. subscribers in 3Q11—its best third quarter gain in six years. DirecTV took nearly 500k subs off of Comcast’s lead, as the leading cableco shed 165k video subs in the quarter. With 19.8m video customers, DirecTV trails Comcast by 2.6m connections. Elsewhere, AT&T and Verizon both experienced around 2.5% growth in video subs QoQ, the strongest percentage growth of the top ten providers.

In wireline voice, the four cablecos in the top ten reported slim QoQ connection gains in 3Q11, while the six LECs in the top ten shed a combined 2.1m connections in the quarter. AT&T accounted for a majority of the losses, dropping 1.2m connections, or 3% of its wireline voice customer base. The #2 and #3 wireline voice providers didn’t fair much better, as Verizon and CenturyLink (NYSE:CTL) lost 478k and 254k subs QoQ in 3Q11.

Looking ahead in the top ten categories, the battle for first in wireless should be interesting to watch. After a strong 3Q11 for AT&T, its acquisition of T-Mobile is now on life support, creating some uncertainty for company. Meanwhile, through its spectrum acquisition from the cablecos, Verizon is making moves to solidify its top spot in wireless.


U-Verse Outgains FiOS in 3Q11

3Q11 Connections: U-Verse vs. FiOS

The duo of AT&T (NYSE:T) and Verizon (NYSE:VZ) added a combined 314k U-Verse and FiOS subscribers in the third quarter, as fiber services continue to provide much needed support for the wireline divisions at both companies.  AT&T led the gains, adding 176k U-Verse subs, good for 5.2% QoQ growth, while Verizon’s grew its FiOS customer base 3.1% QoQ, adding 138k subscribers in 3Q11.  

While Verizon has dominated the headlines over the past week with its $3.6b spectrum purchase from a consortium of cablecos, ceo Lowell McAdam has also made recent statements regarding the future of the telco’s FiOS expansion. Speaking at the UBS Media and Communications Conference this past Wednesday, McAdam confirmed that Verizon will halt its expansion of FiOS services in 2012 after the completion of its current rollouts. Verizon currently passes around 13m homes with FiOS, and plans to reach 16m homes by the end of 2012.

Verizon shelved the idea of additional FiOS rollouts, but its wireline segment has relied on FiOS for top line stability and ARPU growth in recent quarters. FiOS customers generated 60% of Verizon’s wireline revenue in 3Q11, and ARPU for FiOS users was $146—55% greater than Verizon’s overall wireline ARPU of $94.20. Similarly, U-Verse has been the main bright spot for AT&T’s wireline business. The ARPU for U-Verse customers was $170 in 3Q11, and U-Verse subs accounted for over 50% of AT&T’s wireline revenue. U-Verse’s ARPU compares favorably to FiOS’ per customer take, thanks to the fact 75% of U-Verse customers opted for triple or quad play bundles in 3Q11.

While U-Verse measures up better on ARPU, FiOS continues to achieve better penetration. In 3Q11, FiOS’ penetration of homes passed was around 30%, while U-Verse’s penetration was around 25% in service areas in which it has marketed service for at least three years. With AT&T’s fiber builds nearly complete, and Verizon ready to halt FiOS rollouts after 2012, the telcos’ ability to improve penetration in their current markets will determine if their fiber customer bases will continue to grow.

Verizon’s McAdam commented on Wednesday that he’d like to see FiOS penetration around 50% in the future, but delivering an additional 20% of homes passed could prove more difficult after its recent spectrum deal. As part of its purchase, Verizon agreed to cross-market the video services of its competitors, namely Comcast (Nasdaq:CMCSA) and Time Warner (NYSE:TWC), allowing the cablecos to bundle Verizon’s wireless service with their video options, even in FiOS markets.


ILEC 3Q11 Results Summary: AT&T

AT&T Riding the Mobile Broadband Wave

AT&T’s third quarter results were impressive. The company led the major wireless carriers in terms of subscriber growth—without a new iPhone launch and with no LTE coverage to speak of in the period. And now that it’s launching LTE and selling the iPhone 4S, management is extremely confident that its fourth quarter results will be even stronger. On the wireline side of the business, U-verse continues to perform well and the company now generates more than half of its revenue from broadband, video and VoIP products; voice and “other” accounted for the remainder of wireline revenue.

In the company’s conference call, Ralph de la Vega, ceo of AT&T Mobility, gushed about the progress and potential of its LTE network: “I am thrilled about what we're seeing with the LTE launch. I have been a part of many network and device transformations. And this technology quite frankly is the best I have ever seen in my career. The network technology is fantastic. The devices are fast. They're thin. They have great battery life. It's the first time that I think a network transition is going to be a home run right off the bat.”

He noted that smartphones make up 52% of the base now and opined that virtually all subscribers will be using smartphones within two or three years. He continued, “And then you add on top of that these new devices like tablets and MiFis and e-Readers and telematics. And the growth opportunity is off the charts on this. And then you add to that the cloud, the fact that all of these devices in the future are going to want connectivity to the cloud, which means they need to have great bandwidth, great data capability…And the great thing about doing all of that is that we're doing it with a technology, LTE, that provides a reduced cost per megabyte, that is we can produce the megabyte a lot cheaper on LTE, and it's also more spectrally efficient. So lower cost, lower spectrum requirements and great revenue potential. I'm very bullish on what we're seeing in data, and I think we've only seen the tip of the iceberg because customers love the devices that are coming out and they love using high-speed data.”

When one analyst questioned de la Vega on the possibility that smartphone ARPU may begin eroding as lower end customers migrate over, he disagreed, and added that the company expects to add higher tier plans down the road: “In terms of the capability to grow ARPU, I think that we're going to see customers use more data, not less. I don't see an environment going into the future where customers are going to use less data. These products are too good. There's an incredible amount of streaming content that's available. So we're going to continue to see customer data usage increase. We have not seen a decline, and I don't see it any way to decline. That's why I feel so bullish about our position of having 50% of our base already on tiered plans, and we plan to make available more tiered options for customers in the future so they can enjoy the data services that they want. So what I see is exactly the opposite of the scenario you suggested, where everybody is actually using more data. I see it across every product category we sell and that more handsets that we get into a customer's hands that are smartphones, the more data that they use, not the less.”

He added that they are seeing overage from both tiered plans, but that the overage is small today: “I can't give you an exact number, but we do have overage from both plans...like I said before, we plan to make available more options to customers that may need higher usage categories in the future, so they can feel comfortable in stepping up but not feeling that they're having to pay an exorbitant amount. We want to encourage customers to use more and incur a little more cost if that's what they want to do…The other thing that I feel so bullish about is what is happening in the tablet arena. I mean, it's very obvious to me that this tablet revolution is going to continue. I don't see anything in the horizon that stops it, and I think customers are going to want both, some smartphones and a tablet. And they're going to see their content on the tablet in ways that's going to make them use more and more data. So I think the future of tablet computing is going to be very good for our industry.”  De la Vega also said that the free iPhone 3GS, which AT&T is offering with a 2-year contract, has sold out, “We've seen a tremendous, tremendous demand for that device even though it's a generation old. And actually, we're getting more new subscribers coming on the 3GS on the average than other devices.”

AT&T also did well in the prepaid segment in the quarter, adding more than 100k net new prepaid subscribers. De la Vega noted that the new $50 GoPhone plan has been very well received and “we’re just getting started…We put in that plan some handsets that are very attractive. They're low cost, but they've been a huge hit in the marketplace, so we're seeing that business resurge for us...We have a very strong fourth quarter lineup, so I think we're going to continue to do well with GoPhone sales in the fourth quarter.”

On the wireline side of the business, cfo John Stephens was asked about margin trends given that the U-verse margins are generally lower than in the legacy business. The company has been cutting costs in an effort to strengthen wireline margins, but management said that the numerous storms as well as a technology upgrade affected the results in the quarter—adjusted for those factors the EBITDA margin for the wireline business was 32%.

AT&T has been aggressively working to move its legacy DSL customers onto U-verse. Stephens noted, “The most encouraging piece of the DSL story [is that] while our net adds for the quarter were about in the 5,000 range, we had 500,000 high-speed U-verse/IP DSLAM net adds. So we were able to convert a huge piece of our legacy DSL base into U-verse/IP DSLAM, and we saw gains in small business with that IP DSLAM product for the first time. We'll continue to focus on transforming those DSL lines into high speed. We get great speeds, great service to our customers, good ARPUs.” Stephens also noted that the company will promote its wireless broadband service, which it will deploy to 97% of the country, in those areas where it doesn’t have U-verse. “We believe that's going to be able to provide a wireless solution at a high speed, good quality, good cost, on a profitable basis for us. That's the long-term solution to the non-U-verse areas.”


Wireless Subscriber Trends in 3Q11: Big 3 Still Rule the Roost

And the Winner is…..AT&T Mobility

I have to hand it to AT&T…though Verizon Wireless is generally considered the “quality network” leader and was expected to start handing AT&T its hat once it obtained the iPhone last February, AT&T has fought back admirably and was in fact the top-growth company in the third quarter in terms of both gross and net subscriber additions. AT&T added 2.1m net new customers in the quarter, bringing its total to 100.7m. Churn was a respectable 1.28% and gross additions approached 6m.

Verizon Wireless, already the nation’s largest wireless service provider, added 1.4m net new customers; based on churn of 1.26% monthly, Verizon added almost 5.5m gross new customers. And Sprint Nextel, which continued to rail against AT&T’s planned acquisition of T-Mobile USA in the quarter, added just under 1.3m net new customers. T-Mobile USA hasn’t released its third quarter results yet, but based on comments in parent Deutsche Telekom’s third quarter report we know that T-Mo lost subs in the quarter. T-Mo’s revenue fell by 3.3% in the quarter YoY; since it also reported that growing data revenue led to an increase in average monthly ARPU, we can assume that subscribers fell by more than the 3.3% revenue decline.

And then there’s everyone else. The subscriber numbers are an order of magnitude smaller when we look at MetroPCS, Leap Wireless, U.S. Cellular…MetroPCS grew its base by a paltry 69k, blaming the slower growth on “seasonal factors” and the “weak economy.” Leap Wireless managed to add 10k net new customers which actually gave the stock a boost considering the big sub losses Leap had been reporting. And U.S. Cellular lost another 145k in the quarter, its biggest quarterly loss this year.

Notably, Clearwire added nearly 1.9m net new customers in the quarter. The vast majority of Clearwire’s customers are of course wholesale customers actually added by its estranged step-parent Sprint Nextel. In fact, it looks to me that without the Clearwire 4G sales, Sprint wouldn’t have grown its base at all in the quarter, though the details get murky. Sprint reported a modest decline in postpaid retail subscriber and boasted strong prepaid net adds, but ongoing losses from its Nextel/iDEN side of the business offset much of those gains. Sprint also said that results at its prepaid subsidiaries Virgin Mobile and Boost improved in the quarter.

So, AT&T and Verizon are (not surprisingly) dominant again, particularly in the postpaid segment. Sprint appears to be winning prepaid share, perhaps from T-Mo, but also from Leap and MetroPCS. Sprint’s release of the new iPhone 4s in mid-October, combined with its unlimited data plans, could help it fight back in terms of market share for post-paid customers in the fourth quarter. Remember that neither AT&T nor Verizon offer unlimited data plans any longer.

If we include Clearwire in the mix, AT&T, Clearwire, Verizon and Sprint accounted for 32%, 28.5%, 21.2% and 19.3% of the total net additions in our sample for the quarter—leaving the “also-rans” with negative market share. But considering that Clearwire’s subscribers are also Sprint subscribers, I took a look at market shares excluding Clearwire. In this scenario, AT&T grabbed nearly 45% of net adds; Verizon got just under 30% and Sprint garnered about 27%. Once again, the other public companies lost share to the big three.

I think the biggest takeaway from this exercise is the fact that AT&T continues to be VERY dominant in terms of wireless market share—which could make it tough to get court approval for the pending T-Mo buy. But with T-Mo losing subs, it’s still a mystery to me why AT&T even wants it. Of course, the substantial breakup fee that it will owe to DT is no doubt a factor, but, as I’ve written before, there are better ways for AT&T so spend $39b!