The Chosen Path of the Duopolists
As I reviewed the transcripts for the 2Q11 investor conference calls held last week for both AT&T (NYSE:T) and Verizon (NYSE:VZ), the first thing that struck me is just how similar the comments were! The two 800-pound gorillas in the industry are clearly taking virtually the same path in terms of their growth strategies—whether in wireless, wireline, consumer services or enterprise services—and their results in the latest period were, in many respects, eerily alike. There are differences in the details, but compare these comments from their respective conference calls:
“We had strong top-line growth in the second quarter, with consolidated revenue increasing to $27.5 billion, up $1.6 billion or 6.3% year-over-year. By capitalizing on the growth opportunities in Wireless, FiOS, and Enterprise strategic services, together with improving our Wholesale business, our consolidated revenue trends continue to be very positive.”
"Consolidated revenues totaled $31.5 billion, up $687 million versus the second quarter a year ago due to continued strong mobile broadband growth, U-verse revenue growth of more than 50% and increasing stability in Wireline business revenues with strategic business service revenues growing almost 20%."
“About 77% of our revenues are in strategic areas of higher growth, up from about 70% two years ago.”
“76% of our revenues came from these next-generation services. That's up from 71% a year ago and 66% just 2 years ago.”
“In terms of capital expenditures, while we have had a higher level of spending in the first half compared with last year, our additional investments are in support of increased customer volumes and higher revenue growth in Wireless. First-half CapEx this year totaled $8.9 billion, of which $5.4 billion was Wireless. To date, our network spending on 3G is well ahead of our capacity requirements for the full year, and we have also spent a bit more on 4G LTE, consistent with our deployment plans.”
“Capital expenditures were $9.5 billion, with a 29% year-over-year increase in Wireless capital to reach $4.4 billion. Wireless capital includes work with our LTE build, which is on track to be launched later this summer. And as noted in our earnings release, we're slightly increasing our guidance for full year capital investments. We now anticipate capital expenditures in the $20 billion range as we continue to invest in our wireless network.”
“In Wireless, we had an outstanding quarter of customer growth, with strong demand for smartphones and Internet data devices and increasing service revenue, driving total revenue growth of 10.2%.”
“Our focus on mobile broadband continues to drive impressive revenue growth. Total Wireless revenues were up $1.4 billion or 9.5%.”
"Total quarterly data revenue grew to $5.8 billion, up $1.1 billion or 22.2% year-over-year. Data revenue now represents 39.5% of our total service revenue. As you know, a key driver of data growth has been the increased penetration of smartphones. We continue to make good progress on that front, increasing penetration of our retail postpaid phone base from 32% last quarter to 36% this quarter. Just one year ago, smartphone penetration was 21%.”
“We grew data revenues more than 23%. That's up more than $1 billion year-over-year. We had another record quarter with smartphone sales, 5.6 million units, both upgrades and new subscribers, our best second quarter ever. The smartphone subscribers now make up half of our postpaid subscriber base, up from just 36% a year ago.”
“With regard to Apple iPhone 4, we activated 2.3 million units this quarter, bringing our total to 4.5 million since we started selling the phone in early February.”
“We had 3.6 million iPhone activations during the quarter, up about 11% from the second quarter a year ago when the iPhone 4 was first introduced near the end of June.”
“Within the postpaid category the significant unit growth in Internet data devices, while adding total service revenue growth and expansion of the category, is having a dilutive effect on the total postpaid ARPU rate of growth at this point in time. Within the Internet data device category, we are seeing strong demand for our Mobile Hotspot or MiFi devices, dongles, and tablets. While the unit growth is very strong and a key area of focus for us in expanding this category, the average ARPU on these devices is less than $54 and is declining on a year-over-year basis.”
“But specifically, with our tiered [wireless data] pricing and our $15 and $25 plans that we have out there, as well as our new emphasis on postpaid computing devices, we are getting into a segment of the market that has somewhat lower ARPUs than are standard but are still very profitable for us. We're not going to turn away those sales. Those are very good, profitable sales. But they do have some slight impact on the postpaid ARPU [growth] percentages.”
“Finally, I am pleased with the evolution of our partnership with Vodafone. We are clearly moving from a purely financial partnership to an operating partnership. We are now facing our largest multinational customers as one team. We have aligned our product and our technology roadmaps, and we are beginning to purchase infrastructure together. All of these actions will begin to enhance our revenue and our cost profiles.”
8) AT&T (on the pending T-Mobile acquisition):
“We remain comfortable with the process so far and the pace at which we're moving. The staffs at the Department of Justice and the FCC, the 2 federal agencies that must approve the transaction, are working extremely hard…In in response to questions, we have developed a very detailed engineering and economic analysis valuing the enormous efficiencies that will result from the combination of the AT&T and T-Mobile networks. We have revealed to the agencies the results of the analysis and the magnitude of the efficiencies…The facts also demonstrate that the consumer and public interest benefits are enormous. These include better service in the form of fewer dropped calls, faster speeds and a better overall customer experience, more mobile broadband access for more Americans. By expanding our 4G LTE deployment to more than 97% of the U.S. population, some 55 million more people will receive LTE coverage in America than would have occurred without this merger. And billions of dollars of increased investments in the U.S. economy, which drives more jobs and economic growth. “
“In Mass Markets, our FiOS broadband and video products continue to drive a positive shift in our revenue mix. FiOS now accounts for 57% of consumer revenue, up from 48% a year ago. FiOS revenue in the quarter grew 20.7% year-over-year, and FiOS ARPU is more than $146.”
“U-verse continues to be strong, adding subscribers, increasing triple-play ARPU and is now a $6.5 billion annualized revenue stream. In fact, fast-growing consumer IP data now represents about half of our total consumer revenues. More than 3/4 of our U-verse video subscribers have a triple- or quad-play bundle with us. ARPU for these customers now reaches $170, up more than 8% year-over-year.”
“As we have said, strategic services are becoming a much larger portion of our revenue mix, now representing 48% of total Enterprise. Within this category, advanced services like managed network solutions, contact center solutions, IP communications, and our cloud offerings are growing very nicely.”
“And strategic business services had almost 20% revenue growth, its best performance in 6 quarters…In our global enterprise operation, there is strong growth in IP data, outsourcing and integration services...while businesses continue to work their way through the economic downturn, they are still investing in services that help drive productivity and efficiency. We see this in strong IP data growth. We also see it in continued strong growth of our strategic business services, which is now a $5 billion annual revenue stream.”
And so on...So, the big boys are counting on wireless broadband and FTTX initiatives, along with managed services for growth in enterprise revenues. They're both looking to expand via acquisition or expansion of an existing relationship to broaden their reach. They're investing heavily in 4G wireless. And they're selling iPhones as fast as they can get them...
My point? These two companies are formidable players in the telecom world and smaller participants would be remiss not to take note of their efforts and areas of focus.
The only question I have now is when will AT&T start selling off its less profitable access lines, the way that Verizon has been doing for about six years now? And an even more interesting question, who will buy them?