AT&T Catching Up to Verizon in 3G Phone Penetration

Implications: Verizon and AT&T mobile data results differ in two areas: 1) Verizon’s data ARPU is $11.94 compared to AT&T’s $10.79; 2) Verizon has 39 million 3G handsets to AT&T’s 11 million.

Analysis: Although Verizon’s recent 2008 first quarter results for total wireless revenue of $11.7 billion matches AT&T’s 11.8 billion despite a slightly smaller customer base, there are differences in their mobile data results.  Both carriers reflect the demand for data capability with their year-on-year data revenues increasing by about 50% and contributing over 20% to the total average-revenue-per-user (ARPU).  However, Verizon has the higher data ARPU of $11.94 compared to $10.79 for AT&T.  During the AT&T results presentation, Chief Financial Officer Rick Lindner pointed out that AT&T only has 11 million 3G-capable handsets and emphasized the strong potential with upgraded devices.  In comparison, Verizon has 39 million 3G handsets and during the past year has increased the penetration of 3G devices from 40% to 58% of total subscribers. 
The challenge for AT&T will be catching up to Verizon’s data ARPU, and moving customers from the 2G/ EDGE to the 3G network.  Apple’s iPhone on the EDGE network has allowed AT&T to compete for the data growth.  Will an upgraded 2.0 iPhone also enable AT&T to match Verizon’s data ARPU?  And could the rumored $200 price drop with distribution only in AT&T company-owned stores and not Apple channels attract data customers and ensure network activations?  AT&T has to upgrade almost 30 million customers to approach Verizon’s penetration of 39 million 3G handsets.  Does AT&T have to heavily subsidize the devices, offer attractive rate plans, and free trials of features in order to get new 2-year subscriber contracts?  Also, will manufacturers drop their average selling prices for AT&T business?  Sony Ericsson had a 48% decline in profit for the first quarter from slipping demand in higher end handsets and lower selling prices.  Nokia might be eager to restore its U.S. market share, and Motorola could strive to invigorate its brand.  At the CTIA show, AT&T displayed the Motorola Z9 embedded with its AT&T Navigator using TeleNav mapping and Nuance speech recognition.  AT&T’s catch up in 3G handsets will be a factor in the U.S. market trends.