Summary
The third quarter results show that AT&T is relying on iPhone activations to offset the revenue declines of 10% in enterprise sales and 7% in overall landline.
Analysis
The AT&T third quarter results set records for total net adds of 2 million with 1.6 million being postpaid. The contributing factor is the 3.2 million Apple iPhone activations. Prepaid bolstered the record, but is insignificant revenue and will be threatened by TracFone going in Wal-Mart on Verizon. In contrast for wireline, AT&T reported revenue declines of 10.4% in enterprise sales and 7% in overall landline. The 3.2 million of iPhones are worth about one billion in new revenue for subsequent quarters, but cannot match the lost enterprise and landline revenue. AT&T lost recurring revenue from existing infrastructure. The wireless revenue has the costs of subsidizing iPhones and spending on 3G improvement. The positive factor for wireline was that AT&T had 18.7% growth in wireline IP data and strategic business services like hosting and applications.
AT&T could reinitiate a quadruple offer like Verizon’s announcement to save landline. For the holiday season, AT&T has traditionally mailed bonus catalogs to add services with triple and quad deals. The standard telco pitch is “one-bill”. The one-bill fallacy is that the consumer later compares bills with cable MSOs, disconnects all services, and the telco is out of the home connection. For Verizon, the quad-play with both DTV and FiOS can attract holiday apartment movers in the MDUs where it could not displace Comcast or Time Warner Cable contracts. However, Verizon’s $59 to $179 savings with four services does not match Sprint’s CEO Dan Hesse going on TV to passionately explain how families can save $200 to $300 on wireless only. Verizon did better today offering two new HP netbooks with Windows 7 Home Premium at competitive $200 and $250 prices with a 2-year mobile broadband plan.
The AT&T third quarter results and upcoming Verizon report will have to be put in the perspective of the FCC Notice of Proposed Rulemaking (NPRM). AT&T’s letter to employees to lobby the FCC had a doomsday gloom for net neutrality such as “…stop the promise of life-changing, cost-saving services such as telemedicine that depend on a managed network”. In comparison, Verizon expressed a positive vision in the joint blog with Google that “They believe it is essential that the Internet remain an unrestricted and open platform.”
Gregg Kail, MBA consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
