Summary
Verizon and AT&T third quarters for 2009 both showed the same trend of strong wireless, flat growth in TV, and wireline losses. Verizon talked up the return on the Alltel acquisition while AT&T pitched the NPV on acquiring iPhone customers.
Analysis
Verizon’s third quarter report resembled AT&T’s results with growing wireless and declining wireline. Verizon’s CFO emphasized integrating almost the entire postpaid Alltel base and “capturing the roaming synergies” for cost reduction. AT&T’s President of Mobility and Consumer Markets reiterated last year’s pitch about the “strong net present value” (NPV) on Apple iPhone customers. The use of NPV modeling in wireless originated with carriers buying smaller providers and showing payback from the subscriber ARPU. Today, the NPV model might be unreliable with mobile behavior changing before two year contracts expire. In contrast, Verizon’s $28 billion Alltel acquisition could be the return on assets (ROA) model. Verizon gained 8 million customers after spin-offs plus network and spectrum for a potentially favorable ROA over the long term. AT&T has spent almost $4 billion in subsidizing 12 million iPhones and depends on the NPV of two years billing for the mobile lifestyle of iPhone users.
Verizon’s third quarter was better than AT&T’s revenue declines of 10.4% in enterprise sales and 7% in overall landline. Verizon’s consumer revenues were up 1.2% over last year, and global enterprise revenues improve 2.5% with the sale of IP services. However, Verizon only added 191,000 FiOS TV. AT&T gained 240,000 U-verse customers just up slightly from 232,000 for the year-ago period. Verizon’s FiOS TV gain was 18% less than last year’s same quarter. And Verizon lost 135,000 DSL for its worst record in broadband wireline. Can the Verizon and AT&T save wireline with declining or flat TV additions? Verizon reports that FiOS has 25% penetration and 45% of premises are passed in its wireline footprint. The concern is how many neighborhoods did Verizon lay fiber-to-the home (FTTH) and lose DSL. Verizon's quad-play announcement with a DIRECTV satellite option might indicate desperation. Let’s look at the upcoming results for Comcast and Time Warner Cable to see if they are winning where Verizon has invested CapEx.
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.
