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Weekly Telecom Notes: AT&T, Sprint and China Telecom

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Friday, January 13th, 2012 by Trefis Team

AT&T (NYSE:T) stole the limelight this week with the announcement of seven LTE-capable smartphones and one tablet at the CES 2012. Sprint (NYSE:S) announced that it is undertaking a major restructuring of its sales and marketing unit merging both its consumer and enterprise wings into a single body. Finally, the iPhone 4S could arrive on China Telecom’s (NYSE:CHA) CDMA network soon. Read More »

Is the Wireless Industry Ready for Explosive Data Growth?

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Thursday, January 12th, 2012 by Trefis Team

An industry study by network firm Arieso revealed that customers using Apple’s (NASDAQ:AAPL) latest iPhone, the iPhone 4S, gob up twice the amount of data on average as those using its predecessor, the iPhone 4. The study used iPhone 3G’s data usage as a benchmark to find out the relative consumption rates of various smartphones and tablets and found that the iPhone 4S, the iPhone 4 and the iPad consume respectively 3.2, 1.6 and 2.5x as much data as an iPhone 3G. Even Android rivals such as the HTC Desire S and the Samsung Galaxy S II showed an uptick in data usage, with the former besting even the iPhone 4S in uplink data volumes.

Higher ARPU levels for carriers

The huge data consumption of the new generation smartphones is a confirmation of the faith telecom carriers such as Verizon (NYSE:VZ), AT&T (NYSE:T) and Sprint (NYSE:S) have put in smartphones.

These carriers take a huge hit on their margins subsidizing smartphones in the hope of making back their money over the contractual period (usually two years) from the data revenues of their postpaid subscribers. Popular smartphones such as the iPhone 4S are sold at less than one-third of their actual price, the rest being borne by the carriers themselves. If using these smartphones causes subscribers to consume more data, it implies higher ARPU levels for the telecom carriers who sell these phones. Sprint should be particularly pleased with this result as they have placed a massive bet on the iPhone by signing a $15.5 billion contract with Apple to sell the phone for four years.

See our full analysis of Sprint’s stock here

But clogged networks remain worrisome

On the flip side, however, increasing adoption of data-intensive smartphones puts added pressure on the carriers, whose networks are already straining to keep up with the growing demand for mobile data services. There is an industry-wide shortage of wireless spectrum, as evidenced by AT&T’s desperate attempts to buy T-Mobile as well as Verizon’s recent acquisition of spectrum from the cable companies. AT&T, among others, has been criticized for dropped calls and network congestion in high-traffic areas such as New York and San Francisco.

With more wireless connections than users in the U.S., the wireless industry is near saturation and the focus is now slowly shifting from adding new subscribers to retaining existing ones as well as grabbing market share from competitors. Carriers will therefore start competing to provide better and more reliable services, such as higher speeds and lesser network congestion. While the introduction of 4G LTE networks takes care of the former, the unavailability of additional spectrum will hamper initiatives to make these networks congestion-free.

Arieso suspects Siri and other cloud-based services of driving iPhone’s data usage rates up. Right now, not many use cloud-based services and iPhone is the only smartphone that offers a voice recognition software like Siri. However, as more smartphones start offering similar cloud-based capabilities and people warm up to the concept, data usage is going to rise even higher over the coming years.

While this presents a huge opportunity for telecom carriers to tap, efficient management of spectrum resources at hand to meet the rising demand for mobile data services will prove to be a very tough challenge. So, are carriers ready?

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Sprint Worth $4.25, Sheds Weight to Get Into Fighting Shape

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Thursday, January 12th, 2012 by Trefis Team

Sprint (NYSE:S) is undertaking a major restructuring of its sales and marketing unit merging both its consumer and enterprise wings into a single body, CEO Dan Heese said in a note to employees Friday. The carrier is looking to shuffle its management functions to make its operations more efficient in a bid to free up cash for its investments in the iPhone as well as in the Network Vision Project. Placed a distant third in the wireless industry behind telecom giants Verizon (NYSE:VZ) and AT&T (NYSE:T), the carrier is fighting to keep up and recently tapped the bond market for $4 billion to help fund its expansion plans. Read More »

Weekly Telecom Notes: Verizon, AT&T & China Telecom

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Friday, January 6th, 2012 by Trefis Team

The past week saw Verizon (NYSE:VZ) reaffirm expectations by announcing a record number of iPhone sales in Q4 2011 at a Citigroup conference held Wednesday. AT&T (NYSE:T) added 11 more markets to its rapidly increasing LTE coverage and Sprint (NYSE:S) revealed the first markets where it will roll out its LTE network in coming months. Further, China Telecom (NYSE:CHA) made clear its ambitions of expanding its operations in Europe with the sale of wireless services as a MVNO in France and Germany after launching it initially in U.K.

Sprint Still Worth $4.25 Despite iPhone Deal, Debt Concerns

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Wednesday, December 28th, 2011 by Trefis Team

Sprint’s (NYSE:S) stock has been under a lot of pressure recently after the company announced plans to sell the hugely-subsidized iPhone even as it continues to invest heavily on building out new 4G LTE infrastructure. The substantial costs associated with these moves forced the company to pile onto its already high debt load with a $4 billion notes offering, the interest rates on which were higher than usual. Sprint also owns over 50% of its 4G network provider, Clearwire, which has been facing a severe cash crunch. Sprint had to use some of its cash on hand to participate in Clearwire’s stock offering in order to provide the struggling carrier with a temporary respite from its liquidity issues. Sprint is hardly in a position to be providing bailouts given its own financial straits and a distant third-place market position behind Verizon (NYSE:VZ) and AT&T (NYSE:T).

With the company’s recent troubles attracting heavy attention, the stock has taken a beating. However, we believe the sell-off has been overdone and the company’s strategy holds long-term promise. We have a $4.25 price estimate for Sprint’s stock, which is almost 80% higher than the market price. Read More »

With AT&T/T-Mobile Merger Dead, Sprint Breathes a Sigh of Relief

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Thursday, December 22nd, 2011 by Trefis Team

AT&T (NYSE:T) finally scuttled its T-Mobile merger plans on Monday, much to the delight of Sprint (NYSE:S) which has been vehemently opposed to the deal right from the start. Sprint welcomed AT&T’s move as “the right decision” for customers as the deal would have created “an undeniable duopoly that would have resulted in higher prices, less innovation and fewer choices for the American consumer”. Further, it lauded the FCC and the DoJ for a job well done. Had the merger been approved, AT&T would have leapfrogged ahead of Verizon (NYSE:VZ) as the largest wireless carrier in the U.S., leaving Sprint in an even more distant third place. While Sprint still has its work cut out for it, this is certainly good news for the carrier. Read More »

With AT&T Deal Dead, What Are T-Mobile’s Options?

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Wednesday, December 21st, 2011 by Trefis Team

After AT&T (NYSE:T) finally pulled its bid for T-Mobile on Monday as a result of regulatory concerns related to the market share it would control along with Verizon (NYSE:VZ), T-Mobile is left looking for other suitors. As part of the agreement, AT&T will have to have to pay T-Mobile’s parent Deutsche Telekom a breakup fee of $3 billion in cash and an additional $1 billion worth of spectrum and other assets.

While spectrum and roaming agreements will benefit T-Mobile from a network coverage standpoint, we do not expect that Deutsche Telekom will be motivated to invest the $3 billion into the U.S. carrier given its plans to exit the market, although a portion will certainly be used to cover some of the struggling carrier’s expenses. Instead we believe the company will look for other suitors, possibly trying to revive discussions with Sprint (NYSE:S), or break T-Mobile up and sell off its assets. Read More »

Sprint Targets Burgeoning Teen Market with Parents Playing Big Brother

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Tuesday, December 20th, 2011 by Trefis Team

The teen market, consisting of those in the 12 to 17 year age group, is plugged into cellular devices and plans to a much greater extent than you might imagine. According to a Pew Internet Research study, more than 75% of this group owns a wireless phone. This isn’t news to Sprint Nextel (NYSE: S) or mobile phone competitors such as Nokia (NYSE:NOK), AT&T (NYSE:T) and Verizon (NYSE:VZ).

Of course, Sprint has made great inroads into the Mobile Internet market, a Trefis division that makes up 47% of the stock price. But Mobile Plans and Phones division should not be overlooked. At 33% of the Trefis value, this is a market that both generates significant revenue for S and has tremendous upside.

Verizon’s Spectrum Purchase Has Mixed Impact on Clearwire, Sprint

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Wednesday, December 7th, 2011 by Trefis Team

Verizon (NYSE:VZ) announced a $3.6 billion deal on Friday whereby the company will buy a significant chunk of wireless spectrum from SpectrumCo, a joint venture formed by Comcast (NASDAQ:CMCSA), Time Warner (NYSE:TWC) and Bright House Networks. The deal also gives the cable companies the right to resell Verizon’s wireless services bundled with their own Internet, phone and TV services. This signals the end of their current partnership with Clearwire, whose 4G wireless services they will stop reselling within the next six months. Not only does this have repercussions on the ailing Clearwire but also its majority shareholder, Sprint (NYSE:S).

The announcement comes at a time when Clearwire is looking to expand its wholesale business and build additional revenue channels in a bid to raise funding for its LTE plans. The ailing wireless provider has only $700 million in cash and short-term investments, which is barely enough for the company to meet its operational costs for the next year. Losing customers at this point will not help Clearwire’s chances at securing additional capital. Read More »

Weekly Telecom Notes: AT&T and Sprint

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Friday, December 2nd, 2011 by Trefis Team

The past week was good for almost all stocks in the telecom industry with improving global cues buoying broader markets and with it the telecom stocks. Sprint (NYSE:S) rose the most, gaining almost 10% over the past week followed by Verizon (NYSE:VZ) and AT&T (NYSE:T) posting gains of almost 7% and 5% respectively. Here are some of the major developments from the past week for the sector.