U.S. Wireless Carrier Weekly Review: AT&T, Verizon, Sprint

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After frantic marketing activity following launch of the iPhone 6 and iPhone 6 Plus models, it was a relatively quiet week for the major U.S. wireless players- AT&T (NYSE:T), Verizon (NYSE:VZ) and Sprint (NYSE:S). While there were fewer new offers by the carriers, plenty of other reasons kept them in the news. Below we discuss the noteworthy events pertaining to the top U.S. carriers from last week.

AT&T

AT&T fell victim to a data breach by one of its own employees, who violated the company’s privacy policy to obtain details of about 1,600 Vermont-based customers. No adverse consequences of the breach have been reported so far. In another important announcement, AT&T will be paying $80 million in refunds to its customers and $25 million in penalties for “mobile cramming”, following a settlement with the Federal Trade Commission (FTC). “Mobile cramming” relates to unauthorized charges levied by AT&T to its subscribers for services such as ringtones, wallpapers, horoscope subscriptions and celebrity gossip. [1]

  • AT&T’s stock was down about 2% on the week, primarily due to the $105 million FTC settlement. We currently have a $38 price estimate for A&T, which implies a market cap of around $196 billion compared to the current market cap of about $181 billion.
  • We estimate revenues of about $134 billion for AT&T in 2014, with non-GAAP EPS of $2.83, which is slightly higher than the market consensus of $2.48-$2.75 compiled by Thomson Reuters.

Verizon

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On October 7, Verizon shut down its video streaming service Redbox Instant due to a lack of adequate demand. Started in July 2012, it was a joint venture between Verizon and DVD rental company Redbox. [2] Verizon also announced a tie-up with global conglomerate General Electric (NYSE:GE) as part of the latter’s Internet of Things initiative. In addition to adding support for GE’s Predix platform, the alliance is likely to bolster Verizon’s cloud as well as machine-to-machine connectivity services. [3]

  • Verizon’s stock was about flat through Thursday, closing just below $50 per share. We currently have a $52 price estimate for Verizon, which implies a market cap of $216 billion.
  • We estimate revenues of about $124 billion for Verizon in 2014, with non-GAAP EPS of $3.56, which is in line with the market consensus of $3.45-$3.66, compiled by Thomson Reuters.

Sprint

Following earlier offers which effectively quadrupled its existing data allotments for retail subscribers, Sprint doubled its data allotments for business customers last week. The carrier is now providing 240 GB to 800 GB of data to businesses with 50 to 100 employees. Starting Oct 10, the offer will be available through Oct 31. [4] This is a reflection of the aggressive stance adopted by Sprint’s new CEO Marcelo Claure in offering competitive plans to customers in order to gain share in the saturated U.S. wireless market. The company also announced its plans for a significant headcount reduction, which will likely result in severance-related expenses of more than $150 million.

Sprint’s stock dropped about 6% over the week, primarily after the company disclosed the potential severance expenses, and is now down significantly from its 52-week high of $11.47. We maintain our $8.50 price estimate for Sprint, which implies a market cap of about $33 billion and is over 40% above the current market price. We estimate revenues of about $36 billion for Sprint in calendar year 2014.

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Notes:
  1. AT&T to pay $80 million in refunds and $25 million in penalties in mobile cramming settlement, JS Online, Oct 8 2014 []
  2. Verizon shelves Redbox Instant, Fierce Wireless, Oct 6 2014 []
  3. Press Release, Verizon, Oct 9 2014 []
  4. Business Plans, Sprint, Oct 9 2014 []