Weekly U.S. Carrier Notes: AT&T, Verizon And Sprint

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After an extremely competitive 2014, 2015 is poised to be another exciting year for the U.S. wireless industry. In the last week, Verizon (NYSE:VZ), along with AT&T (NYSE:T), sued the Federal Communications Commission (FCC) over its decision to introduce net neutrality rules. The biggest concern for telecom and cable companies is that the FCC may now have the ability to control prices and limit business offerings according to what it deems reasonable. Sprint (NYSE:S) was also in the news for its new Wi-Fi calling offering as well as its Direct 2 You service launch. Below we discuss the noteworthy events pertaining to the top U.S. carriers from last week.

AT&T

AT&T (NYSE:T) has sued the Federal Communications Commission (FCC) over its recent decision to introduce net neutrality rules and is arguing to reclassify ISPs as common carriers under Title II of the Communications Act. In a separate case, the FCC imposed a fine of $25 million on AT&T for data privacy violations on April 8. It said that telecom carriers were expected to “zealously guard” their customers’ personal information and that the industry should “look to this agreement as guidance.”

  • AT&T’s stock was about flat over the week.
  • 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 $171 billion.
  • We estimate revenues of about $141 billion for AT&T in 2015, which is in line with the market consensus of $128-$154 billion, compiled by Thomson Reuters.

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Verizon

Verizon announced that it will be introducing college sports programming in its upcoming online video service. This video service will target younger viewers and families and is expected to be launched this summer. In another interesting development, Verizon introduced new FiOS TV packages which will allow customers to choose their channels in the form of “channel packs” and they will no longer be required to buy unnecessarily large bundles of channels which they might not want. The cheapest plan will cost $55 a month and will include two channel packs. This new offering is likely to counter the growing threat of cord-cutters, who prefer more affordable online video providers such as Netflix and Hulu over pay-TV providers such as Verizon FiOS.

  • Verizon’s stock was almost flat over the week through Thursday.
  • We currently have a $56 price estimate for Verizon, which implies a market cap of $231 billion compared to the current market cap of about 204 billion. 
  • We estimate revenues of about $142 billion for Verizon in 2015, with non-GAAP EPS of $3.62, which is in line with the market consensus of $3.37-$3.89, compiled by Thomson Reuters.

Sprint

Sprint returned to positive postpaid subscriber adds last quarter, and it is not slowing down in its price war with a steady stream of attractive plans to lure customers. The third largest carrier in the U.S. recently introduced a software update to allow its iPhone subscribers to start using free Wi-Fi calling from their phones. The carrier is looking to introduce innovative ways at improving network and call quality where their coverage is not adequate.

It is worth noting that Sprint ranked third in Rootmetrics’ 2nd Half 2014 network quality report where its score in Call Performance was 90.6/100, behind Verizon and AT&T’s scores of 93.5/100 and 91.5/100, respectively. Last month, Rootmetrics released a report which stated that Sprint was behind its major rivals Verizon, T-Mobile and AT&T in overall performance and data speeds at airports in the second half of 2014. It managed to provide median download/upload speeds of 20 Mbps/10 Mbps in only one of the 50 airports tested by Rootmetrics, as opposed to 23 for Verizon. [1]

Sprint recently also launched the Direct 2 You service, bringing the in-store experience to the comfort of peoples homes. With this service, customers will be able to buy/upgrade their phones in the comfort of their homes/offices by just calling the carrier and scheduling an appointment. In another interesting development, Sprint’s subsidiary Boost Mobile launched a prepaid cell-phone service to Cuba, taking advantage of the recent thaw in relations between the U.S. and the neighboring country.

  • Sprint’s stock rose about 3% over the week through Thursday.
  • We maintain our $6.20 price estimate for Sprint, which implies a market cap of about $24 billion.
  • We estimate revenues of over $35 billion for Sprint in calendar year 2015, which is towards the higher end of consensus estimates compiled by Thomson Reuters.

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Notes:
  1. Rootmetrics Report []