Weekly Telecom Notes: AT&T, Sprint And Verizon

by Trefis Team
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The past week saw quite a few developments in the telecom sector. AT&T (NYSE:T) continued to fill its spectrum war-chest from multiple sources, filing an application with the FCC  to purchase licenses in the 700MHz and AWS spectrum bands from CenturyTel. With the LTE-capable iPhone 5 launched, Sprint (NYSE:S) touted its aggressive rollout plans that will bring LTE to more than 123 million people by the year-end and brought attention to the million LTE devices it has sold do far to alleviate fears about its poor LTE coverage. Verizon (NYSE:VZ), meanwhile, looks to take advantage of the iPhone 5 launch to promote its industry-leading LTE coverage.

AT&T’s spectrum deals

Having learned a lesson from the T-Mobile debacle last year, AT&T is targeting smaller deals/acquisitions to meet its spectrum needs. The second largest U.S. wireless carrier recently filed an application with the FCC, requesting approval to purchase spectrum licenses in the 700MHz and AWS bands from CenturyTel. This comes on the back of a host of spectrum deals AT&T announced in recent months, including decisions to acquire Nextwave Wireless and purchase spectrum licenses from Cox Communications, Peoples Telephone Cooperative, Comcast (NASDAQ:CMCSA) and others. (see AT&T Continues To Stitch Together Spectrum Deals As Verizon Races Ahead With LTE Plans)

AT&T needs the additional spectrum it is buying to augment 3G capacity as well as to build out a nationwide LTE network in order to catch up with Verizon, which is currently well ahead in the LTE race. Verizon, which started deploying LTE much earlier than AT&T, has a LTE network available to more than 230 million Americans in 371 markets across the U.S. By the year-end, Verizon expects to cover around 260 million people in more than 400 markets across the country. In comparison, AT&T’s LTE network covers about 80 million Americans presently and the carrier plans to add another 70 million people to its coverage by the year-end.

See our complete analysis for AT&T

Sprint sells a million LTE devices

In case you thought Sprint’s puny LTE coverage would play a role in increasing its churn rate, the company CEO Dan Hesse has a stat for you. Speaking at the Goldman Sachs Communacopia Conference, Hesse said that Sprint has managed to sell 1 million LTE devices so far despite what is being perceived by many as LTE disadvantage. While 1 million LTE customers may not be many, it is still 3% of Sprint’s postpaid base. Considering that Sprint has just started its LTE buildout, the achievement is no small feat if you were to compare it to Verizon (NYSE:VZ), the largest U.S. wireless carrier. Verizon started its LTE rollout in late 2010 and now has a LTE network that covers more than three-fourths of the U.S. population, but it has managed to convert only about 12% of its postpaid base to LTE.

Clearly, Sprint is reaping the benefits of LTE gradually seeing more consumer interest with the technology maturing and increasingly being used in some high-profile smartphone launches such as Samsung’s Galaxy S III and more recently, the iPhone 5. What has also helped is that the carrier has continued to differentiate itself from rivals through effective marketing of its unlimited plans. It has also worked in Sprint’s favor that rivals Verizon and AT&T are distancing themselves from unlimited plans further. (see Sprint Touts Unlimited Plans And Aggressive Rollout Strategy; Sells A Million LTE Devices)

Verizon’s iPhone 5 opportunity

With Apple’s (NASDAQ:AAPL) iPhone 5 finally launched, Verizon has an opportunity to market its vastly superior LTE coverage and increase adoption of a technology that has so far lagged the pace at which the carrier has rolled it out in the U.S. That way, it can look to start recovering at least a part of the huge capital expenses it has incurred. Verizon has been aggressively spending on its LTE infrastructure, rapidly rolling it out in new markets to maintain its lead over rivals AT&T and Sprint as well as making sure the outages do not recur. Its capital expenditures have been rising over the last few years, owing to the rapid deployment of LTE as well as 3G network upgrades, and we do not see it coming down anytime soon. (see Verizon’s LTE Network Leaps To The Fore As iPhone 5 Pre-Orders Start)

An increased adoption of 4G LTE will also help Verizon reduce dependence on its 3G networks, which are increasingly burdened by the heavy data usage of smartphones such as the iPhone. Also, LTE as a network technology not only supports higher speeds but is also more efficient than 3G at handling data, thereby reducing Verizon’s maintenance and handling costs.

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