Weekly Review: U.S. Wireless Carriers

+6.53%
Upside
39.93
Market
42.54
Trefis
VZ: Verizon logo
VZ
Verizon

The U.S telecom market saw significant activity last week, with sustained optimism surrounding Sprint (NYSE:S) and its latest plan offerings to gain subscribers and AT&T (NYSE:T) witnessing record iPhone 6 and iPhone 6 Plus pre-orders. The week saw Verizon (NYSE:VZ) join other carriers in offering new iPhone deals and announcing plans to introduce WiFi calling by mid 2015. The launch of the latest iPhones intensified competition in the largely saturated U.S. wireless market, as evidenced by the innovative plans offered by all major carriers. Verizon and AT&T currently lead the U.S. wireless market with shares of about 34% each, followed by Sprint and T-Mobile with shares of 16% and 15%, respectively. [1] [2] [3]

Below are some significant events pertaining to the top wireless providers that were witnessed last week.

Verizon

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In a bid to cash in on the iPhone 6 and iPhone 6 Plus hype, Verizon offered its customers an early upgrade option wherein they could upgrade their existing handsets two months prior to the scheduled date. The carrier also introduced another offer wherein customers could get a $200 discount on the full retail price of an iPad with a purchase of an iPhone. Apart from the iPhone 6 and 6 Plus, this offer is also valid on the iPhone 5S, 5C and 4S. [4]

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. The company stock had an impressive run last week with the price surging around 2%. We currently have a $52 price estimate for Verizon, which is about 5% ahead of the current market price.

AT&T

Following in the footsteps of its rivals, AT&T announced its iPhone trade-in deal recently, offering a credit of up to $300 for old devices. Considering that AT&T has a larger base of iPhone customers on account of its initial exclusive deal with Apple in 2007, the carrier was bound to benefit from a trade-in deal. Unsurprisingly, AT&T registered record iPhone 6 pre-orders last week. It also announced plans to launch WiFi calling by the end of next year. WiFi calling is currently available only with T-Mobile and selectively with Sprint; Verizon recently announced that it would be introducing the service by the middle of 2015.

In other news, there was speculation that AT&T could buy America Movil’s network assets on the east coast of Mexico, which the company is seeking to sell. It was also recently reported that AT&T had met with Mexican officials regarding the asset sale, valued at around $17.5 billion. [5]

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. The company stock had a good run last week as well, with the price increasing by nearly 3%. We currently have a $38 price estimate for A&T, which is slightly ahead of the current market price.

Sprint

Sprint was again very active last week, with increased marketing and promotional activity to lure new subscribers. Even though the carrier was placed last in overall performance among all major U.S. carriers in the latest Rootmetrics report released last month, it heavily advertised its network performance in some key areas where it did well, such as Tulsa, Vermont, Wyoming, Indianapolis and Atlanta. The carrier also launched an international Wi-Fi calling back service on the Samsung Galaxy S4 with its new Spark program. [6]

Sprint’s stock price witnessed a sharp surge earlier this month owing to improving investor confidence on the back of efforts taken by the new CEO to turn the company around. However, the stock was relatively flat for the week. We maintain our $8.50 price estimate for Sprint, which is still about 20% above the current market price. We estimate revenues of about $36 billion for Sprint in calendar year 2014.

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Notes:
  1. Rootmetrics Report H1 2014 []
  2. Report: T-Mobile overtakes Sprint in Q1 as No. 3 U.S. smartphone buyer, Fierce Wireless, May 22 2014 []
  3. Wireless Quick Facts, CTIO.org, June 2014 []
  4. Verizon Extends $200 Discount On iPads And Early Upgrades, Bidness etc, Sept 16 2014 []
  5. AT&T Meets Mexico Officials as America Movil Prepares Sale, Bloomberg, Sept 18 2014 []
  6. Press Releases, Sprint []