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

March 30th, 2015 by Trefis Team
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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 telecom companies are following the likes of USTelecom, Alamo Broadband and others who also recently filed suits against the agency. Although the rules have yet to come into effect, 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 wireless offering as well as its stand on the net neutrality issue. Below we discuss the noteworthy events pertaining to the top U.S. carriers from last week.

AT&T

AT&T, along with Verizon, sued the FCC recently over its decision to introduce net neutrality rules. Net neutrality is a principle related to the way Internet traffic should be treated. It advocates that Internet service providers (ISPs) and governments should treat all data on the Internet equally, not discriminating or charging differently by user, content, site, platform, application, type of attached equipment, or mode of communication. If the net neutrality laws come into effect, AT&T may not be able to freely manage Internet traffic as it has in the past, which is likely to curtail its ability to charge more for certain services and could thus put a cap on profits.

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In other news, AT&T launched its new tier of U-verse Internet service called High Speed Internet 75 in Houston, offering speeds of 75 Mbps at a price starting $40 per month. Currently available only in about 18 cities, the service is aimed to compete with Comcast’s high speed service, which offers Internet speeds of 3-150 Mbps to its customers with a pricing of $40-$115 per month.

  • AT&T’s stock was about flat over last 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.

Verizon

Verizon announced that it will be modernizing some portions of its 100G (100 Gbps) metro optical network using networking gear from Cisco (NASDAQ:CSCO) and Ciena. The company did not go into specifics but said that the project was stated to go live in 2016.

In wireless news, Rootmetrics recently released a report which stated that Verizon led wireless carriers in overall performance and data speeds at airports in the second half of 2014. It managed to provide median upload speeds of 10 Mbps in 23 out of 50 airports tested by Rootmetrics, followed by T-Mobile (13) and AT&T (9). [1]

  • Verizon’s stock was down around 2% over the last 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 $200 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 plan to make it easy for potential customers to switch from their existing service providers. Sprint is offering to reimburse all costs, including early termination fees and pending payments on handset installment plans, for customers who switch to its network.

In network quality related news, Rootmetrics recently 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]

In other news, Sprint’s CEO Marcelo Claure recently stated that he was in favor of the FCC’s net neutrality laws. He said that without “light touch” regulation, the bigger players Verizon and AT&T were likely to drive it out of business. He also added that the net neutrality laws, in addition to the company’s agreements with rural carriers, were likely to help the carrier in bringing its roaming costs down and improve network coverage across the country.

  • Sprint’s stock dropped about 3% over the last 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 [↩] [↩]