Weekly Telecom Notes: AT&T, Verizon and Sprint

by Trefis Team
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The past week saw quite a few developments on most carrier fronts in the telecom sector. AT&T (NYSE:T) announced that it was selling off 53% stake in its Yellow Pages business to private equity firm, Cerberus Capital Management LP. Sprint (NYSE:S) is bringing out its $100 LTE-capable smartphone, LG Viper, for pre-order today and has also announced that it will continue to offer unlimited data plans on its LTE network whenever it gets ready. Meanwhile, following in AT&T’s footsteps, Verizon (NYSE:VZ) has decided to impose a activation fee of $30 on smartphone upgrades starting April 22nd.

AT&T

AT&T announced on Monday the sale of a majority stake in its advertising and publishing division to private equity firm, Cerberus Capital Management LP, for a total of $950 million in cash and debt. After the completion of the sale, AT&T will only hold a 47% stake in the division more popularly known as Yellow Pages. [1] The depressed valuation at which AT&T has had to sell the business shows its desperation in getting rid of a non-strategic business that has seen falling revenues in the face of increasing competition from online rivals such as Google (NASDAQ:GOOG) and Yelp(NYSE:YELP).

According to our valuation estimates, the advertising and publishing division accounts for about 2.2% of AT&T’s business value. At the current AT&T market capitalization of about $180 billion, the valuation of the yellow pages division comes to around $3.9 billion. However, at $950 million for a 53% stake sale, AT&T has had to value the Yellow Pages division at only $1.8 billion, less than half of our estimates, in order to find a buyer. (To know how low a valuation that is, read AT&T Ditches Majority Stake in Yellow Pages In A Desperate Move)

See our complete analysis for AT&T

Verizon

Verizon, which was until recently the only remaining carrier to not charge an upgrade fee, finally took the bait this week and announced that it will charge a $30 fee for all phone upgrades starting April 22nd. With this announcement, Verizon joins the rest of the top U.S. national carriers in charging upgrade fees of one kind or the other to soften the impact of smartphone subsidies. Smartphones have turned into a double-edged sword for the U.S. wireless industry, with the top 3, Verizon, AT&T and Sprint seeing their margins contract heavily as the smartphone boom takes over. (see Verizon Introduces Smartphone Upgrade Fee; Looking For iPhone Subsidy Relief)

Verizon’s upgrade fee hike follows AT&T’s hike in February and Sprint’s in September last year. The cheapest of the lot is T-Mobile, which still charges $18 for the same. While carriers are afraid to lower the subsidies on offer since that may have an adverse impact on their smartphone sales, it seems that they see it more prudent to increase the prices of the fringe services that they offer instead. How long that is going to last is anybody’s guess. But looking at the trend, it does seem that the industry is heading towards lower subsidies eventually.

See our complete analysis for Verizon


Sprint

With Verizon and AT&T aggressively promoting their LTE plans, Sprint is fighting for attention despite lagging in the LTE race. The third largest carrier in the U.S. may not yet have an LTE network up and running, but that is not stopping it from announcing new LTE-capable smartphones and confirming that its unlimited data plans will apply to LTE phones as well.

Last week, Sprint launched the HTC 4G EVO and some of the device’s features seem pretty novel and interesting (HD Voice, Beats Audio, etc). As an answer to the low-cost LTE smartphones that rivals are launching, Sprint is also launching a $100 LTE phone, the LG Viper, for pre-order today. Moreover, the company has also announced that it will extend its Everything Data unlimited data plan offering to smartphones that run on its LTE network as well for no additional charge. With these offers, Sprint hopes to ween away a few subscribers from rival carriers long enough so as to absorb them when its own LTE network is ready. (see Sprint Promotes LTE Phone, Unlimited Data Plan Despite Lacking 4G Service)

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Notes:
  1. AT&T To Sell Advertising Solutions and Interactive Business Units to Cerberus, AT&T Press Release, April 9th, 2012 []
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