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AT&T (T) Industry Analysis

T
AT&T-industry-analysis

Telecom Industry includes companies that provide telephone, cable and satellite television, and internet broadband services. AT&T is the largest player in the telecom market, closely followed by its rival, Verizon Communications. At present, Verizon has the highest number of postpaid subscribers—93 million. AT&T stands at a 70 million postpaid subscriber count, but continues to have an upper hand in the total wireless subscriber count, standing at 10 million more subscriptions than that of Verizon’s figures. Two major trends can be seen in Telecom Industry: 1) there is increasing usage of mobile data due to rising smartphone and tablets and, 2) more and more people are now using their smartphones to make calls. This has resulted in Wireline revenue decreasing as Wireline subscribers switch to Wireless usage.

AT&T Industry Analysis

The telecom industry includes companies that provide telephony, cable and satellite television and internet services. The industry maintains and provides access to facilities that transmit data in various formats over multiple mediums.

The industry as a whole is moving towards implementing 4th Generation Long Term Evolution (4G LTE) networks to provide fast, mobile and on-demand services that are capable of handling large amounts of data. 4G, a successor to 3G networks is an industry standard for wireless telecommunication that allows for faster communication on multiple mediums such as voice, data and video.

Industry Statistics*:

            Wireless

  • Industry Revenues - $185 billion
  • Connections – 326 million
  • Monthly estimated Average Revenue Per User (ARPU) - $48.73
  • Smartphone penetration – 61%

Wireline**

  • Total wireline connections – 141 million
  • High speed internet connections – 90.7 million
  • Basic cable TV subscribers – 56 million

*Includes US data for the year ended 2012
** Includes telephony, internet and TV services

Key Players

As measured by market capitalization:

  • AT&T - $177 billion
  • Verizon Communications - $132 billion
  • Sprint Communications* - $25.5 billion
  • T-Mobile US- $17.5 billion

*Data for Sprint Communications is limited and not represented where unavailable due to its merger with SoftBank Corp. in the first half of 2013.

AT&T has the largest share of the wireless subscriber market with 107 million to Verizon’s 98 million subscribers. However Verizon leads in the postpaid wireless segment with 93 million subscribers.

Service Comparison

May-13

AT&T

Sprint

T-Mobile

Verizon

Monthly Plan Costs

Voice: $39.99-$69.99

Voice: $39.99-$99.99

Voice: $50

Voice: $39.99-$69.99

Data: $15-$25

Data: $10

Data: $0-$20

Data: $30-$80

Texts: $5-$20

Texts: Included

Texts: Included

Texts: $5-$20

Contract Length

2 years

2 years

None

2 years

Early Termination Fee

$325,

$350,

-

$350,

reduces by

reduces by

reduces by

$10/month under

$10/month under

$10/month under

contract

contract

contract

Insurance

$6.99/month

n/a

$11.99/month

$10.99/month

Sales Growth - Sales grew for all the major players in 2012. T-Mobile and Sprint saw the largest growth; however AT&T lagged behind the industry significantly with a mere half percent increase. Disappointing iPhone sales and increased competition in the lower end pre-paid services from T-Mobile led to a slowdown in revenue growth in 2012.

Net Additions – The number of subscribers a carrier adds during a period.

Latest 3QFY13 wireless net additions in millions:

  • AT&T:0.989 million
  • Verizon Wireless: 1.06 million
  • Sprint: -0.36 million
  • T-Mobile : 1.02 million

Churn RateChurn rate refers to consumers who either discontinue their service with the carrier or switch to a competitor. Among AT&T’s largest competitors, T-Mobile has the highest attrition since the company has no lock-in clause. Verizon on the other hand, has the lowest churn rate.

Latest 3QFY13 total churn rate:

  • AT&T: 1.31%
  • Verizon Wireless: 1.28%
  • Sprint: 2.09 %
  • T-Mobile: 3.2%

Average Revenue per User (ARPU)ARPU is a measure of the revenue the company earns from each user. Sprint has the highest ARPU at $49.96. The company offers unlimited data and voice bundles compared to its competitors who charge based on usage limits.

Trends

Data is overtaking voice and wireless has surpassed wireline services. Larger companies within the industry now manage sophisticated databases and provide cloud computing services along with various other value added services. Verizon and AT&T have global networks that not only enable traditional telephony services, but also manage internet data traffic.

Wireless vs. Wireline -There is a continuing decline in the wireline segment as customers continue to switch to wireless, Voice over Internet Protocol (VoIP) and cable networks. Wireless now drives the majority of the industry’s revenues.

Voice vs. Data - Increasing adoption of smartphones, tablets, data-driven apps and inter-connected devices have created rising demand for mobile data. According to Ericsson total data and voice usage including uploads (UL) and downloads (DL) is expected to be 95% of mobile revenues by 2015.

The industry is trending towards increasing ARPU for wireless data with a five-year CAGR of 16%, whereas wireless voice ARPU has declined 7.8% over the same period.

61% of all US postpaid subscribers now own a smartphone and device-makers expect the trend to continue in the future.

Smartphone shipments have grown at a CAGR of 42.4% over the last five years.

70% of AT&T’s new postpaid wireless subscribers are smartphone users.

*(Latest 1QFY13)

Mergers & Acquisitions -

There has been a wave of acquisitions and attempted takeovers in recent years. The trend continues as companies try to acquire spectrum, expand their customer base and grow in a saturated market.

o   On October 20, 2013, Crown Castle International Corp. and AT&T Inc. decided to enter into an agreement, which when completed gave Crown Castle exclusive rights to approximately 9,700 AT&T towers for $4.85 billion in cash.

o   AT&T is also rumored to have examined the possibility of a takeover of Vodafone which will result in a new company with a market cap of $250 billion and over 500m subscribers worldwide.

o   Verizon Communications successfully raised $49 billion capital, the largest capital raise in history, to reach an agreement with Vodafone Plc to buy its 45% share in Verizon Wireless.

o   Sprint’s acquisition of the remaining 50% of Clearwire for $14 billion followed by its sale of controlling stake to SoftBank Corp.

o   T-Mobile’s acquisition of MetroPCS in 2013.

o   With its failed bid to acquire T-Mobile in 2011, At&T is still interested in further acquisitions and is looking at Vodafone Wireless’s European assets as a potential target.

Subsidies-

With the launch of AT&T Next, Verizon’s Edge and T-Mobile’s JUMP, the carriers are attempting to reduce the number of devices they sell at a subsidized cost. All these services allow subscribers to upgrade devices at least once and in some cases, twice a year. The customers however, have to pay for the device as part of a ‘service and device cost’ until the upgrade occurs. In Verizon’s case the device also has to be at least 50% paid off based on the actual value of the device before an upgrade is allowed.    



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