Data Services Mean Big Bucks for Verizon, AT&T
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Demand for Internet data services is propelling growth in wireless services and helping mobile carriers' earnings appear bulletproof to a macroeconomic climate that is prompting layoffs, slashed budgets and spending cuts in other industries.
As one analyst said, wireless carriers, including AT&T and Verizon Wireless, are "immune" to the fallout from the national banking and mortgage fiasco, thanks to the uptake and demand for wireless data.
"It's just a superior way of communication, and personal mobile devices offer a compelling value," Roger Entner, an analyst with Nielsen IAG, told InternetNews.com. As a result, mobile device users aren't cutting back on buying new devices, or using Internet communication services such as texting or e-mail, said the analyst.
Entner also said he doesn't expect the two companies' earnings to fall next quarter, either.
The proliferation of new devices, such as Apple's iPhone, which AT&T (NYSE: T) lauded as a primary reason for its robust wireless financials this year, is a key aspect, said the analyst. Apple (NASDAQ: AAPL) unveiled the high-speed, 3G version of its iPhone earlier this year.
"Having plenty of new devices is attractive for the market," Entner said, adding that users grab new devices for many different reasons.
"Will we ever have enough pants to choose from? Smartphones and mobile devices have become expressions of ourselves -- they are status symbol," he said.
However, even if major mobile carriers are pushing new handsets, not every player may be able to translate them into healthy earnings, Entner said. For example, he surmised that many new AT&T and Verizon Wireless subscribers have likely been siphoned from third-place carrier Sprint and fourth-place player T-Mobile.
Sprint (NYSE: S) is struggling to retain and regain market share, and is due to report third-quarter financials on Nov. 4. It's been betting big on an expensive rollout of WiMAX, which the company sees as enabling Sprint to set itself in prime position to capitalize on even-faster, fourth-generation wireless broadband.
The financial impact of T-Mobile's exclusive distribution rights to the new Google G1 Android-based smartphone won't be known for months, as the open source platform device only hit shelves last week.
Meanwhile, AT&T reported third-quarter revenues of $31.3 billion, an increase of 4 percent versus the third quarter of 2007.
The growth reflects a 15.4 percent increase in wireless revenue, which totaled $12.6 billion for third quarter. AT&T's net income totaled $3.2 billion for the quarter, up from $3.1 billion from a year earlier.
The carrier also posted its biggest subscriber gain ever -- 1.7 million new customers, up nearly 40 percent from the third quarter of 2007. It said much of the increased customer base is due to 2.4 million iPhone 3G account activations during the quarter, 40 percent of which were new subscribers.
In a statement, the carrier said the iPhone, and other integrated devices it offers, crucial aspects to its success in grabbing subscribers and increasing services revenue.
AT&T's wireless data revenues grew 50.5 percent to $2.7 billion during third quarter, compared to the third quarter of 2007 -- a rise it said came due to increased messaging, e-mail and other Internet-related services. The carrier also said multimedia message volumes more than doubled in the past year, although it did not provide specific figures.
"I am particularly pleased with the customer response to the iPhone 3G," Randall Stephenson, AT&T's chairman and CEO, said in a statement earlier this week. "The new customers we're winning are high-value, with attractive revenue and churn profiles. We're expanding the market, as users adopt more data and media-rich services and access a wide array of applications."
AT&T's total subscriber base is now 74.9 million, the company said.
Verizon Wireless' executives are similarly glowing about their company's third-quarter financials. The joint venture of Verizon (NYSE: VZ) and Vodafone Group (NYSE: VOD) added 2.1 million customers in the third quarter and now has a total of 70.8 million subscribers. About 30 percent of the new customers were attracted by new smartphone devices the carrier now offers, according to its earnings report.
The carrier reported third-quarter net income of $1.67 billion, up from $1.27 billion a year earlier. Revenue increased 4.1 percent to $24.75 billion.
During its earnings call, Verizon Wireless executives took a jab at AT&T, saying that unlike the No. 1 U.S. carrier, Verizon is not dependent on a single device. For one reason, Verizon Wireless is the exclusive provider for the newest Research in Motion device, the BlackBerry Storm 9530. RIM and Verizon are expected to begin selling the BlackBerry Storm on Nov. 4.
"Although the capital markets and economy may present challenges, we will continue to execute on our business plan and invest for future growth," Verizon's chairman and CEO, Ivan Seidenberg, said in a statement.
According to its earnings report, Verizon Wireless customers sent or received more than 80 billion text messages and nearly 1.5 billion multimedia messages. Customers also completed 43 million music and video downloads, the company said.