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iPhone’s Competitors: Que Pasa?

Posted on Wednesday, Nov 28th 2007

In my earlier posts, I have written on the exclusive carrier of iPhone, AT&T and its rivals Verizon, Sprint Nextel, and T-Mobile. This post will look at these companies wrt each other and the impact of iPhone on their business after a full quarter of iPhone sales.

AT&T Inc. (NYSE:T) reported third-quarter revenues of $30.1 billion, up 2% q-o-q and 92% y-o-y driven by its growth in wireless revenues, enterprise services and regional business. EPS was $0.50, up 6.3% q-o-q and down 10.7% y-o-y. Its wireless operating income margin increased from 14.8% in Q3 2006 to 18.0%.

On 15 November, AT&T acquired Dobson Communications Corporation, a provider of rural and suburban wireless communications services in order to deliver broader wireless coverage. It has also agreed to buy spectrum licenses from Aloha Partners for $2.5 billion. It also expanded its alliance with IBM to be their primary network management services provider, which will see it adding approximately $1 billion in revenues.

In Q3, AT&T repurchased 50.5 million of its shares for $2.0 billion. Its stock is trading around $36 after hitting a 52-week high of $42.97 on September 27. Market cap is around $220.5 billion.

Verizon Communications Inc. (NYSE:VZ) reported Q3 operating revenues of $23.8 billion, up 5.8% y-o-y. Its EPS was 44 cents, down 17% y-o-y. It also repurchased nearly $800 million of its shares in the quarter and $1.7 billion in the last nine months. It is increasing the 2007 target for its share repurchase program to $2.5 billion. Its stock is trading around $41 after hitting a 52-week high of $46.24 on October 11. Market cap is around $119 billion. Verizon made a big announcement to open up its platform yesterday, an interesting move.

AT&T Inc. (T)

Sprint Nextel Corp.(NYSE: S) reported Q3net operating revenue of $10 billion (down 4% y-o-y and 1% q-o-q) and profit of $64 million or 2 cents per share), down 77% y-o-y mostly due to lower wireless revenue. Wireless revenues were $8.7 billion, down 1.1% q-o-q and 4.3% y-o-y. It spent $432 million to purchase shares in Q3. Its stock is trading around $14.6 after hitting a 52-week low of $14.67 on November 19. Its market cap is around $41 billion.

For Q3, T-Mobile USA reported $1.41 billion in Operating Income Before Depreciation and Amortization (OIBDA), up 15.1% y-o-y and 1.4% q-o-q. It also announced plans to acquire SunCom Wireless to enhance its network coverage in southeastern US. In October, it signed a deal with Nokia Siemens Networks to transfer Vivento Technical Services at the turn of the year. Deutsche Telekom AG (NYSE: DT) is trading around $22 after hitting a 52-week high of $22.58 on November 20. Its market cap is around $94.5 billion.

Apple recently reported the sale of 1,389,000 iPhones in 2007 and 1,119,000 in Q3. This could account for a majority of AT&T’s net additions in Q3. It added 2 million wireless subscribers to reach 65.7 million while Verizon at No.2 added 1.6 million to reach 63.7 million total customers. Sprint Nextel has 54 million customers and its gain in CDMA subscribers were offset by customer losses on iDEN. T-Mobile added 857,000 customers to reach 28 million customers.

Verizon has the lowest postpaid churn rate at 0.96 and also leads the industry with the highest wireless revenue of $11.3 billion (up 4.4% q-o-q and 14.4% y-o-y). For ATT, churn is 1.7% (up from 1.6% in Q2) and wireless revenue is $10.9 billion (up 4.8% q-o-q and 14.4% y-o-y). Sprint churn is 2.3% (up from 2% in Q2) and wireless revenues were $8.7 billion (down 1 % q-o-q and 4% y-o-y). For T-Mobile, churn is 2% (up from 1.8% in Q2) and service revenue was $4.33 billion (up 3% q-o-q and 16% y-o-y).

The iPhone is helping ATT widen its lead against Verizon and other rivals. However, Verizon is soon releasing LG’s Voyager, its answer to the iPhone. It has an on-screen, virtual keypad and also a QWERTY keyboard. It uses the faster 3 G EV-DO technology to connect to the Internet. It would be interesting to see if the tables turn in the next quarter.

T-Mobile on the other hand has launched the iPhone in Germany for €399 ($585) on November 9.

Sprint seems to be the worst affected. It is behind plans to build a new network, is losing customers and in October, its CEO Gary Forsee resigned. However, it has recently launched the new Palm Centro and the LG, Rumor and plans to introduce the Touch by HTC in the next quarter. It will also introduce several new iDEN Direct Connect devices. For its turnaround, it plans to start with improving the customer experience and simplifying the business and distribution.

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