Cingular Wireless L.L.C. is reaping the benefits of its acquisition of the former AT&T Wireless Services Inc., company officials said-even as the company prepares for the merger of its two parent companies and a return to the AT&T Wireless brand.
Cingular reported its highest-ever net income of $847 million, increased its average revenue per user slightly and added 1.4 million net new subscribers during the third quarter. The carrier’s churn rate improved from 2.3 percent during the third quarter of 2005 to 1.8 percent this year, but increased sequentially from the 1.7 percent posted during the second quarter.
Meanwhile, the company said it finished integrating its GSM network and billing system and has rolled out its UMTS/HSDPA mobile broadband network to 115 cities. Cingular also plans to roll out new, thin 3G devices in time for the holiday sales rush.
“We are at a watershed point and are well on our way to achieving industry-leading metrics,” said Pete Ritcher, Cingular’s chief financial officer.
The nation’s largest wireless carrier saw significant growth in prepaid users. Of its 1.4 million customer additions, about 930,000 were postpaid and nearly 260,000 were prepaid; the remainder came through resellers.
Ralph de la Vega, Cingular’s chief operating officer, told analysts that the growth was partially due to the carrier’s launch of a “new generation of low-cost handsets” such as the heavily promoted Pantech C300, a tiny, camera-equipped flip phone.
“Prepaid is just on a roll right now,” de la Vega said, adding that the momentum is expected to continue into the fourth quarter.
As far as churn, company executives cited several reasons for the slight sequential increase, including seasonality, the rationalization of its prepaid platform and initiatives to shift customers from its TDMA network to its GSM network. De la Vega said that Cingular sees churn improvements for about six months after integrating markets, and that the integration-related churn improvement may outweigh the impact of its ongoing TDMA transition.
Cingular wants to turn off its TDMA network in early 2008 and recently began charging TDMA customers an additional $5 fee per month, and said the move may bump up churn in the short-term. According to Cingular, 3.6 million customers are still using TDMA handsets, but account for only 1 percent of the carriers network traffic.
Cingular’s service revenue was up about 12 percent year-over-year, to nearly $8.7 billion. Total revenue was up more than 9 percent to about $9.6 billion. ARPU was up 0.2 percent compared with the same period last year, from $49.65 to $49.76 and beat analysts’ expectations. Data ARPU boomed by 46 percent compared with 2005’s third quarter, making up $6.32 percent of ARPU.
However, Ritcher noted the ARPU growth that Cingular is seeing comes from the use of its 2G technology-not its fledgling UMTS/HSDPA network. That new network “gives us a platform for even greater growth,” Ritcher said.
Analyst John Byrnes of Technology Business Research Inc. wrote that Cingular’s results “are further proof that the company is successfully staking out a strong position in the postpaid retail market.” He added that “Sprint Nextel [Corp.] and T-Mobile USA [Inc.] are likely to have difficulty keeping pace with Verizon [Wireless] and Cingular as overall industry growth slows.”
Company executives said they were preparing for AT&T Inc.’s pending acquisition of BellSouth Corp., but de la Vega said that Cingular expects “a very slow and deliberate transition for Cingular, to make sure that we don’t disrupt the very important fourth quarter.”
The Federal Communications Commission has yet to vote on the merger proposal.
