Not to belabor the obvious, but 2008 was a brutal year for the stock market. And while the wireless industry seemed to be withstanding the current economic downturn better than most segments, there was still blood to be let.
The RCR Wireless Stock Watch, which tracks more than 80 publicly-traded companies associated with the wireless industry, dropped nearly 50% in 2008 from nearly 4,100 on Jan. 2 to 2,351 at the close of business on Dec. 30.
For most of the industry’s biggest players, the carriers, declines varied from modest to frightening.
The industry’s No. 1 operator AT&T Mobility, which trades under the umbrella of parent company AT&T Inc., started 2008 with its stock price reaching $41.92 per share. However, at the end of December, AT&T’s stock was down to 28.06 per share, a drop of around one-third. Verizon Wireless, which trades under the umbrella of parent company Verizon Communications Inc., saw a slightly smaller decline. Verizon’s stock was selling stock for just over $44 per share when the year started, but by year-end had dropped to just over $33 per share, or a 25% decline. T-Mobile USA Inc.’s parent company Deutsche Telekom AG witnessed a similar decline falling from around $22 per share to start the year to just over $15 by year’s end.
Sprint Nextel Corp., which is the largest pure-play wireless carrier trading on the stock market, witnessed the most dramatic free-fall as its stock price plummeted from just over $13 per share to less than $2 per share by the end of 2008.
Save for Sprint Nextel, which was hounded all year by declining customer growth, the declines came despite carriers’ posting near-record levels of customer growth and robust revenues.
Wireline overhang
Bill Ho, analyst with Current Analysis, pointed out that for big carriers, such as Verizon Wireless and AT&T Mobility, these prices cannot directly reflect the wireless business. Companies such as these two are encompassed also by its wireline and landline services, which happens to be suffering currently.
“You have to consider that AT&T and Verizon stocks are much more than wireless so it may not be an entirely apples to apples comparison,” Ho said. “The wireline sides affect the stock as well.”
A dwindling stock price doesn’t mean that hope is lost anyways, at least not according to Strategy Analytics. The research firm expects cellular subscription penetration in the U.S. will have reached 90% by the end of 2008 and foresees 293 million subscriptions by the end of 2009, a 94% penetration. Besides, stock prices sometimes have not as much to do with performance as one might think, said Keith Mallinson, president of Wise Harbor.
“Stock prices are governed by expectations for growth,” Mallinson said. “There’s an expectation in the market that things will get better and better. But with a recession, they have to modify those expectations.”
Spreading the pain
Outside of the top four carriers, however, news wasn’t much better. U.S. Cellular Corp., Leap Wireless International Inc. and Virgin Mobile USA Inc. all saw stock prices fizzle. Leap’s stock price lost nearly half its value during the year dropping from just over $47 per share to around $26 per share; U.S. Cellular’s stock dropped more than 50% from nearly $86 per share to around $42 per share; while Virgin Mobile USA saw the steepest percentage decline with its stock price plummeting from more than $9 per share to less than $1 by year’s end.
Bright spot among regional players? That would be MetroPCS Communications Inc., which saw its stock loss a modest 25% of its value during the year. (Other bright spots could be those regional operators that were acquired during the year, including Rural Cellular Corp. and Centennial Communications Corp., which were bought at healthy premiums to their trading prices.)
What the deuce?
So what gives? Todd Day, mobile industry analyst with Frost & Sullivan, said it might not be directly related to a carrier’s performance, but just the uncertainty of the economy.
“It’s obviously affecting them, especially in terms of stock price,” Day said. “People are not wanting to buy stock overall. They are skeptical of buying right now.”
But should the lowered prices be indicative of carriers’ business choices? Day noted that the industry is suffering when it comes to its enterprise services.
“They’re [enterprises] suffering and I think that tends to carry over a little bit into the wireless sector,” Day said. “As companies cut back on the number of employees, they cut back on cellphones and actual services, limiting it to more of just e-mail as opposed to data services. Enterprises may affect some of the larger tier-one carriers.”
Susan Welsh de Grimaldo, analyst with Strategy Analytics, agreed, noting that corporations and businesses were beginning to change their wireless needs and spending, which impacted carriers throughout 2008. U.S. cellular subscription growth was significantly slower than in 2007, she said, with just under 17 million net adds as compared to 21.5 million in 2007.
“The largest contributor to the slowing growth in 2008 was a 44% drop in multiple subscriptions, as businesses find smart devices with multiple functionality a good solution rather than using one device for voice and another for e-mail,” Welsh de Grimaldo said.
